Q1 2024 Oportun Financial Corp Earnings Call
Operator: Hello, and welcome to the Opportun Financial first quarter 2024 earnings call. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question Q at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dorian Hare and Best Relations. Please go ahead.
Hello, and welcome to the opportune financial first quarter 'twenty 'twenty four earnings call.
Speaker Change: One should require operator assistance. Please press star zero on your telephone keypad.
Dorian Hare: A question and answer session will follow the formal presentation.
Operator: May be placed in the question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded.
Operator: My pleasure to turn the call over to Dorian Hare Investor Relations. Please go ahead.
Dorian Hare: Thanks, and hello everyone. With me to discuss Oportun's first quarter 2024 results are Raul Vazquez, Chief Executive Officer, and Jonathan Coblentz, Chief Financial Officer and Chief Administrative Officer. I remind everyone on the call or webcast that some of the remarks made today will include forward-looking statements relating 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 loans, and plans and objectives of management for our future operations.
Dorian Hare: Thanks, and Hello, everyone with me to discuss opportunities first quarter of 2024 results, our rural Vazquez, Chief Executive Officer, and Jonathan Coblentz, Chief Financial Officer, and Chief administrative officer.
Dorian Hare: Actual results may differ materially from those contemplated or implied by these forward-looking statements, and we caution you not to place undue reliance on these forward-looking statements. 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-Q filing for the quarter ended March 31st, 2024.
Dorian Hare: I'll remind everyone on the call or webcast at some of the remarks made today will include forward looking statements relating to our business future results of operations and financial position planned products and services business strategy expense saving measures statements regarding our senior secured term loan and plans and objectives of management for our future.
Dorian Hare: <unk> actual results may differ materially from those contemplated or implied by these forward looking statements and we caution you not to place undue reliance on these forward looking statements.
Dorian Hare: 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-Q filing for the quarter ended March 31, 2024 and.
Dorian Hare: 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 of our core business and which will provide useful information to investors regarding their financial condition and results of operations.
Dorian Hare: 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.
Dorian Hare: 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 of our core business and which will provide useful information to investors regarding our financial condition and results of operations. Our full list of definitions can be found in our earnings materials available at the Investor.
Dorian Hare: 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. A reconciliation of non-GAAP-to-GAAP financial measures is included in our earnings press release, our first quarter 2024 financial supplement, and the appendix section of the first quarter 2024 earnings presentation, all of which are available on the investor relations section of our website at investor.oportun.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.
Raul: <unk> 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. A reconciliation of non-GAAP to GAAP financial measures is included in our earnings press release, our first quarter 2024 financial supplement supplement in the appendix section of the <unk>.
Raul: First quarter 2024 earnings presentation, all of which are available at the Investor Relations section of our website at investor that opportune dotcom.
Raul: 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.
Raul Vazquez: Thanks Dorian, and good afternoon everyone. Thank you for joining us.
Raul: Thanks, Dorian and good afternoon, everyone. Thank you for joining us.
Raul Vazquez: I'll discuss our first quarter performance and update you on our progress on key areas of focus let me begin with for highlights of our Q1 performance first we generated revenue of $250 million outperforming the top end of our guidance range by $12 million or 5%.
Raul Vazquez: Today I'll discuss our first quarter performance and update you on our progress on key areas of focus. Let me begin with four highlights of our Q1 performance. First, we generated revenue of $250 million, outperforming the top end of our guidance range by $12 million, or 5%. This outperformance was driven by a strong march with higher interest income and portfolio yield as the price increases we've been enacting took hold at a higher rate than anticipated.
Raul Vazquez: Outperformance was driven by a strong march with higher interest income and portfolio yield as the price increases we've been enacting took hold at a higher rate than anticipated second our Q1 annualized net charge off rate was 12% and at the low end of our guidance range 22 basis points lower sequentially.
Raul Vazquez: Second, our Q1 annualized net charge-off rate was 12% and at the low end of our guidance range, 22 basis points lower sequentially and 7 basis points better than last year. Our quarterly net charge-offs, measured in dollars, declined year-over-year for the second consecutive quarter, in this instance, by 7%. Third, our GAAP operating expenses were just under $110 million, down 15% sequentially and 25% year-over-year.
Raul Vazquez: Seven basis points better than last year.
Raul Vazquez: Our quarterly net charge offs measured in dollars declined year over year for the second consecutive quarter in this instance by 7%.
Raul Vazquez: Third our GAAP operating expenses were just under $110 million down, 15% sequentially and 25% year over year.
Raul Vazquez: The last time we reported quarterly gap operating expenses below $110 million was the first quarter of 2021. Finally, our profitability is markedly improved, with both our adjusted EBITDA and adjusted net income turning positive from year-ago losses. Adjusted EBITDA was $2 million, an improvement of $22 million year over year.
Raul Vazquez: The last time, we reported quarterly GAAP operating expenses below $110 million was the first quarter of 2021.
Raul Vazquez: Finally, our profitability has markedly improved with both our adjusted EBITDA and adjusted net income turning positive from year ago losses.
Raul Vazquez: Adjusted EBITDA was $2 million, an improvement of $22 million year over year.
Raul Vazquez: We generated $4 million in adjusted net income, a $61 million improvement from the year-ago quarter, and our gap net income improvement was even more substantial at $76 million. In summary, I'm proud of how the team executed and pleased that Q1 showed more signs of the expected business recovery that I outlined during the last earnings call. I'll now update you on progress we're making on our 2024 strategic priorities, which gives me confidence in our outlook.
Raul Vazquez: We generated $4 million and adjusted net income a $61 million improvement from the year ago quarter, and our GAAP net income improvement was even more substantial at $76 million in summary, I am proud of how the team executed and pleased that Q1 show more signs of the expected business.
Raul Vazquez: Recovery that I outlined during the last earnings call.
Raul Vazquez: Now update you on progress, we're making on our 2024 strategic priorities, which gives me confidence in our outlook starting with credit I'll highlight three positive dynamics that we're seeing first as you can see on slide five of our earnings presentation, the loss rates 12, or more months post disbursement for our.
Raul Vazquez: Starting with credit, I'll highlight three positive dynamics that we're seeing. First, as you can see on slide five of our earnings presentation, the loss rates 12 or more months post disbursement for our front book of loans continue to run approximately 400 basis points lower when compared to our back book of loans, with our Q1 2023 vintage now joining that group. Even more encouraging, we're now seeing that more recent front book vintages are outperforming their predecessors. As a reminder, the back book is comprised of loans originated prior to the first material tightening in July of 2022. The front book of loans is comprised of originations since then.
Raul Vazquez: Front book of loans continue to run approximately 400 basis points lower when compared to our back book of loans with our Q1 2023 vintage now joining that group.
Raul Vazquez: Even more encouraging were now seeing that more recent front book vintages are outperforming their predecessors.
Raul Vazquez: As a reminder, the back book is comprised of loans originated prior to the first material tightening in July of 2020 to the.
Raul Vazquez: The front book of loans is comprised of originations since then.
Raul Vazquez: Second.
Raul Vazquez: You can also see on slide six that the back book shrank to 16% of our own principal balance at the end of the first quarter but disproportionately accounted for 40% of our gross charge-off. We still expect the impact of the backbook to diminish throughout 2024 and our backbook to shrink to 3% of our own principal balance at the end of this. And third, starting in late January, we started experiencing positive trends in early-stage delinquencies, which continued in February. One to 29-day delinquencies are now running well below 2023 levels, and the positive trends are starting to roll into 30 to 59-day delinquencies.
Raul Vazquez: You can also see on slide six at the back book shrink to 16% of our own principle balance at the end of the first quarter, but disproportionately accounted for 40% of our gross charge offs, we still.
Raul Vazquez: The impact of the back book to diminish throughout 2024, and our back book to shrink to 3% of our own principle balance at the end of this year.
Raul Vazquez: And third starting in late January we started experiencing positive trends in early stage delinquencies, which continued in February and March one to 29 day delinquencies are now running well below 2023 levels and the positive trends, we are starting to roll into 30% to 59 day delinquencies.
Raul Vazquez: We expect that these favorable trends will drive 30-plus-day delinquencies further down in Q2 from the 5.2% level during Q1 2024, which we're already down over 60 basis points from Q4 2020. Improving credit outcomes is our top priority, and I'm pleased with the progress we've made and expect to continue to make. Relating to our priority to fortify business economics during 2024, I'd like to update you on our expense management progress. As you can see on slide 7 of our earnings presentation, we are significantly more efficient today than we were during our IPO year five years ago. Adjusted OPEX as a percentage of the average managed principal balance was down by almost 400 basis points to 13% in Q1 2024 versus 16.9% in Q1 2019.
Raul Vazquez: We expect that these favorable trends will drive 30, plus day delinquencies further down in Q2 from the five 2% level. During Q1, 2024, which were already down over 60 basis points from Q4 2023.
Raul Vazquez: Improving credit outcomes is our top priority and I am pleased with the progress we've made and expect to continue to make this year.
Raul Vazquez: Relating to our priority to fortify business economics during 2024 I'd like to update you on our expense management progress.
Raul Vazquez: And we've made substantial progress to get our gap operating expenses below $110 million for Q1 2024, remaining on track to achieve operating expenses of $97.5 million or below by Q4 2024. In summary, we outperformed our expectations for the first quarter, including a return to adjusted profitability, and remained keenly focused on expense management with even more profitability improvement on the horizon. Jonathan will share the details with you shortly, but I want to let you know that we are raising our full-year adjusted EBITDA guidance by 31% at the midpoint of the rate.
Raul Vazquez: As you can see on slide seven of our earnings presentation. We are significantly more efficient today than we were during our IPO year five years ago.
Raul Vazquez: Adjusted Opex as a percentage of average managed principal balance was down by almost 400 basis points to 13% in Q1 2024 versus 16, 9% in Q1 2019.
Raul Vazquez: And we've made substantial progress to get our GAAP operating expenses below $110 million for Q1 2024 remaining on track to achieve operating expenses of $97 5 million.
Raul Vazquez: Or below by Q4 2024.
Raul Vazquez: In summary, we outperformed our expectations for the first quarter, including a return to adjusted profitability and remain keenly focused on expense management with even more profitability improvement on the horizon.
Raul Vazquez: Jonathan will share the details with you shortly but I want to let you know that we are raising full year adjusted EBITDA guidance by 31% at the midpoint of the range.
Raul Vazquez: Shifting to our priority to identify high-quality originations, I'd like to highlight our prudent expansion in secured personal loans, or our SPL product, which you can see on slide 8. As a reminder, we launched SPL in the summer of 2020 and paused our originations in four states during 2023 due to our rebalancing of priorities and our desire to retool the partnership with PathWorks. Available only in California as of the end of last year, we reintroduced secured personal loans in our next two biggest states, Texas and Florida, at the end of the first quarter. We also relaunched SPL in Arizona and New Jersey earlier this month and are rolling out the product in Illinois for the first time during this quarter.
Raul Vazquez: Shifting to our priority to identify high quality originations I'd like to highlight our prudent expansion in secured personal loans or our SPL product, which you can see on slide eight.
Raul Vazquez: As a reminder, we launched SPL in the summer of 2020 and paused our originations in four states during 2023 due to a rebalancing of priorities and our desire to retool the partnership with password.
Raul Vazquez: Available only in California as of the end of last year, we reintroduced secured personal loans in our next two biggest states, Texas and Florida at the end of the first quarter we.
Raul Vazquez: We also relaunched SPL in Arizona, and New Jersey earlier, this month and are rolling out the product in Illinois for the first time during this quarter.
Raul Vazquez: We are excited about the expansion of SPL because of its superior unit economics. Not only did losses last year run approximately 350 basis points lower for our secured personal loans as compared to unsecured, but revenue per loan was over 50% higher since, on average, SPL loans are over $3,000 larger. In addition, responsibly expanding secured lending, which is collateralized by members' autos, allows us to better serve our members. For example, our SPL product has allowed us to invite three of ten applicants who we weren't able to approve for unsecured personal loans to apply for an SPL loan.
Raul Vazquez: We are excited about the expansion of SPL because of its superior unit economics, not only did losses last year run approximately 350 basis points lower for our secured personal loans as compared to unsecured but revenue per loan was over 50% higher since on average.
Raul Vazquez: SPL loans are over $3000 larger.
Raul Vazquez: In addition, responsibly expanding secured lending which is collateralized by members autos allows us to better serve our members.
Raul Vazquez: Our SPL products has allowed us to invite three of 10 applicants, who we werent able to approve for unsecured personal loans to apply for an SPL.
Raul Vazquez: In summary, I am very pleased with our first quarter performance, yet we expect a better second quarter than our first quarter, and our conviction remains strong to be profitable on an adjusted basis during 2024. With that, I will turn it over to Jonathan for additional details on our first quarter financial performance, as well as our second quarter and full year guidance.
Raul Vazquez: In summary, I am very pleased with our first quarter performance, Yes, we expect a better second quarter than our first quarter and our conviction remains strong to be profitable on an adjusted basis during 2024.
Raul Vazquez: With that I will turn it over to Jonathan for additional details on our first quarter financial performance as well as our second quarter and full year guidance.
Jonathan Aaron Coblentz: Thanks, Raul, and good afternoon, everyone. As Raul mentioned, we had a strong first quarter and are positioned to improve upon our performance throughout the balance of the year. We remain focused on sustainably increasing our profitability in 2024 and beyond by driving performance in our three differentiated core products, unsecured and secured personal loans, as well as our savings products. We will continue to do so while reducing costs and maintaining our conservative credit posture.
Jonathan: Thanks, Raul and good afternoon, everyone as Rob mentioned, we had a strong first quarter and are positioned to improve upon our performance throughout the balance of the year, we remain focused on sustainably increasing our profitability in 2024 and beyond by driving performance in our three differentiated core products.
Jonathan Aaron Coblentz: Unsecured and secured personal loans as well as our savings product we.
Jonathan Aaron Coblentz: We will continue to do so while reducing costs and maintaining our conservative credit posture.
Jonathan Aaron Coblentz: As shown on slide 10, Oportun delivered total revenue of $250 million, and we returned to profitability with adjusted net income of $4 million, or adjusted EPS of $0.09. Continuing to operate under a tightened credit posture, originations of $338 million were down 17% year-over-year. Additionally, sequentially, originations were down 23% from the fourth quarter, aligning with the typical seasonal pattern following year-end.
Raul Vazquez: As shown on slide 10, opportune delivered total revenue of $250 million and we returned to profitability with adjusted net income of $4 million or adjusted EPS of nine.
Jonathan Aaron Coblentz: Continuing to operate under a tightened credit posture originations of $338 million were down 17% year over year sequentially originations were down 23% from the fourth quarter aligning with the typical seasonal pattern following year end, while dollar volume of originations and average loans.
Jonathan Aaron Coblentz: While the dollar volume of originations and average loan size declined due to our tightening actions, I'm pleased to share that better-than-expected demand for new members drove 16% year-over-year growth in the number of loans originated. These incremental loans were also of higher credit quality as the credit profile of our application pool improved. This sets us up well for future growth when these new members return for subsequent loans.
Jonathan Aaron Coblentz: Size decline due to our tightening actions I am pleased to share that better than expected demand for new members drove 16% year over year growth in the number of loans originated these incremental loans were also better credit quality as the credit profile of our application pool improved this sets us up well for fewer.
Jonathan Aaron Coblentz: <unk> growth when these new members returned for subsequent loads.
Jonathan Aaron Coblentz: The year-over-year revenue decline of 3% outpaced our origination's decline by 14 percentage points. This outperformance resulted from our price increases as portfolio yield increased 113 basis points year-over-year, improving to 32.5 percent. We will continue to enhance yield throughout 2024 while remaining committed to our 36 percent APR cap.
Jonathan Aaron Coblentz: The year over year revenue decline of 3% outpaced our originations declined by 14 percentage points.
Jonathan Aaron Coblentz: This outperformance resulted from our price increases as portfolio yield increased 113 basis points year over year, improving to 32, 5%. We will continue to enhance yield throughout 2024, while remaining committed to our 36% APR cap.
Jonathan Aaron Coblentz: Net revenue was $79 million, an increase year-over-year due to reduced non-cash fair value marks and lower charge-offs partially offset by higher interest expenses. Our total net decrease in fair value of $117 million was primarily driven by current period charge-offs of $85 million. Total fair value mark-to-market adjustments were favorable by $3 million as the mark-to-market on our loan portfolio was largely offset by the mark-to-market on our remaining fair value ASSEPAC notes. As a reminder, we elected last year to stop fair valuing our new debt financings in our GAAP financials. Interest expense of $54 million was up $15 million year-over-year.
Jonathan Aaron Coblentz: Net revenue was $79 million up markedly year over year due to reduced noncash fair value marks and lower charge offs, partially offset by higher interest expense.
Jonathan Aaron Coblentz: Our total net decrease in fair value of $117 million was primarily driven by current period charge offs of $85 million total fair value Mark to market adjustments were favorable by $3 million.
Jonathan Aaron Coblentz: As the Mark to market on our loan portfolio was largely offset by the mark to market on our remaining fair value asset backed notes.
Jonathan Aaron Coblentz: As a reminder, we elected last year to stop fair valuing, our new debt financings in our GAAP financials.
Jonathan Aaron Coblentz: Interest expense of $54 million was up $15 million year over year. This was primarily driven by increased debt outstanding and the increase in our cost of debt to seven 5% versus five 2% in the year ago period, reflecting the higher rate environment.
Jonathan Aaron Coblentz: This was primarily driven by increased debt outstanding and an increase in our cost of debt to 7.5% versus 5.2% in the year-ago period, reflecting the higher rate environment. Turning now to operating expenses and efficiency, we continue to see the benefits from our previously announced cost structure optimization initiative. Our $110 million in total operating expenses in Q1 reflected a 25% reduction from the prior year period. We will continue to drive our cost structure lower in 2024 with the $30 million of additional annualized operating expense reductions that we announced on our last earnings call. We continue to target $97.5 million in Q4 GAAP operating expenses. In the first quarter, our sales and marketing expenses were just over $16 million, down 17% year-over-year.
Jonathan Aaron Coblentz: Turning now to operating expenses and efficiency, we continue to see the benefits from our previously announced cost structure optimization initiatives are $110 million in total operating expenses in Q1 reflected a 25% reduction from the prior year period.
Jonathan Aaron Coblentz: We will continue to drive our cost structure lower in 2024 with the $30 million of additional annualized operating expense reductions that we announced on our last earnings call. We continue to target $97 5 million in Q4 GAAP operating expenses.
Jonathan Aaron Coblentz: In the first quarter, our sales and marketing expenses were just over $16 million down 17% year over year.
Jonathan Aaron Coblentz: And I'm pleased to share that our CAC was $138, down 28% year-over-year and at our lowest level since the second quarter of 2022. For the quarter, we recorded adjusted net income of $4 million compared to a $58 million adjusted net loss in the prior year quarter, an adjusted EPS of 9 cents versus a prior year net loss per share of $1.70. This marked improvement in adjusted profitability was primarily driven by reduced operating expenses and credit losses, along with current period mark-to-market increases in our loan portfolio as our discount rate and remaining cumulative net charge-off expectations both declined. Adjusted EBITDA, which excludes the impact of fair value mark-to-market adjustments on our loan portfolio and notes, was $2 million in the first quarter.
Jonathan Aaron Coblentz: And I am pleased to share that our CAC was $138 was down 28% year over year and at our lowest level since the second quarter of 2022.
Jonathan Aaron Coblentz: For the quarter, we recorded adjusted net income of $4 million compared to a $58 million adjusted net loss in the prior year quarter and adjusted EPS of nine.
Jonathan Aaron Coblentz: Versus the prior year net loss per share of $1 70.
Jonathan Aaron Coblentz: This marks improvement in adjusted profitability was primarily driven by reduced operating expenses and credit losses, along with current period Mark to market increases in our loan portfolio as our discount rate and remaining cumulative net charge off expectations both declined.
Jonathan Aaron Coblentz: Adjusted EBITDA, which excludes the impact of fair value Mark to market adjustments on our loan portfolio and notes was $2 million in the first quarter. This reflected a strong year over year increase of $22 million driven by our sharply reduced cost structure.
Jonathan Aaron Coblentz: This reflected a strong year-over-year increase of $22 million driven by our sharply reduced cost structure. Now, on slide 11, let me discuss Q1 credit performance. Our annualized net charge-off rate of 12% was at the low end of our guidance range, and this compared to 12.1% in the prior year period. Our 30-plus-day delinquency rate declined year-over-year by 21 basis points and sequentially by 64 basis points to 5.2 percent. As Raul mentioned, our early-stage delinquencies are running well below 2023 levels, and we expect our 30-plus-day delinquency rate to continue to improve going forward.
Jonathan Aaron Coblentz: Now on Slide 11, let me discuss Q1 credit performance, our annualized net charge off rate of 12% was at the low end of our guidance range. This compared to 12, 1% in the prior year period.
Jonathan Aaron Coblentz: Our 30, plus day delinquency rate declined year over year by 21 basis points and sequentially by 64 basis points to five 2% as Raul mentioned, our early stage delinquencies are running well below 2023 levels and we expect our 30 plus day delinquency rate to continue to improve going forward.
Jonathan Aaron Coblentz: The last time the early-stage buckets were running below the prior year was three years ago when 2021 levels were below 2020. Regarding our capital and liquidity, as shown on slide 12, net cash flows from operating activities for the first quarter were strong at $86 million, up 12% year over year. As of March 31st, total cash was $197 million, of which $69 million was unrestricted and $127 million was restricted.
Jonathan Aaron Coblentz: The last time the early stage buckets, we're running below the prior year was three years ago. When 2021 levels were below 2020.
Jonathan Aaron Coblentz: Regarding our capital and liquidity as shown on slide 12, net cash flows from operating activities for the first quarter were strong at $86 million up 12% year over year.
Jonathan Aaron Coblentz: As of March 31.
Jonathan Aaron Coblentz: Total cash was $197 million of which $69 million was unrestricted and $127 million was restricted.
Jonathan Aaron Coblentz: Further bolstering our liquidity was $607 million in available funding capacity under our warehouse lines and remaining whole loan sale agreement capacity of $258 million. I'm also pleased to share that since quarter end, we signed a new agreement with one of our partners to sell an additional $150 million of whole loans over the next six months. Before I leave our discussion of capital and liquidity, I want to share that we are getting closer to completing our strategic review of our credit card product.
Jonathan Aaron Coblentz: Further bolstering our liquidity was $607 million in available funding capacity under our warehouse lines and remaining whole loan sale agreement capacity of $258 million. I'm also pleased to share that since quarter end, we signed a new agreement with one of our partners to sell an additional.
Jonathan Aaron Coblentz: $150 million of whole loans over the next six months.
Jonathan Aaron Coblentz: Before I leave our discussion of capital and liquidity.
Jonathan Aaron Coblentz: I want to share that we are getting closer to completing our strategic review of our credit card product.
Jonathan Aaron Coblentz: And we continue to evaluate refinancing options on our senior secured term line. Turning now to our guidance, as shown on slide 13, our outlook for the second quarter is total revenue of $245 to $250 million, an annualized net charge-off rate of 12.4% plus or minus 15 basis points, of $14 to $17 million. Let me spend a minute providing you with a bit of color.
Jonathan Aaron Coblentz: And we continue to evaluate refinancing options on our senior secured term loan.
Jonathan Aaron Coblentz: Turning now to our guidance as shown on slide 13, our outlook for the second quarter is total revenue of $245 million to $250 million Andy.
Jonathan Aaron Coblentz: Annualized net charge off rate of 12, 4% plus or minus 15 basis points.
Jonathan Aaron Coblentz: <unk> EBITDA of $14 million to $17 million.
Jonathan Aaron Coblentz: First, on revenue, the seasonally lower origination volume in Q1 means that our portfolio will decline slightly in Q2. However, an expected higher portfolio yield will lead Q2 revenue to be only slightly down to flat compared to Q1. With respect to credit, we expect Q2 charge-offs in dollars to be flat to down sequentially, so the higher annual charge-off guide at the midpoint for Q2 is driven entirely by a lower receivable space. On slide 14, you can see how impactful portfolio growth is to our annualized net charge-off rate.
Jonathan Aaron Coblentz: Let me spend a minute providing you with a bit of color first on revenue the seasonally lower origination volume in Q1 means that our portfolio will decline slightly in Q2, however, expected higher portfolio yield will lead Q2 revenue to be only slightly down to flat compared to Q1.
Jonathan Aaron Coblentz: With respect to credit, we expect Q2 charge offs in dollars to be flat to down sequentially. So the higher annual charge off guide at the midpoint for Q2 is driven entirely by a lower receivable space on slide 14, you can see how impactful portfolio growth is to our annualized net charge.
Jonathan Aaron Coblentz: Off rate finally on profitability strong sequential adjusted EBITDA improvement from $2 million in Q1 to $15 million at the midpoint for Q2 reflects our ongoing cost discipline and operational improvement we expect throughout the remainder of the year.
Jonathan Aaron Coblentz: Finally, on profitability, strong sequential adjusted EBITDA improvement from $2 million in Q1 to $15 million at the midpoint for Q2 reflects our ongoing cost discipline and operational improvement we expect throughout the remainder of the year. Our guidance for the full year is... Total revenue of $985 million to $1.01 billion, annualized net charge-off rate of 11.9% plus or minus 50 basis points, and adjusted EBITDA of $80 to $90 million. I'm pleased that we're able to provide you with full-year guidance reflecting the continuation of the 2024 business recovery we initiated in Q1.
Jonathan Aaron Coblentz: Our guidance for the full year is total revenue of $985 million to one point or $1 billion.
Jonathan Aaron Coblentz: Annualized net charge off rate of 11, 9% plus or minus 50 basis points.
Jonathan Aaron Coblentz: Adjusted EBITDA of $80 million to $90 million I'm pleased that we're able to provide you with full year guidance, reflecting the continuation of the 2020 for business recovery, we initiated in Q1, driven by our resilient topline amidst credit tightening prudent underwriting and further cost reduction.
Jonathan Aaron Coblentz: Driven by a resilient top line amidst credit tightening, prudent underwriting, and further cost reductions, our full-year adjusted EBITDA guidance reflects $66 million of improvement over last year at the midpoint, or approximately 350% year-over-year growth. Raul, back over to you.
Jonathan Aaron Coblentz: Our full year adjusted EBITDA guidance reflects $66 million of improvement over last year at the midpoint or approximately 350% year over year growth.
Raul Vazquez: Roll back over to you.
Raul Vazquez: Thanks, Jonathan. Before I wrap up, I want to publicly welcome Scott Parker to Opportunity's Board of Directors. Scott's appointment as an independent director follows Oportun's cooperation agreement with Findel Capital that was announced on April 22. Scott currently serves as Chief Financial Officer of Nations Benefits, a leading provider of supplemental benefits and fintech solutions to the healthcare industry. A seasoned CFO, Scott previously led the finance function at Ryder System, OneMain Holdings, and CIT Group.
Raul Vazquez: Thanks, Jonathan before I wrap up I want to publicly welcome Scott Parker to opportunities board of directors.
Raul Vazquez: Scott's appointment as an independent director following opportunities cooperation agreement with fin del capital that was announced on April 22nd.
Raul Vazquez: Scott currently serves as Chief financial Officer of Nations benefits, a leading provider of supplemental benefits and Fintech solutions to the health care industry.
Raul Vazquez: And CFO Scott previously led the finance function at Ryder system, One main holdings and at Citigroup.
Raul Vazquez: I also want to welcome Richard Tambor as a board observer. Rich has agreed to stand for election as an independent director at our 2024 annual shareholder meeting. Rich previously served as the executive vice president and chief risk officer at one Maine holding company. He was also previously the Chief Risk Officer of Retail Financial Services at J.P. Morgan, Chief Risk Officer of Small Business Services at American Express, and has held additional executive and risk management-related positions at other institutions.
Raul Vazquez: I also want to welcome Richard Tambor as a board observer.
Raul Vazquez: Rich has agreed to stand for election as an independent director at our 2024 annual shareholder meeting Rich previously served as the executive Vice President and Chief Risk Officer at Onemain Holdings. He was also previously the chief risk officer of retail financial services at J P. Morgan Chief risk officer of small business.
Raul Vazquez: Services at American Express and has held additional executive in risk management related positions at other institutions.
Raul Vazquez: The board and management team will benefit from Scott and Rich's perspectives and contributions as we continue to focus on disciplined execution and driving profitable, sustainable growth. Including Scott and Rich, we have added four highly qualified independent individuals to participate in our board meetings over the last few years. To close, I'd like to emphasize that we're pleased with our first quarter performance, which featured $76 million of GAAP net income improvement and a return to adjusted profitability.
Raul Vazquez: The board and management team will benefit from Scott and Richard's perspectives and contributions as we continue to focus on disciplined execution and driving profitable sustainable growth.
Raul Vazquez: Including Scott and rich we have added four highly qualified independent individuals to participate in our board meetings over the last year.
Raul Vazquez: To close I'd like to emphasize that we're pleased with our first quarter performance, which featured $76 million of GAAP net income improvement and a return to adjusted profitability.
Raul Vazquez: We are confident in our outlook and have raised our revenue and adjusted EBITDA guidance while reaffirming our expectation to be profitable on an adjusted basis. We expect to exit 2024 with an annualized cost structure that is $240 million below peak levels and the near elimination of our PAC books.
Raul Vazquez: We are confident in our outlook and have raised our revenue and adjusted EBITDA guidance, while reaffirming our expectation to be profitable on an adjusted basis. This year.
Raul Vazquez: We expect to exit 2024, with an annualized cost structure that is $240 million below peak levels and the near elimination of our back book.
Raul Vazquez: And we're intent on driving the business towards the 20 to 28% ROEs we talked about in March when we first presented our target unit economics model. Finally, I want to thank the Opportun team for their solid execution in Q1 and their ongoing commitment to our recovery and mission. I also want to thank our shareholders for their continuing support and belief in us and our operations. With that, operator, let's open up the line for questions.
Raul Vazquez: And we're intent on driving the business towards that 20% to 28% ROE we talked about in March when we first presented our target unit economics model.
Raul Vazquez: Finally, I want to thank the opportune team for their solid execution in Q1 and their ongoing commitment to our recovery and mission.
Raul Vazquez: I also want to thank our shareholders for their continuing support and belief in opportune.
Raul Vazquez: With that operator, let's open up the line for questions.
Speaker Change: Certainly, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
Operator: Certainly, when I'll be conducting a question and answer session, if you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. One moment, please, while we poll for questions. Our first question today is coming from David Scharf from Citizens JMP. Your line is now live.
Operator: <unk> tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the Q1 moment. Please what we pull for questions. Our first question today is coming from David Scharf from citizens JMP. Your line is now live.
David Scharf: Good afternoon and thanks for taking my questions. I wanted to just dig in a little more into the guidance on the expense base by year-end, mentioned you've eliminated about 240 annualized off-peak levels. When we look at the fourth quarter run rate... You know, the 97 million guide annualized, based on everything that you're working on, whether it's, you know, reigniting secured personal loans, other products. State Expansion. It is 400 million, uh..., a target annualized expense level in your mind, or in order to achieve that 20-28% ROE target, does that run rate have to come down further?
David Scharf: Great Good afternoon, and thanks for taking my questions.
David Scharf: Hey.
David Scharf: Wanted to just dig in a little more.
David Scharf: Into the guidance.
David Scharf: Expense base.
David Scharf: By year end.
David Scharf: I think you had mentioned.
David Scharf: You've eliminated about 240.
David Scharf: Annualized off peak levels.
David Scharf: When we look at the fourth quarter run rate.
David Scharf: The $97 million guide annualized.
David Scharf: Based on everything that you're working on whether it's reigniting secured personal loans.
David Scharf: Products state expansion.
David Scharf: Is $400 million.
David Scharf: Sure.
David Scharf: Target annualized.
David Scharf: Spence level in your mind or in order to achieve that 20% to 28% ROE target does that.
David Scharf: Run rate has to come down further.
Jonathan Aaron Coblentz: Yeah, David, we gave guidance and we reaffirmed on this call that we are targeting our GAAP OPEX number for the fourth quarter of this year, 2024, to be around $97.5 million, right? So that's a little less than $400 million. We think that, as we indicated when we presented the unit economic model for the first time last time, which is represented on page 21 of the deck that went out, that with a little bit of growth, we'll be able to generate those results over time, right?
Speaker Change: Yeah, So David we gave guidance and we reaffirmed on this call that we are targeting our GAAP opex number for the fourth quarter of this year 2024 to be $97.5 million around there.
Speaker Change: Right so.
Jonathan Aaron Coblentz: So thats, a little less than the $400 million.
Jonathan Aaron Coblentz: We think that as we indicated when we presented the unit economic model for the first time last time, which is represented on page 21 of the DAC.
Jonathan Aaron Coblentz: That went out.
Jonathan Aaron Coblentz: That with a little bit of growth.
Jonathan Aaron Coblentz: I'll be able to generate those results over time right.
Jonathan Aaron Coblentz: And so I would say that as the business gets larger, OPEX may grow with inflation, but our intention is to run very lean, and clearly, we'll be entering 2025 with a run rate that is below $400 million on the OPEX side.
Jonathan Aaron Coblentz: So I would say that.
Jonathan Aaron Coblentz: As the business gets larger Opex may grow with inflation, but our intention is to run very lean and clearly we'll be entering 2025 with a run rate that is below $400 million on the opex side.
David Scharf: Got it, got it. Yeah, I was just rounding. And maybe just a follow-up on that fourth quarter guide. I know there's going to be some kind of shared resources.
Speaker Change: Got it got it yeah I was just rounding.
Speaker Change: And maybe just a follow up.
David Scharf: And that fourth quarter guide.
David Scharf: I know theres going to be some kind of shared resources, it's hard to put an exact number on it but just to give some context.
David Scharf: It's hard to put an exact number on it, but just to get some context. Are you able to share sort of how much of that $97 million is allocated to each digit, or the former digit, or the savings product, whatever, however you refer to it internally?
David Scharf: Are you able to share sort of how much of that $97 million.
David Scharf: As.
David Scharf: Allocated to.
David Scharf: Okay.
David Scharf: Digit with a former digit or savings product, but it whatever however, you refer to it internally.
Jonathan Aaron Coblentz: Yeah, David, we don't provide that disclosure, so unfortunately, I'm not in a position to comment on that.
Speaker Change: Yes, David we don't provide.
Speaker Change: That disclosure so unfortunately I'm not in a position to comment on that.
Raul Vazquez: What I would say, David, this is Raul. What I would say is clearly the reductions in staffing and budgets that we've executed have been across all product lines. So, there have been, you know, pretty big reductions as well on kind of the savings product. We announced last year that we were closing several of the products that were part of the acquisition.
Jonathan Aaron Coblentz: What I would say David this is Rob.
Raul Vazquez: What I would say is clearly the reductions in staffing and budgets that we've executed have been across all product lines.
Raul Vazquez: So there had been pretty big reductions as well on kind of the savings product, we announced last year that we were closing several of the products that have been part of the acquisition and for the second year in the second year in a row.
Raul Vazquez: And for the second year in a row, the savings team is going to be a contributor of cash to the organization. And clearly, in this economic environment, the ability to generate significant amounts of cash is important. So, we're pleased with the role that it's playing, both in terms of cash generation, and we mentioned in the last earnings call that people that were using borrowers, that were using the savings app, had delinquency rates that were 45% lower than those who were not. So, we're also pleased with that benefit that is being driven by the work that that team is doing.
Raul Vazquez: The savings team is going to be a contributor of cash to the organization clearly in this economic environment the ability to generate significant amounts of cash is important. So we're pleased with the role that it's playing both in terms of cash generation and then we mentioned in the last earnings call. The people that were using borrowers that were using the <unk>.
Raul Vazquez: Savings App had delinquency rates that were 45% lower than those who were not so we're also pleased with that benefit that is being driven by the work. The good work that that team is doing.
Speaker Change: Got it got it and maybe just one last follow on funding.
David Scharf: And maybe just one last follow-up on one thing. In the press release, you had mentioned... This is the warehouse line for the court personnel. It just, you know, for another four or five, that Sure. Yeah, no, great question. So we've already...
David Scharf: Funding.
David Scharf: No.
David Scharf: In the press release, you had mentioned.
David Scharf: The warehouse line for the for our core personal loans. It's committed just for another four or five months I guess through September any update on.
David Scharf: Renegotiation of its new partners.
David Scharf: Is that.
David Scharf: Does that comes to maturity in September.
Jonathan Aaron Coblentz: So, we've already started working on a renewal, and we've got lots of interested parties. And so, I would say I don't have a specific update to share right now, but the process is going very well. And that's actually not surprising in the least to me, given the improvement in our credit performance and given the fact that warehouse lenders principally look towards the takeout opportunity in the asset-backed market. And as you may recall, which we shared on the last earnings call, in February, we came to market with a $200 million term ABS deal, and it was 10 times over-subscribed and priced substantially tighter than expected. So, the asset-backed market remains strong. We continue to have access, and that bodes well for a very successful, secured personal line renewal.
Jonathan Aaron Coblentz: Sure. Yeah, no. A great question.
Speaker Change: Sure Yeah no great question. So we've already started working on a renewal.
Jonathan Aaron Coblentz: And we've got lots of interested parties and so I would say I don't have a specific update to share right now.
Jonathan Aaron Coblentz: But the process is going very well and that's actually not surprising in the least to me given the improvement in our credit performance and given the fact that warehouse lenders principally look towards the takeout opportunity in the asset backed market and as you may recall, which we shared on the last earnings call in February.
Jonathan Aaron Coblentz: We came to market with a $200 million.
Jonathan Aaron Coblentz: Term ABS deal and it was 10 times oversubscribed and priced substantially tighter than expected so.
Jonathan Aaron Coblentz: The asset backed market remained strong we continue to have access and that bodes well for a very successful.
Jonathan Aaron Coblentz: Secured personal line renewal.
Jonathan Aaron Coblentz: Alright, Thanks warehouse renewal.
Speaker Change: Thank you David.
Operator: Thank you. The next question today is coming from Matt Hurwitz from Jefferies. Your line is now live.
Jonathan Aaron Coblentz: Thank you. Your next question today is coming from Matt <unk> from Jefferies. Your line is now live.
Matt Hurwitz: Hi guys, thanks for taking the questions. Just to continue from David's question, are there any balance sheet management actions or modifications to debt payments? Any upcoming balance sheet items in general to highlight?
Matt Hurwitz: Hey, guys. Thanks for taking the question.
Matt Hurwitz: To continue from David's question.
Matthew Benjamin Hurwit: Are there any balance sheet management actions or modifications to the debt payments are.
Matt Hurwitz: Any upcoming.
Matthew Benjamin Hurwit: Balance sheet items in general to highlight.
Jonathan Aaron Coblentz: No, I would say no.
Matthew Benjamin Hurwit: No I would say no.
Matt Hurwitz: Okay. And in terms of the STL product, are you able to share with us what percent of the portfolio that is at this time, or if not, what sort of runway you see for that product?
Jonathan Aaron Coblentz: Okay.
Jonathan Aaron Coblentz: And in terms of the STL product.
Matt Hurwitz: To share with us what percent of the portfolio that is at this time or if not what sort of runway do you see for that product.
Jonathan Aaron Coblentz: We actually disclosed that in the press release. We said that the SPL product at the end of March was 110 million dollars. So obviously, we've just, you know, relaunched, starting last quarter, the expansion into additional states. So we certainly expect that that will grow over the course of this year.
Speaker Change: Yes, we actually disclosed that it's in the press release.
Jonathan Aaron Coblentz: We said that the SPL product at the end of March was $110 million.
Jonathan Aaron Coblentz: Yeah.
Jonathan Aaron Coblentz: So obviously, we have just relaunched starting last quarter the expansion into additional states. So we certainly expect that that will grow over the course of this year and Matt that's under managed portfolio of about $3 billion.
Jonathan Aaron Coblentz: And Matt, that's on a managed portfolio of about $3 billion.
Jonathan Aaron Coblentz: Okay.
Matt Hurwitz: Okay, I understand. Thanks very much.
Speaker Change: Okay understood. Thanks, very much guys.
Speaker Change: Thank you.
Operator: Thank you. We've reached the end of our question and answer session. I'd like to turn the phone back over for any further closing comments.
Speaker Change: Thank you we've reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Raul Vazquez: We want to thank all of you for joining us on today's call, and we look forward to speaking with you again soon.
Speaker Change: We want to thank all of you for joining us on today's call and we look forward to speaking with you again soon.
Speaker Change: Thank you.
Operator: Thank you. That does conclude today's teleconference webcast, and we disconnect your line at this time. Have a wonderful day. We thank you for your participation today.
Speaker Change: And that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.