Q4 2023 Oportun Financial Corp Earnings Call

Operator: Welcome to Oportun's Financial Corporation and Larry Porter. For more information, visit our website at www.fema.gov.

Welcome to opportunity financial corporations fourth quarter 2023 earnings conference call.

Operator: Thank you, everyone. Have a great day. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye

All lines have been placed on mute to prevent background noise. After the Speakers' remarks, there will be a question and answer session. Today's call is being recorded.

Operator: 23 Earnings Conference. All lines have been placed on mute to prevent back-up. After the speaker's remarks, there will be a question and answer session. Today's call is for opening remarks and introductions. I'd like to turn the call over to Dorian Hare, Senior Vice President of Investment. Thanks and hello everyone.

For opening remarks, and introductions I'd like to turn the call over to Dorian here Senior Vice President of Investor Relations. Mr. Hair, you may begin.

Thanks, and Hello, everyone with me to discuss opportunities fourth quarter 'twenty to 'twenty. Three result, a rural Vazquez, Chief Executive Officer, and Jonathan Coblentz, Chief Financial Officer, and Chief administrative officer.

Dorian Hare: With me to discuss Opportunity's fourth quarter 2023 results are Raul Vazquez, Chief Executive Officer, and Jonathan Coblentz, Chief Financial Officer and Chief Administrative Officer. I'll remind everyone on the call or webcast that some of the remarks made today will include forward-looking statements related to our business, future results of operations and financial position, planned products and services, business strategy, expense savings measures, statements regarding our senior secured term loan, and plans and objectives of management for our future operations. Actual results may differ materially from those contemplated or implied by those forward-looking statements, and we caution you not to place undue reliance on these forward-looking statements.

I'll remind everyone on the call or webcast at some of the remarks made today will include forward looking statements related to our business future results of operations and financial position planned products and services business strategy expense savings measures statements regarding our senior secured term loan and plans and objectives are finished.

I meant for our future operations.

Actual results may differ materially from those contemplated or implied by those forward looking statements and requesting you not to place undue reliance on these forward looking statements.

Dorian Hare: A more detailed discussion of the risk factors that could cause these results to differ materially is set forth in our earnings press release and in our filings with the Securities and Exchange Commission under the caption, Risk Factors, including our upcoming Form 10-K for the year ended December 31, 2023. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events other than as required by law. Also on today's call, we will present both GAAP and non-GAAP financial measures, which we believe can be useful measures for period-to-period comparisons for our core business and which will provide useful information to investors regarding our financial condition and results of operations. A full list of definitions can be found in our earnings materials, available in the investor relations section on our website. Non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP.

More detailed discussion of the risk factors that could cause these results to differ materially are set forth in our earnings press release and in our filings with the Securities and Exchange Commission under the caption risk factors, including our upcoming Form 10-K for the year ended December 31st 2023.

Any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events other than as required by law.

Also on today's call, we will present, both GAAP and non-GAAP financial measures, which we believe can be useful measures for the period to period comparisons for our core business and which will provide useful information to investors regarding our financial condition and results of operations.

Full list of definitions can be found in our earnings materials are available at the Investor Relations section on our website non.

non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP.

Dorian Hare: A reconciliation of all non-GAAP to GAAP financial measures is included in our earnings press release, our fourth quarter 2023 financial supplement, and the appendix section of the fourth quarter 2023 earnings presentation, all of which are available on the investor relations section of our website at investor.opportun.com. In addition, this call is being webcast, and an archived version will be available after the call, along with a copy of our prepared remarks. With that, I will now turn the call over to Raul. Thanks, Dorian. And good afternoon, everyone.

A reconciliation of all non-GAAP to GAAP financial measures is included in our earnings press release, our fourth quarter 2023 financial supplement and the appendix section of the fourth quarter 2023 earnings presentation, all of which are available at the Investor Relations section of our website at Investor Dot opportune Dot com and.

In addition, this call is being webcast and an archived version will be available after the call along with a copy of our prepared remarks with that I will now turn the call over to roll.

Thanks, Dorian and good afternoon, everyone. Thank you for joining us today I'll discuss our fourth quarter performance and update you on our progress in key areas of the business let.

Raul Vazquez: Thank you for joining us. Today, I'll discuss our fourth quarter performance and update you on our progress in key areas of the business. Let me begin with four highlights of our Q4 performance. First, we generated revenue of $263 million to close full year 2023 with a record $1.1 billion, up 11%. Second, our Q4 annualized net charge-off rate was 12.3%, 50 basis points better than last year. In addition, for the first time since 2022, our quarterly net charge-offs, measured in dollars, were lower than the prior year. Third, our GAAP operating expenses were $129 million, down 15% year-over-year.

Let me begin with for highlights of our Q4 performance.

First we generated revenue of $263 million to close full year 2023, with a record $1.1 billion up 11%.

Second our Q4 annualized net charge off rate was 12, 3% 50 basis points better than last year. In addition for the first time since 2022 or orderly net charge offs measured in dollars were lower than the prior year.

Third our GAAP operating expenses were $129 million down 15% year over here.

Raul Vazquez: We met our stated GAAP OPEX goal for the quarter of $125 million when $7 million of non-recurring severance relating to cost actions announced on our Q3 earnings call were backed out. Finally, Adjusted Eventhought was $6 million and represented a $40 million year-over-year investment. Overall, our team executed well in the quarter, and Jonathan will provide more details on our Q4 performance shortly. Turning the page to 2024, I'm pleased that we're seeing early signs of a business recovery taking shape, driven by the strategic decisions and operational changes we made in 2024. I'll now share the three areas of improvement that I find most promising.

We met our stated GAAP opex schools for the quarter of $125 million with a $7 million of nonrecurring severance relating to cost actions announced on our Q3 earnings call.

Got it.

Finally, adjusted EBITDA was $6 million and represented a 40 million year over year increase.

Overall, our team executed well in the quarter and Jonathan will provide more details on our Q4 performance.

Turning to page to 2024, I'm pleased that we're seeing early signs of a business recovery, taking shape driven by strategic decisions and operational changes we made in 2023.

Now here are the three areas of improvement that I find most promising.

Raul Vazquez: I'll start with credit and the four positive dynamics we are seeing related to our credit performance. First, as you can see on slide six of our earnings presentation, loss rates are approximately 400 basis points lower for our front book of loans in comparison to our back book. As a reminder, the Back Book of Loans is loans originated prior to the first material tightening in July of 2020. The front book of L'Anse represents origination since... You can also see on slide 7 that the back book shrank to 21% of our own principal balance at the end of the fourth quarter but disproportionately accounted for 53% of our gross charge. The good news is that the impact of the backbook will continue to diminish throughout 2024 as we currently forecast our backbook to shrink to 3% of our own principal balance at the end of this year. Second, our 1 to 29 days delinquencies are below 2023. This bodes well for future 30-plus-day delinquency performance and, more importantly, short jobs in the second half of the year. The last time the early-stage buckets were running below the prior year was three years ago, when 2021 was below 2020.

I'll start with credit and for positive dynamics, we are seeing related to our credit performance.

First as you can see on slide six of our earnings presentation loss rates are approximately 400 basis points lower.

Our front book of loans in comparison to our back book.

As a reminder, the back book of loans or loans originated prior to the first material tightening in July of 2022.

The front book of loans represents origination since that.

You can also see on slide seven that the back book shrink to 21% of our own principle balance at the end of the fourth quarter, but disproportionately accounted for 53% of our gross charge offs.

Good news is that the impact of the back book will continue to diminish throughout 'twenty 'twenty four as we currently forecast our back book to shrink to 3% of our own principal balance.

End of this year.

Second our 1% to 29 days delinquencies are below 2023 levels. This bodes well for future 30, plus day delinquency performance and more importantly charge offs in the second half of the year.

The last time the early stage buckets were running below the prior year was three years ago when 2021 was below 2020.

Raul Vazquez: Third, Secured Personal Loans finished 2023 with annualized net charge-off levels that were approximately 350 basis points better than our unsecured personal loan product. We plan on growing our Secured Personal Loan portfolio this year as part of our strategic priority to identify sources of high-quality origination. Finally, just over a year ago, we launched our integrated Opportun mobile app by leveraging the Digit Savings App platform. We now know that borrowing members who use our app have exhibited approximately 45% lower 30-plus-day delinquencies three months post-disbursement than those who have not yet signed up to use the app. We plan to increase the visibility, promotion, and adoption of our mobile app in 2020.

Third secured personal loans finished 2023 with annualized net charge offs levels that were approximately 350 basis points better than our unsecured personal loan product with.

We plan on growing our secured personal loan portfolio. This year as part of our strategic priority to identify sources of high quality originations.

Finally, just over a year ago, we launched our integrated opportune mobile app by leveraging that did you see things that platform.

We now know that borrowing members could use our app have exhibited approximately 45% lower 30, plus day delinquencies three months post disbursing and those who have not yet signed up to use the app.

We plan to increase the visibility and promotion and adoption of our mobile App in 2024.

Raul Vazquez: Improving credit outcomes is a key priority, so we will continue our conservative underwriting stance and focus on enhancements to underwriting models, servicing efforts, and our mobile. The second promising area is expense. As I mentioned earlier, we met our Q4 OPEX goal, and, as you can see on slide 8 of our earnings presentation, we are significantly more efficient today than we were when we became a public company four years ago. Adjusted OPEX as a percentage of the average managed principal balance was appreciably down to 12.5% in Q4 2023 versus 18.1% in Q4 2021. Fortifying our core business and unit economics are our priorities for 2024, and I will share additional decisions we've made in these areas in a. The third and final promising area of improvement that I want to highlight is funding. Our most recent $200 million securitization, which closed in February, was 10 times oversubscribed.

Improving credit outcomes is a key priority. So we will continue our conservative underwriting stance and focus on enhancements to our underwriting models servicing efforts and our mobile app.

The second promising area is expense management.

As I mentioned earlier, we met our Q4 Opex call and as you can see on slide eight of our earnings presentation. We are significantly more efficient today than we were when we became a public company four years ago.

Adjusted Opex as a percentage of average managed principal balance was appreciably down to 12, 5% in Q4 2023 versus 18, 1% in Q4 2019.

Fortifying, our core business and unit economics for our priorities for 2024, and I will share additional decisions. We've made in these areas in a few minutes.

The third and final promising area of improvement that I want to highlight its funding.

Our most recent $200 million securitization, which closed in February was 10 times oversubscribed.

Raul Vazquez: At an 8.4% weighted average interest rate, its cost is 160 basis points less than the securitization we executed in October 2020. In my view, this signifies the confidence investors have in the credit quality of our originations as well as the improvement and strength of our business. Again, I'm encouraged by all these signs of improvement, but there's still work ahead to fully realize our business recovery.

And an eight 4% weighted average interest rate its cost is 160 basis points less than the securitization we executed in October 2023.

In my view it signifies the confidence investors have in the credit quality of our originations as well as the improvement and strength of our business model.

Again, I'm encouraged by all of these signs of improvement, but Theres still work ahead to fully realize our business recovery.

Raul Vazquez: To that end, we're announcing that we will continue to reduce our operating expenses this year by an additional $30 million on an annualized basis, bringing our total annualized cost reductions since Q2-22, when we first started our expense management efforts, to a substantial $240 million. The 2024 Full Year Guidance that Jonathan will share with you incorporates these actions, with lower OPEX levels generating significantly enhanced profitability. Finally, in order to execute our plans for 2024 and beyond, we recently completed two amendments, one to our residual facility and the other to our senior secured term loan. The amendment to our residual facility provides us with a three-month principal payment holiday and extends the term to January 2025. We will make principal payments on the Senior Secured Term Loan in an amount equal to the payments that would have been made on the residual.

To that end, we're announcing that we will continue to reduce our operating expenses. This year by an additional $30 million on an annualized basis, bringing our total annualized cost reductions since Q2 'twenty two when we first started our expense management efforts to our substantial $240 million.

The 'twenty 'twenty four full year guidance to Jonathan will share with you incorporates these actions with lower opex levels generating significantly enhanced profitability.

Finally in order to execute our plans for 2024 and beyond if we recently completed two amendments one to a residual facility and the other two are senior secured term loan the amendment to our residual facility provides us with a three months principal payment holidays and extended the term to January 2025.

We will make principal payments on the senior secured term loan in the amount equal to the payments that would have been made on the residual facility.

Jonathan Aaron Coblentz: The Senior Secured Term Loan Amendment reduces the minimum asset coverage ratio, which is the ratio of our unrestricted cash and equity in some of our financing facilities to the outstanding debt. We needed to lower the escalating levels of this covenant for 2024, which were set before 2023's higher-than-expected losses and lower originations caused by credit tightness. Given the scheduled increases in the asset coverage ratio covenant levels for the remainder of 2024 and into 2025, we are currently evaluating. In summary, after a very challenging 2023, I am confident that we are on the right path to achieving a stronger position, driven by the strategic decisions and operational changes we've announced today and have made over the last 12 months. With that, I will turn it over to Jonathan for additional details on our fourth quarter 2023 financial performance, as well as our first quarter and full year 2024. Thanks, Raul, and good afternoon, everyone.

The senior secured term loan amendment reduces the minimum asset coverage ratio, which is the ratio of our unrestricted cash and equity in some of our financing facilities to the outstanding debt.

We needed to lower the escalating levels of this covenant for 'twenty 'twenty, four which were set before 2023 is higher than expected losses, and lower originations caused by credit tightening.

Given the scheduled increases in the asset coverage ratio covenant levels for the remainder of 2024 and into 2025, we are currently evaluating refinancing options.

In summary, after a very challenging 2023 I am confident that we are on the right path to achieving a stronger position for the company driven by the strategic decisions and operational changes we've announced today and are made over the last 12 months.

With that I will turn it over to Jonathan for additional details on our fourth quarter 2023 financial performance as well as our first quarter and full year 2020 for guidance.

Thanks, Raul and good afternoon, everyone as Rob mentioned, we executed solidly in the fourth quarter. We are on track to substantially enhance our profitability in 2024 and beyond by being laser focused on our three differentiated core products alongside our ongoing cost reduction initiatives and our tight credit posture.

Jonathan Aaron Coblentz: As Raul mentioned, we executed solidly in the fourth quarter. We're on track to substantially enhance our profitability in 2024 and beyond by being laser-focused on our three differentiated core products alongside our ongoing cost reduction initiatives and our tight credit posture. As shown on slide 10, Opportun delivered total revenue of $263 million; however, the impact of net change in fair value and a higher interest expense drove an adjusted net loss of $21 million, or an adjusted loss per share of 54 cents. We continue to be focused on credit quality rather than quantity with originations of $437 million, which were down 28% year over year. sequentially, originations were down 9% from the third quarter, with further tightening of our credit posture dominating traditional seasonal patterns for origination growth.

As shown on slide 10, opportune delivered total revenue of $263 million the impact of that change in fair value in a higher interest expense drove an adjusted net loss of $21 million or an adjusted loss per share of 54 cents. We continue to be focused on credit quality rather than quantity with.

Originations of $437 million, which were down 28% year over year sequentially originations were down 9% from the third quarter with further tightening of our credit posture dominating traditional seasonal patterns for origination scrap despite lower originations total revenue.

Was virtually flat year over year due to 100 basis points higher portfolio yield, resulting from our pricing increases along with higher noninterest income.

Our credit tightening actions led to lower originations than previously anticipated, causing us to fall short of our 200 basis points year over year increase target. However, I am pleased that our Q4 risk adjusted portfolio yield which includes charge offs increased year over year by a strong 155.

Jonathan Aaron Coblentz: Despite lower originations, total revenue was virtually flat year over year due to 100 basis points higher portfolio yield resulting from our pricing increases along with higher non-interest income. Our credit-tightening actions led to lower originations than previously anticipated, causing us to fall short of our 200 basis points year-over-year increased target. However, I am pleased that our Q4 risk-adjusted portfolio yield, which includes charge-offs, increased year-over-year by a strong 155 basis points. We will continue to enhance yield while remaining committed to our 36% APR cap. Net revenue was $72 million, down 50% year-over-year due to unfavorable fair value mark-to-market adjustments and higher interest expense. Our total net decrease in fair value of $139 million was primarily driven by current period charge-offs of $91 million.

Basis points, we will continue to enhance yield while remaining committed to our 36% APR cap.

Revenue was $72 million down 50% year over year due to unfavorable fair value mark to market adjustments and higher interest expense. Our total net decrease in fair value of $139 million was primarily driven by current period charge offs of $91 million.

Marks on loans sold of $31 million and a mark to market adjustment on our asset backed notes of $24 million, partially offsetting these unfavorable fair value drivers the mark to market adjustments on our loan portfolio increased by $14 million due to a 60 basis points sequential increase in our loan portfolio.

He is fair value to 102% odd.

On a decline in discount rate before continuing I want to point out a change we've made in the presentation of our loans receivable at fair value on the balance sheet. We previously recorded in accrued interest and fees separately on the balance sheet and now. These are included in loans receivable at fair value. We made this change to our financial presentation would be.

Jonathan Aaron Coblentz: Marks on loans sold of $31 million and a mark-to-market adjustment on our asset-backed notes of $24 million. Partially offsetting these unfavorable fair value drivers, the mark-to-market adjustments on our loan portfolio increased by $14 million due to a 60 basis points sequential increase in our loan portfolio's fair value to 102% on a decline in the discount rate. Before continuing, I want to point out a change we've made in the presentation of our loans receivable at fair value on the balance sheet. We previously recorded accrued interest and fees separately on the balance sheet, and now these are included in loans receivable at fair value.

Be more consistent with other companies that fair value. Their lives we have updated our historical balance sheet to reflect this change to be clear none of our aggregate numbers have changed we've only combined two balance sheet line items. So this is a re class and not a restatement given this change the fair value prices for our loans now include the accrued interest.

And fees and that's reflect higher figures and the prices excluding accrued interest and fees that we have quoted in the past.

Interest expense of $52 million was up $16 million year over year. This was primarily driven by increased debt outstanding and the increase in our cost of debt to seven 1% versus four 8% a year ago period, reflecting the higher rate environment, turning now to operating expenses and efficiency we can.

Jonathan Aaron Coblentz: We made this change so our financial presentation would be more consistent with other companies that fair value their loans. We have updated our historical balance sheet to reflect this change. To be clear, none of our aggregate numbers have changed.

Jonathan Aaron Coblentz: We've only combined two balance sheet line items, so this is a reclass and not a restatement. Given this change, the fair value prices for our loans now include accrued interest and fees, and thus reflect higher figures than the prices excluding accrued interest and fees that we have quoted in the past. Interest expense of $52 million was up $16 million year over year.

You need to see the benefits of our previously announced cost structure optimization initiatives are $129 million in total operating expenses in Q4.

Today, 15% reduction from the prior year period and included a $7 million nonrecurring charge for severance related to our previously announced head count reductions we.

We made significant strides through 2023 and improving our quarterly operating expense run rate and we will continue to drive our cost structure lower in 'twenty 'twenty four with the $30 million of additional annualized operating expense reductions that Rahul announced partially enabled by our streamlined product suite, we're now targeting 97.

Jonathan Aaron Coblentz: This was primarily driven by increased debt outstanding and an increase in our cost of debt to 7.1% versus 4.8% in the year-ago period, reflecting the higher rate environment. Turning now to operating expenses and efficiency, we continue to see the benefits of our previously announced cost structure optimization initiatives. Our $129 million in total operating expenses in Q4 reflected a 15 percent reduction from the prior year period and included a $7 million nonrecurring charge for severance related to our previously announced headcount reduction. We made significant strides through 2023 in improving our quarterly operating expense run rate, and we will continue to drive our cost structure lower in 2024 with the $30 million of additional annualized operating expense reductions that Raul announced.

$5 million in Q4, GAAP operating expenses.

In the fourth quarter, our sales and marketing expenses were just over $18 million down 15% year over year for the quarter. We recorded an adjusted net loss of $21 million compared to a $5 million net profit in the prior year quarter and adjusted net loss per share of 54 cents versus prior year.

Earnings per share of <unk> 14 cents that.

The decline in adjusted profitability was primarily driven by noncash fair value marks and higher interest expense adjusted EBIDTA, which excludes the impact of fair value Mark to market adjustments on our loan portfolio and our notes was $6 million in the fourth quarter. This reflected a strong year over year increase of $40 million.

Jonathan Aaron Coblentz: Partially enabled by our streamlined product suite, we are now targeting $97.5 million in Q4 GAAP operating expenses. In the fourth quarter, our sales and marketing expenses were just over $18 million, down 15% year over year. For the quarter, we recorded an adjusted net loss of $21 million compared to a $5 million net profit in the prior year quarter and adjusted net loss per share of $0.54 versus prior year net earnings per share of $0.14. The decline in adjusted profitability was primarily driven by non-cash fair value marks and higher interest expense.

Driven by our sharply reduced cost structure.

Now on Slide 11, let me discuss Q4 credit performance, our annualized net charge off rate of 12, 3% was at the midpoint of our guidance range. This compared to 12, 8% in the prior year period, our 30, plus day delinquency rate increased year over year by 30 basis points to five 9%. In addition.

To what Raul mentioned earlier on one to 29 day delinquencies improving we've recently seen our 30 plus delinquency rates begin to decline and we expect this trend to continue based upon data through last week, we expect the first quarter 30, plus day delinquency rate to be between 5.1% and five.

Jonathan Aaron Coblentz: Adjusted EBITDA, which excludes the impact of fair value mark-to-market adjustments on our loan portfolio and our notes, was $6 million in the fourth quarter. This reflected a strong year-over-year increase of $40 million, driven by our sharply reduced cost structure. Now on slide 11, let me discuss Q4 credit performance. Our annualized net charge-off rate of 12.3% was at the midpoint of our guidance range. This compared to 12.8% in the prior year period. Our 30 plus day delinquency rate increased year over year by 30 basis points to 5.9%.

3%.

These improved delinquency trends are not surprising given the percentage of underwritten loans with vantage scores of 660 or greater increased to 51%. During Q4 23 up from 33% for Q2 'twenty two prior to the start of our tightening actions.

Regarding our capital and liquidity net cash flow from operations for the fourth quarter remained near record levels at $106 million up 20% year over year.

Furthermore, I'm pleased that our resilient top line performance and sharply reduced cost structure allowed for this operating cash flow to fully finance, our $97 million in cash used in investing activities, principally loan disbursements net of repayments and that debt repayment of $3 million.

Jonathan Aaron Coblentz: In addition to what Raul mentioned earlier about 1 to 29 day delinquencies improving, we've recently seen our 30 plus delinquency rates begin to decline, and we expect this trend to continue. Based upon data through last week, we expect the first quarter 30 plus day delinquency rate to be between 5.1% and 5.3%. These improved delinquency trends are not surprising, given the percentage of underwritten loans with vantage scores of 660 or greater increased to 51% during Q4'23, up from 33% for Q2'22 prior to the start of our tightening action. Regarding our capital and liquidity, net cash flow from operations for the fourth quarter remained near record levels at $106 million, up 20% year over year. Furthermore, I'm pleased that our resilient top-line performance and sharply reduced cost structure allowed for this operating cash flow to fully finance our $97 million in cash used in investing activities, principally loan disbursements net of repayments, and net debt repayment of $3 million. As of December 31st, total cash was $206 million, of which $91 million was unrestricted and $115 million was restricted.

As of December 31st total cash was $206 million of which $91 million was unrestricted and $115 million was restricted further bolstering our liquidity was $409 million in available funding capacity under our warehouse lines and remaining hold on sale agreement capacity of 307.

$17 million.

And continuing to ensure that opportunities funded to grow in a responsible and sustainable fashion since quarter end, we closed a 200 million dollar asset backed securitization. This financing brings our total executed funding agreement since June to almost $1.2 billion.

Before I leave our discussion of capital and liquidity I want to inform you that we're making good progress evaluating strategic options for our credit card product and expect to have an update for you soon.

Before providing you with our initial guidance relating to 'twenty 'twenty four I wanted to update you on two changes we are making this year to the adjusted performance metrics, we provide to the investment community as shown on slide 13 first going forward, we will be excluding the impact of fair value mark to market adjustments on our asset.

[noise] back notes at fair value from adjusted net income and adjusted EPS second we are adjusting our calculation of adjusted EBITDA to be more in line with those of other companies in our space now let me share more detail with you regarding the rationale for each decision.

Jonathan Aaron Coblentz: Further bolstering our liquidity was $409 million in available funding capacity under our warehouse lines and remaining whole loan sale agreement capacity of $317 million. In continuing to ensure that Oportun is funded to grow in a responsible and sustainable fashion, since quarter end, we closed a $200 million asset-backed securitization. This financing brings our total executed funding agreement since June to almost $1.2 billion. Before I leave our discussion of capital and liquidity, I want to inform you that we're making good progress evaluating strategic options for our credit card product and expect to have an update for you soon. Before providing you with our initial guidance relating to 2024, I wanted to update you on two changes we are making this year to the adjusted performance metrics we provide to the investment community.

Our decision to update our adjusted net income calculation is driven by our election last year to stop fair valuing our new debt financings by the end of 2025, nearly all our existing asset backed notes at fair value will have been paid off so there will be no mark to market adjustments for our debt after that time between then and now we.

Spectra recognized on a GAAP basis $94 million of negative mark to market adjustments as our asset backed debt currently valued at 95% converges to par at maturity. This $94 million reduction in pretax earnings as a reflection of the higher interest rate environment, rather than an indicator of the health of our business.

So going forward, we will be back it out from our adjusted net income and adjusted EPS metrics. Additionally for adjusted net income beginning in Q1, 'twenty four we will no longer be adding back acquisition and integration related expense since our acquisition of digit closed over two years ago.

Jonathan Aaron Coblentz: As shown on slide 13, first, going forward, we will be excluding the impact of fair value mark-to-market adjustments on our asset-backed notes at fair value from adjusted net income and adjusted EPS. Second, we are adjusting our calculation of adjusted EBITDA to be more in line with those of other companies in our space. Now, let me share more detail with you regarding the rationale for each decision.

With respect to adjusted EBITDA, we are simplifying our calculation to be more consistent with the calculations of other companies in our space going forward, we will no longer adjust for origination fees net since this is not an adjustment we see other companies, making in their calculation of adjusted EBITDA originations on our loans are fully earn.

Jonathan Aaron Coblentz: Our decision to update our adjusted net income calculation is driven by our election last year to stop fair valuing our new debt financings. By the end of 2025, nearly all our existing asset-backed notes at fair value will have been paid off, so there will be no mark-to-market adjustments for our debt after that time. Between then and now, we expect to recognize on a gap basis $94 million of negative mark-to-market adjustments as our asset-backed debt, currently valued at 95%, converges to par at maturity. This $94 million reduction in pre-tax earnings is a reflection of the higher interest rate environment, rather than an indicator of the health of our business.

And at the time of disbursement and are nonrefundable, and we no longer feel that we need to adjust our EBITDA to reflect the timing difference and the receipt of that cash had.

Had we applied these changes for 2023 reporting full year adjusted net income would have been $53 million higher at an adjusted net loss of $71 million. However had we applied these changes for 2022 reporting full year adjusted net income would have been 152.

Slower at an adjusted net loss of $83 million full year adjusted EBITDA for 2023 would've been $17 million higher at $19 million, while full year adjusted EBITDA for 2022 would have been $27 million higher at $17 million.

Jonathan Aaron Coblentz: So going forward, we will be backing it out from our adjusted net income and adjusted EPS metrics. Additionally, for adjusted net income, beginning in Q1 2024, we will no longer be adding back acquisition and integration-related expenses since our acquisition of Digit closed over two years ago. With respect to adjusted EBITDA, we are simplifying our calculation to be more consistent with the calculations of other companies in our space. Going forward, we will no longer adjust for origination fees net, since this is not an adjustment we see other companies making in their calculation of adjusted EBITDA.

Turning now to our guidance as shown on slide 14, our outlook for the first quarter as total revenue of $233 million to $238 million annualized net charge off rate of 12.1% plus or minus 15 basis points adjusted EBITDA of negative 14 to negative 12 million.

Yeah.

Jonathan Aaron Coblentz: Originations on our loans are fully earned at the time of disbursement and are non-refundable, and we no longer feel that we need to adjust our EBITDA to reflect the timing difference in the receipt of that cash. Had we applied these changes for 2023 reporting, full-year adjusted net income would have been $53 million higher at an adjusted net loss of $71 million. However, had we applied these changes for 2022 reporting, full year adjusted net income would have been $152 million lower at an adjusted net loss of $83 million. Full year adjusted EBITDA for 2023 would have been $17 million higher at $19 million, while full year adjusted EBITDA for 2022 would have been $27 million higher at $17 million.

Our guidance for the full year is total revenue of $975 million to $1 billion annualized net charge off rate of 11.9% plus or minus 50 basis points adjusted EBITDA of $60 million to $70 million with respect to our adjusted EBITDA guidance, which is.

<unk> on our new calculation basis. This guidance would've been negative 20 to negative $18 million for the first quarter of 2024 and $27 million to $37 million for full year 2024 had we not changed our calculation bill.

Before handing the call back to Raul to close I'd like to share with you. What we believe long term investor returns for opportunity could look like the unit economics of our personal loan business are quite strong at over 32% APR, even while we deliver value well in excess of what the alternatives are for our borrowing members.

Jonathan Aaron Coblentz: Turning now to our guidance, as shown on slide 14, our outlook for the first quarter is total revenue of $233 to $238 million, annualized net charge-off rate of 12.1% plus or minus 15 basis points, and adjusted EBITDA of negative 14 to negative 12 million dollars. Our guidance for the full year is total revenue of $975 million to $1 billion, an annualized net charge-off rate of 11.9% plus or minus 50 basis points, and adjusted EBITDA of $60 million to $70 million. With respect to our adjusted EBITDA guidance, which is on our new calculation basis, this guidance would have been negative $20 to negative $18 million for the first quarter of 2024 and $27 to $37 million for the full year of 2024 had we not changed our calculation.

Add to that noninterest income predominantly from our savings product and we see a 36% total revenue yield as a percentage of principal balance to be sustainable.

Conservatively, assuming an 8% cost of funds and 9% to 11% annualized net charge off rate, a 17% to 19% risk adjusted yield remains.

And assuming operating expenses over the long term of 12.5% of own principle balance, we see a 3% to 4% return on assets is attainable lastly, with a six to one debt to equity ratio enabled by our robust risk adjusted yield and diversified funding sources, we see the potential for.

Very strong 20, 28% of our ROE over the long term gives.

Jonathan Aaron Coblentz: Before handing the call back to Raul to close, I'd like to share with you what we believe long-term investor returns for Oportun could look like. The unit economics of our personal loan business are quite strong at over 32% APR, even while we deliver value well in excess of what the alternatives are for our borrowing members. Add to that non-interest income, predominantly from our savings product, and we see a 36 percent total revenue yield as a percentage of principal balance to be sustainable. Conservatively assuming an 8 percent cost of funds and 9 to 11 percent annualized net charge-off rate, a 17 to 19 percent risk-adjusted yield remains.

Given the significant changes and improvements we have made to strengthen our business and tightened our product focus we see ourselves making progress towards its goal over the next several years.

Raul back over to you.

Thanks, Jonathan before I wrap up I want to publicly welcome our two newest independent board members, Carlos Minetti and Mohit the Suwannee.

Joined opportunities board of directors in February.

Carlos Minetti has more than 35 years of experience in consumer lending and credit risks, including most recently as president of consumer banking and discover financial services a position he held from 'twenty 10 to.

Raul Vazquez: And, assuming operating expenses over the long term of 12.5% of the own principal balance, we see a 3-4% return on assets as attainable. Lastly, with a 6-1 debt-to-equity ratio enabled by a robust risk-adjusted yield and diversified funding sources, we see the potential for a very strong 20-28% ROE over the long term. Given the significant changes and improvements we have made to strengthen our business and tighten our product focus, we see ourselves making progress towards this goal over the next several years. Raul, back over to you.

For 2023.

Well, that's why he is the chief financial Officer.

Inc, and AI powered analytics company. Its prior experiences include executive roles at square and Paypal as well as time and the investment banking and private equity industries.

We are pleased to have them on the board and are already leveraging the backgrounds in consumer finance along with their extensive executive and public company experience.

While we still have work to do to establish the type of long term profitability. There Jonathan just talked about we've laid the foundation for recovery in 2023, and we expect 2024 to be a defining step in our journey towards sustainable profitable growth.

Raul Vazquez: Thanks, Jonathan. Before I wrap up, I want to publicly welcome our two newest independent board members, Carlos Minetti and Mohit Daswani, who joined Oportun's board of directors in February. Carlos Menetti has more than 35 years of experience in consumer lending and credit risk, including most recently as President, Consumer Banking, at Discover Financial Services, a position he held from 2010 to 2020. Mohit Daswani is the Chief Financial Officer of ThoughtSpot, Inc., an AI-powered analytics company. His prior experiences include executive roles at Square and PayPal, as well as time in investment banking and private equity.

From a strategy perspective, we are guided by our focus on Holistically addressing two of the most fundamental challenges to financial health and resilience.

Access to responsible and affordable credit and adequate savings.

We will do so with our streamline product assortment of personal loans secured personal loans and savings and by executing on our three top strategic priorities.

Proving credit outcomes fortifying, our business economics, and identifying high quality originations.

We are optimistic about 2024 due to our disciplined expense management February $200 million securitization and more importantly, the promising Q1 credit trends.

With that operator, let's open up the line for questions.

Raul Vazquez: We are pleased to have them on the board and are already leveraging their backgrounds in consumer finance, along with their extensive executive and public company experience. While we still have work to do to establish the type of long-term profitability that Jonathan just talked about, we've laid the foundation for recovery in 2023, and we expect 2024 to be a defining step in our journey towards sustainable, profitable growth. From a strategy perspective, we are guided by our focus on holistically addressing two of the most fundamental challenges to financial health and resilience: access to responsible and affordable credit and adequacy.

Thank you we will now be conducting a question and answer session.

I would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we pull for questions.

Yeah.

Yeah.

Thank you. Our first question comes from the line of Sanjay Sock Ronnie with K BW. Please proceed with your question.

Hi, does that take Steven Kwok filling in for Sanjay. Thanks for taking my question.

Operator: We will do so with our streamlined product assortment of personal loans, secured personal loans, and savings and by executing on our three top strategic priorities: improving credit outcomes, fortifying our business economics, and identifying high-quality origins. We are optimistic about 2024 due to our disciplined expense management, February's $200 million securitization, and, more importantly, the promising Q1 credit. With that, Operator, let's open up the line for

The first one around the credit quality.

Congrats on seeing the 30 plus day delinquency improved in the first quarter up 24, just was wondering as we look at the rate, but this year. It seems like it's still remains pretty elevated.

Within your guidance can you just talk about what's driving that you know whats the economic environment that you're assuming.

Sure. Stephen This is where I will nice nice to hear from you. So when we think about Q1 right. We're saying that we expect five one to $5 30 per cent D to use 30, plus delinquencies for Q1 that compares to last year's rate of five 5%. So.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate your line is in the question area. You may press star 2 if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key.

We're actually really optimistic about what we're seeing right now in terms of the full year guidance I think what youre seeing from US is just appropriately.

What we think is an appropriate level of conservatism. It's still early in the year. You know we're only 10 weeks ended the year. So we would hope that what we're seeing in terms of the early delinquencies right I mentioned that 1% to 29 day delinquencies are below the prior year, which hasn't happened in three years, we would expect that if it continues.

Operator: One moment, please, while we pull. Thank you. Our first question comes from the line of Sanjay Sakhrani with KBW. Please proceed with your question. Hi, this is actually Steven Kwok filling in for Sanjay.

The whole to translate into better loss performance in the second half of the year, Steven but right now what Youre seeing is just what we think is appropriately conservative guidance.

Got it and then I noticed you guys took further tightening credits in within the fourth quarter could you just talk about that and then help us think through the at the 2023 vintage if we were to use and adopt plotted against the 2022 and 2021 how.

Steven Kwok: Disperse around the credit quality and Greg Fontan. Thank you. Thank you. Bye.

Operator: I was wondering, as we look at the rates... It seems like it still remains pretty elevated. Talk about, you know, what's driving that. Sure, Stephen. This is Raul.

Raul Vazquez: So when we think about Q1, right, we're saying that we expect 5.1 to 5.3 percent DQs and 30-plus delinquencies for Q1. That compares to last year's rate of 5.5 percent. So we're actually really optimistic about what we're seeing right now. In terms of the full-year guidance, I think what you're seeing from us is just appropriately what we think is an appropriate level of conservatism given that it's still early in the year.

With that look at how would that look like today.

So in terms of just the tightening actions that we took in the last quarter one of the things that we continue to do is just take a look at could we go ahead and reduce loan sizes and terms in particular some of the larger loans say learn loans over $6000. We think that in this environment. It still makes sense to try to get a shorter loan.

<unk> with smaller loan amounts so that that's some of the tightening that we did and so far we are pleased with the results I think if you saw on page six of our earnings stack, where we plotted what the vintages look like on the front book, we liked the fact that Q1 Q2 and Q3 'twenty three are all below the lines of Q4 and Q3.

Raul Vazquez: You know, we're only 10 weeks into the year. So we would hope that what we're seeing in terms of early delinquencies, right? I mentioned that 1 to 29-day delinquencies are below the prior year, which hasn't happened in three years. We would expect that, if it continues to hold, to translate into better loss performance in the second half of the year, Stephen. But right now, what you're seeing is just what we think is appropriately conservative guidance. Got it. But then I noticed you guys took further tightening. Credits and within the fourth quarter. Could you just talk about that and then help? 2020. Advantage One, how would that look? How would that feel?

<unk> of 22, so we like the way that those vintages look on page six.

Stephen if you're asking me what would I expect the 2023 static pool.

Loss rates to look like I think it's a little early to project that but as you know we give an update every quarter on what their static pools look like so well I'll get to look at that over time.

Great. Thanks for taking my question.

Thank you Steven.

Yeah.

Okay.

Thank you. Our next question comes from the line of John Hecht with Jefferies. Please proceed with your question.

Raul Vazquez: So in terms of just the tightening actions that we took in the last quarter, one of the things that we continued to do was just take a look at whether we could go ahead and reduce loan sizes and terms, in particular some of the larger loans, say loans over $6,000. We think that in this environment, it still makes sense to try to give shorter loans with smaller loan amounts. So that's some of the tightening that we did, and so far, we are pleased with the results. I think if you saw on page 6 of our earnings stack, where we plotted what the vintages look like on the front book, we like the fact that Q1, Q2, and Q3, 23 are all below the lines of Q4 and Q3 of 22.

Yes.

I apologize I'm, just trying to kind of get my hand head around the.

Yeah.

Like the EBITDA reconciliation for the fiscal year 'twenty for guidance I mean, your you gave us like around a 50 million dollar loss.

Does that.

It looks like that does not include <unk>.

Mark to Mark.

You don't have any of the fair value marks including is that include the $94 million of the fair value Mark on the debt that you mentioned Jonathan.

I guess, John kidney pocket tell us what's in that $50 million net loss youre projecting.

Sorry, John This is Rob before I have.

Jonathan go ahead and dive into the question just to be clear are you talking about adjusted EBITDA or adjusted net income because we guided to adjusted EBIDTA, but I'm not sure. If your question is about the changes unadjusted net income.

Raul Vazquez: So we like the way that those vintages look on page 6. Stephen, if you're asking me what I expect the 2023 static pool loss rates to look like, I think it's a little early to project that, but as you know, we give an update every quarter on what those static pools look like, so we'll all get a look at that over time.

In the on Slide 33, you give a net loss as the.

The starting point to get to the adjusted EBITDA.

Operator: Thanks for taking... Thank you, Stephen. Thanks. Our next question comes from the line of John Hecht. Jeff...

Yeah.

Just wondering and it says no fair value Mark.

No that's fair value Mark to market adjustments will be in that net income net loss. So I'm wondering can you kind of bridge to us what's in that and what's not in that.

John Hecht: Please proceed with your question. Yeah, it's just, um... Apologize, I'm just trying to kind of get my hand, head around. Like the EBITDA reconciliation for the fiscal year 24 guidance. I mean, you're giving us around a $50 million loss. Does that, and it looks like that does not include... Mark to Mark, you don't have any Fair Value Mark. Does that include the $94 million of fair value mark on the debt that you mentioned, Jonathan? Or I guess, David, can you just tell us what's in that $50 million net loss you're projecting? Sorry, John, this is Raul.

Sure I'm happy to do that Jon and.

Yeah. This is the presentation, we've been using since last year for this reconciliation table.

Since we havent been guiding to adjusted net income.

Because some of the volatility in the marks this view of net losses is excluding and this is what that that start asterisk footnote says is excluding our forecast of the marks.

Raul Vazquez: Before I have Jonathan go ahead and dive into the question, just to be clear, are you talking about adjusted EBITDA or adjusted net income? Because we usually refer to adjusted EBITDA, but I'm not sure if your question is about the changes in adjusted net income. No, well, on slide 33, you give a net loss as the starting point to get to the adjusted EBITDA. And I'm just wondering, and it says no fair value mark, like no fair value mark to market adjustments will be in that net income or that net loss. So I'm wondering, can you kind of bridge the gap between what's in that and what's not? Sure, I'm happy to do that, John.

Right. So so yes. The that marks were positive this would be a higher number if in that March turned out to be negative it would be a lower number right, but adjusted EBITDA continues to fully back out all the marks like it has before.

It was so here, we're saying that.

We're expecting to have on the new calculation basis $60 million to $70 million of adjusted EBITDA for 2024.

Is that helpful.

Uh huh.

I, probably need some time to get my hands around this but did you mentioned something like a $94 million fair value adjustment on the debt between now and the end of the year.

Jonathan Aaron Coblentz: And this is the presentation we've been using since last year for this reconciliation table. Since we haven't been guiding to adjusted net income because of some of the volatility in the marks, this view of net losses is excluding, and this is what the starred asterisk footnote says, our forecast of the marks. Right. So if the net marks were positive, this would be a higher number. If the net marks turn out to be negative, it would be a lower number.

No. Let me let me clarify that's over two years right. So we made changes both to our calculation going forward to adjusted EBITDA and to adjusted net income adjusted for adjusted EBITDA. It is always added back the full fair value Mark to market that hasn't that part of adjusted EBITDA hasn't changed what we're.

Changing for adjusted net income is that going where where previously we had not made any mark to market changes.

Jonathan Aaron Coblentz: Right. But adjusted EBITDA continues to fully back out all the marks like it has before. Right. It was so here we're saying that, you know, we're expecting to have, on the new calculation basis, 60 to 70 million of adjusted EBITDA for 2024. Is that helpful?

Now, we're going to be backing out the impact of the mark on the fair value our asset backed notes right. So just recall that starting last year, we stopped electing fair value for any new financings, we did and so oh.

John Hecht: I probably need some time to get my hands around this, but did you mention something like a $94 million fair value adjustment on the debt between now and the end of the year? No, let me clarify. That's over two years, right? So we made changes both to our calculation going forward for adjusted EBITDA and to adjusted net income. For adjusted EBITDA, it has always added back the full fair value mark-to-market.

Those fair value notes that are still on our balance sheet. They are going to write off right and currently they are marked at $95 price right and so there is $94 million a discount relative to par right as bonds go to maturity right. They go to par and so over the next two years not one year.

Over the next two years, we would expect in our GAAP net income to realize that full.

Jonathan Aaron Coblentz: That part of adjusted EBITDA hasn't changed. What we're changing for adjusted net income is that going forward, where previously we had not made any mark-to-market changes. Now, we're going to be backing out the impact of the mark on the fair value asset-backed notes, right? So just recall that starting last year, we stopped electing fair value for any new financings we do. And so those fair value notes that are still on our balance sheet, they are going to run off, right? And currently, they are marked at a $95 price, right?

Impact.

So.

We're going to be.

So I am clear, but thats not in the net loss that you put for fiscal year 'twenty four.

That's right Okay great.

That that that's right. So that's what let's just use simple math to do an example, together right, let's say, it's half and half, let's say that 94 million that we would you know.

Recognize half of that in 'twenty.

<unk> 24, and the other half in 'twenty five right. So half of that is a $48 million right. So when we report adjusted when we report adjusted net income for the year. One it will have the benefit of whatever happens on the.

Jonathan Aaron Coblentz: And so there is $94 million of discount relative to par, right? As bonds go to maturity, right, they go to par. And so over the next two years, not one year, over the next two years, we would expect in our gap net income to realize that full impact. Right? So we're going to be to be just so I'm clear, but that's not in the net loss that you put for fiscal year twenty four. That's right. That's right. So let's just use simple math to do an example together, right? Let's say it's half and half.

Our fair value side for the loans, but to if there is a over the course of the year a negative 48 million dollar impact.

The notes will back that out basically.

Jonathan Aaron Coblentz: Let's say that $94 million. We would, you know, recognize half of that in $24 and the other half in $25, right? So half of that is $48 million, right? So when we report adjusted net income for the year, one, it will have the benefit of whatever happens on the fair value side for the loans. But two, if there is, over the course of the year, a negative $48 million impact on the notes, we'll back that out, basically, which will mean the number will be high; the adjusted number will be higher. You may have noticed elsewhere in our materials and in our remarks that we expect to have profitability on this adjusted net income basis for 2024.

Wish only which remained the number will be hot the adjusted number will be higher you may have noticed elsewhere in our materials and in our remarks that we expect to have profitability on this adjusted net income basis for 2024.

Okay, and then remind me these are the what about how do I think about fair value Mark on loans sold.

In the coming year.

Yeah. That's included within our estimate of.

Adjusted EBITDA.

We'll treat that in there.

In the same way right. So we've you know we've got a forecast that sits behind our guidance and that forecast includes an assumption for a fair value loan salt.

Okay I might have to take this offline to understand the changes.

Got it.

John Hecht: And then remind me, how do I think about the fair value mark on loans sold in the coming? Yeah, that's included within our estimate of adjustability that we'll treat that in the same way, right? So we, you know, we've got a forecast that sits behind our guidance. And that forecast, you know, includes an assumption for a fair value loan sold. I might have to take this off-line.

Yes, John.

Happy to do that I think the only thing I would add is those are marks have created noise right over the years, because you've certainly followed the company for years.

One of the things that I'm really optimistic about and that we were trying to communicate in our comments Jonathan mentioned in his comments. The fact that we expect to substantially enhance our profitability. In 2024, you can see that in adjusted EBIDTA. Jonathan mentioned, we expect that in adjusted net income as well and again I think there has been no.

Raul Vazquez: Thank you. John, we'd be happy to do that. I think the only thing I would add is, though the marks have created noise, right, over the years, because you've certainly followed the company for years, one of the things that I'm really optimistic about, and that we were trying to communicate in our comments, Jonathan mentioned in his comments the fact that we expect to substantially enhance our profitability in 2024. You can see that in Adjusted EBITDA. Jonathan mentioned we expect that in Adjusted Net Income as well. And again, though there has been noise in Gap Net Income, we do expect a significant improvement in Gap Net Income year over year as well, because the three profitability measures, by and large, tend to track each other, right, again, though there can be a bit of noise. So that is one of the things that makes us feel really good about turning the corner. We look at the trajectory of losses.

And GAAP net income we do expect a significant improvement in GAAP net income year over year as well because the three profitability measures by and large tend to track each other right again, though there can be a bit of noise. So that is one of the things that makes us feel really good about turning the corner when you look at the trajectory and losses, we look.

The positive indications in funding and we do see now the benefits of also the significant opex reductions. So I'm happy to spend more time right offline like you said it takes a little bit to wrap one's head around it but we do expect significant improvement in all the profitability measures this year.

Okay.

That's fair that's fair value adjustment on the loans you can have mark to market adjustments, but then there's also you've met our charge offs in that correct.

Raul Vazquez: We look at, you know, the positive indications in funding, and we do now see the benefits of also the significant OPEX reductions. So happy to spend more time, right, offline.

Okay.

Yeah, well Yeah. No chart right charge offs are are not added back to any of these metrics right charge offs reduce all of our earnings metrics.

Jonathan Aaron Coblentz: Like you said, it takes a little bit to wrap one's head around it, but we do expect significant improvement in all the profitability measures this year. The fair value adjustment on the loans, you can have mark-to-market adjustments. But then there's also net-out charge-offs in that, correct? Thank you. Yeah, well, charge-offs are not added back to any of these metrics, right? Charge-offs reduce all of our earnings metrics.

So does the I apologize and then I'll get back in the queue is the net loss have anticipated charge offs and as stated there.

Yes.

Okay. So it's charge offs around it but not fair value marks.

That's the mark to market Yeah, Yeah. That's right. That's always been true that that's always been true of adjusted EBITDA and that continues to be true, but losses on page 33 losses are absolutely included in those numbers.

Jonathan Aaron Coblentz: So does the net loss have anticipated charge-offs in it as stated there? Yes. So its charge-offs are in it, but not at fair value. That's the mark-to-market part. Yeah, that's right. That's always been true of adjustability, and that continues to be true.

Okay. So okay, I think I can think I got it all I'll call scheduled a follow up call with you guys.

Okay sure John.

Thanks, guys.

Thanks, John.

Thank you. Our next question comes from the line of how gods with.

B Riley Securities. Please proceed with your question.

Jonathan Aaron Coblentz: But losses, on page 33, losses are absolutely included in those numbers. Okay, so I think I got it. I'll schedule a follow-up call with you. Okay. Sure. Thanks, guys. Thanks, John. Thank you for joining us.

Hey, guys I've got two questions. One is on the unit Economics bridge.

You have a 12, 5% operating expense ratio.

Is that a is that a number that's targeted for a certain level of the size of the portfolio, how big and can you refresh our memory what.

Harold Lee Goetsch: Our next question comes from the line of Harold Goetsch. Thank you, Riley, please proceed with your. Hey guys, I've got two questions. One is on the economics bridge.

With the increased cost cuts.

What do you think your quarterly expenses are going to kind of be the goal for four.

Jonathan Aaron Coblentz: You have a 12.5% operating expense ratio. Is that a number that's targeted for a certain level of the size of the portfolio, how big, and can you refresh our memory with the increased cost cuts? What do you think your quarterly expenses are going to be? kind of be the goal for a run for a lot. Sure, 120.

Ah level. Thanks sure. Thank you.

Yeah, No no great question, Hal So just to remind you.

I actually said I said in earnings that we.

We are targeting now with these additional cost cut actions that fourth quarter of this year 2024, GAAP opex will be around 97 $5 million okay.

Jonathan Aaron Coblentz: Thank you. Yeah, no, no. A great question, Hal. So just to remind you, I said in earnings that we are targeting now with these additional cost-cutting actions, that fourth quarter of this year 2024, GAAP OPEX will be around $97.5 million. Yeah, and so then getting back to your question about operating expenses, we also said that we expect the portfolio to be generally flat year-end, so let's say that that comes to pass as anticipated, and so if you took that $97.5 million of GA So, you know, you can get to $12.5 in the future with just some incremental growth. Okay, and could you add a little color on the demand side? Clearly, an investor that ten times over-subscribes to Jess...

Thank you.

And so then getting back to your question about the operating expenses. We also said that we expect the portfolio to be generally flat yearend. So let's say that that's true.

Comes to pass as anticipated and so if you took that 97 and a half million of GAAP Opex and you divide it by the owned receivables.

In the fourth quarter and annualized you would come up with a number in the mid thirteen's right. So you.

You know you can get to 12 and a half in the future with just some incremental growth.

Okay.

And.

Did you add a little color on the demand side clearly investors at 10 times oversubscribed suggest.

Raul Vazquez: There's a lot of investor demand for high-yielding paper. Could you comment on that? And then two, on the demand side for consumers, you mentioned another tightening. Could you just give us a feel for like what's coming to the top of the funnel is demand quite high on the consumer side? So just give us your feel for both sides of the platform.

There's a lot of investor demand for this.

High yielding paper.

Could you comment on that and then two on the demand side from consumers.

Another tightening but.

Could you just give us.

Youll, probably like what's coming in the top of funnel is demand quite high on the consumer side can you just give us your view on both sides of the platform.

Raul Vazquez: Sure, so starting with the funding side, our ABS deal that we did in February was 10 times oversubscribed. It certainly is a strong market, and we benefited from that, but it's also particularly indicative of the strong following Opportun's securitization platform has had in the asset-backed market since we've been doing deals for over 10 years now. And certainly, it represents confidence in our future loss performance as well as the business model. So that's terrific.

Sure so starting with the funding side.

Our ABS deal that we did in February was 10 times oversubscribed. It certainly is a strong market and we benefited from that but.

It's also particularly indicative with the strong following our opportunities our securitization platform has in the asset backed market since we've been doing deals for over 10 years now and yes, certainly it.

Presents confidence in our future loss performance as well as the the business model. So that's that's terrific right, we priced at eight 4% and 160 basis points better than where we were in October.

Jonathan Aaron Coblentz: We priced at 8.4%, 160 basis points better than where we were in October, and the market continues to be strong, and we would expect it to come to market again this year. Certainly, one of the things investors looked at, and we actually included in our deck was the slide that you saw on page six, which shows how well the recent vintages are performing. And this deal basically only included those more recent vintages primarily, and certainly investors were happy to take exposure to that loss performance given our strong risk-adjusted yield. Raul, do you want to take the consumer question? Yeah,

The market continues to be strong and we would expect that would come to market again this year.

One of the things investors looked at and we actually included in our deck wise Ah. The slide that you saw on page six which shows our you know how well the the recent vintages are performing right. In this deal primarily yeah basically only included those are more reach.

And vintages are primarily and certainly investors were happy to take exposure to that loss performance given our strong risk adjusted yield.

Raul do you want to take the consumer question.

Raul Vazquez: On the consumer side, as I mentioned earlier, we certainly continue to have a conservative underwriting stance. On the marketing side, we shared in our earnings, if you look at the earnings stack, that we spent $18 million on marketing in Q4. That was down 15% year over year.

On the consumer side as I mentioned earlier right. We certainly how continue to have a conservative underwriting stance.

Marketing, we shared in our earnings.

If you look at the earnings stack that we spent $18 million in marketing in Q4 that was down 15% year over year. So I think from a demand perspective, we actually feel good about the demand that we see right now at the top of the funnel given the lower marketing expenditures, we did share that their credit quality is something.

Raul Vazquez: So I think from a demand perspective, we actually feel good about the demand that we see right now at the top of the funnel, given the lower marketing expenditures. We did share that credit quality is something that we're also pleased with in terms of who's coming through the door and who we're attracting with our marketing efforts. So we think as the economy continues to normalize, and if we continue to see this good credit performance, we're really optimistic about how we could see ourselves potentially starting to open up in the second half of the year and trying to drive more demand. Okay, and last follow-up question: I think in the third-quarter call, you mentioned a little bit of potential weakness in Biggages that were after the first. And is it safe to say that either those peers Richard Shane, Dorian Hare, Raul Vazquez, Jonathan Coblentz, Lance Jessurun, Harold Goetsch, Jonathan Coblentz, Lance Jessurun, Harold Goetsch, Jonathan Coblentz, Hal. That's a great memory, Hal.

Also that we're pleased with in terms of who's coming through the door and who we're attracting with our marketing efforts.

So we think as the economy continues to normalize and if we continue to see this good credit performance that we're really optimistic about how we could see ourselves potentially starting to open up in the second half of the year and trying to drive more demand.

And one last follow up is I think in the third quarter call you mentioned a little bit.

Potential weakness in.

Yep.

Vintages they were after the first Titan.

You say that you don't either those those fears over that initial performance.

Cured itself or improve that.

It might be might take away from the commentary today.

To make sure I heard that right is that was that the message today.

It's that's a great memory so.

Raul Vazquez: So if you look at that same page that Jonathan was talking about, you know, that first tightening would be, say, kind of the very, very tail end of Q2 or the beginning of Q3. So Q2, you can see, is right on top of Q1, right? That gray line; we didn't start to see the separation.

So if you look at that same page that Jonathan was talking about.

At first.

Would be.

They are kind of the very very tail end of Q2 or the beginning of Q3.

So Q2, you can see is right on top of Q1 right that Gray line, we didn't start ticking. The separation Q3, there is some separation, but we like the fact that the more recent vintages or even below that purple Q3 line.

Raul Vazquez: Q3 There is some separation, but we like the fact that the more recent vintages are even below that purple Q3 line. So this is what we were hoping for, is we continue to tighten in 22 and 23, which is continuing to see the lines be below the prior quarter. And, like, we shared in our comments and, as Jonathan mentioned, this is one of the things that led to that really successful securitization. When we look at early, kind of that one to twenty-nine delinquencies running below the prior year, and our view that Q1 delinquencies could be below what we reported last year in Q1, 2023, right? Those are the things that are giving us confidence that if these things hold, right, we've really started to turn the corner from a credit perspective. You combine that then with the positive indications on funding, right? The improved profitability from the OPEX reduction, including our desire to run even leaner, right? With these new thirty million.

So this is what we were hoping for is we continued to tighten in 'twenty, two and 23 with just continuing to see the lines be below the prior quarter.

And like we shared in our comments and as Jonathan mentioned. This is one of the things that led to that really successful securitization. When we look at early kind of that 1% to 29 delinquencies running below prior year and our view that Q1 delinquencies could be below what we reported last year in Q1 2023, alright those are at.

The things that are giving us confidence that if these things hold right. We really started to turn in the corner from a credit perspective, you combine that then with the positive indications on funding right. The improved profitability from the Opex reduction, including our desire to run even leaner right with these new $30 million and we think we're setting ourselves up for.

Melissa: And we think we're setting ourselves up for a good twenty four and certainly a good twenty five. Thank you. Thank you, Hal. Thank you. Our next question comes from the line of Rick Shane with JPMorgan, please proceed with their question. Hi guys, it's Melissa on for Rick today.

A good 24 it is certainly a good 25.

Thank you.

Thank you Hal.

Yeah.

Thank you. Our next question comes from the line of Rick Shane with J P. Morgan. Please proceed with your question.

Hey, guys, it's Melissa on for Rick today.

Jonathan Aaron Coblentz: I wanted to ask, hi, I wanted to dig in a little bit on sort of the trajectory or the cadence of NCO expectations during the year. I mean, given the extra tightening actions that you've taken sort of over the last 18 months or so, but also with the shift towards the front book that you expect to continue over the rest of this year. Should we be thinking about anything differently on the NCO trajectory, or should we expect the normal seasonality? Yeah, Melissa. It's Jonathan.

And finally I wanted to ask Hi, I wanted to dig in a little bit on sort of the trajectory or the cadence of N T O expectations. During the year I mean, given the extra tightening actions that you've taken sort of over the last 18 months or so but also with the shifts.

Towards the front that you expect to continue over the rest of this year should we be thinking about anything differently on MTR trajectory or should we expect the normal seasonality.

Okay.

Yeah, Melissa it's Jonathan I would expect normal seasonality I think most of the elements of our business. This year will return to normal seasonality.

Jonathan Aaron Coblentz: I would expect normal seasonality. I think most of the elements of our business this year will return to normal seasonality. So I think that's probably the best assumption to use for modeling.

So I think that's probably the best assumption to use for modeling.

Jonathan Aaron Coblentz: Okay, thanks. And then to the comment in the slide deck about incorporating a new risk model to account for some of the learnings from an inflationary period, I'm curious what that has done to sort of the contours of origination. Did that mean skewing more towards secured? Does it change some geographic dynamics?

Okay. Thanks, and then to the comment in the slide deck about incorporating a new risk model to account for some of the learnings from an inflationary period I'm curious what that has done he started the contours of origination does that mean.

Skewing more towards secured.

Isn't it changed some geographic dynamics, but what are you seeing that.

Jonathan Aaron Coblentz: What are you seeing? I think that there are a couple of elements that we're seeing. Number one, we think we've made some adjustments that are going to allow us to look for individuals that aren't necessarily taking on as much debt after they've taken out the opportunity loan. I think it's given us a chance, Melissa, in some ways, to go back to the thinner file, individuals that historically have been a strong niche for us, but at the same time also finding the individuals with the high vantage scores that And then certainly the ability to go ahead and find some people that we think are willing to accept the lower losses in shorter terms that I mentioned. All of those are things that we think we've been able to do with the improvements in the models, one of which we talked about today.

I think that there are a couple of elements that we're seeing.

Number one we think we've made some adjustments that are going to allow us.

To look for individuals that aren't necessarily taking on as much debt after they've taken out the opportune loan I think it's given us a chance in some ways Melissa to go back to the thinner file.

Individuals' that historically had been a strong niche for us but at the same time also finding individuals with a high vantage scores that we mentioned.

And then certainly the ability to go ahead and find some people that we think are willing to accept a lower losses in shorter terms that I mentioned all of those sort of things that we think we've been able to execute with the improvements in the models.

One of which we've talked about today.

Jonathan Aaron Coblentz: Your comment on secured personal loans also is going to be something that we think is going to be able to drive good credit performance in the remainder of the year. We share that losses in 2023 for secured personal loans were about 350 basis points lower than for unsecured loans, and one of our objectives this year is to be able to grow that book of secured personal loans.

Unsecured personal loan also is going to be something that we think is going to be able to drive good credit performance in the remainder of the year, we shared that losses in 2023 for secured personal loans were about 350 basis points lower than for the unsecured loans and one of our objectives. This year is to be able to grow that book of secured personal loans.

Jonathan Aaron Coblentz: Thank you. There are no further questions at this time. I'd like to pass the call back over to Raul Vazquez for closing.

Thank you.

Thank you.

Yeah.

Thank you there are no further questions at this time I'd like to pass the call back over to about Raul Vazquez for closing remarks.

Raul Vazquez: We want to thank everyone once again for joining us on today's call, and we look forward to speaking with you again soon. Thank you. Thank you. This concludes today's telecom. You may disconnect your lines at this time.

We want to thank everyone. Once again for joining us on today's call and we look forward to speaking with you again soon.

Thank you.

Yeah.

Yeah.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time thank.

Operator: Thank you for your participation...... The Bulletproof Executive, The Ultimate Parody Site!

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