Q1 2025 Oportun Financial Corp Earnings Call
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Operator: Good morning, ladies and gentlemen, welcome to the Oportun Financial First Quarter 2025 Earnings Conference. At this time, all lines are in listen-only mode, and following the presentation, there will be a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.
Speaker Change: Good morning, ladies and gentlemen, welcome to the origin financial first quarter 2025 earnings Conference call.
Speaker Change: At this time all lines are in listen only mode and following the presentation. There will be a question and answer session.
Speaker Change: If at any time during this call you require immediate assistance. Please press star zero for the operator.
Operator: This call is being recorded on Thursday, May 8th, 2025.
Dorian: This call is being recorded on Thursday may eight 2025, I would now like to turn the conference call over to Dorian here. Please go ahead.
Dorian Hare: I would now like to turn the conference call over to Mr. Dorian Hare. Please go ahead. Thanks, and hello, everyone.
Speaker Change: Yeah.
Speaker Change: Thanks, and Hello, everyone with me to discuss opportunities first quarter 2025 results are rule Vazquez, Chief Executive Officer, and Paul Appleton, Our treasurer and head of capital market in Israel, Chief Financial Officer.
Dorian Hare: With me to discuss Oportun's first quarter 2025 results are Raul Vazquez, Chief Executive Officer, and Paul Appleton, our Treasurer, Head of Capital Markets and Interim Chief Financial 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, including projected adjusted ROE attainment and expected origination growth, planned products and services, business strategy, expense savings measures, and plans and objectives of management for our future operations. Actual results may differ materially from those contemplated or applied by these forward-looking statements, and we caution you not to place undue reliance on these forward-looking statements.
Speaker Change: Projected Adjusted R.O.E.A. team and expected origination growth, plan products and services, business strategy, expense savings measures, and plans and objectives of the industry for our future operations.
Speaker Change: Actual results make different materially from those contemplated or applied by these forward-looking statements and we question you not to place Underreliance on these forward-looking statements.
Dorian Hare: A 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.
Speaker Change: A more detailed discussion of the risk factors that could cause these results to different 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 10Q filing for the quarter ended March 31st, 2025.
Dorian Hare: including our upcoming Form 10-Q filing for the quarter ended March 31st, 2021. 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.
Speaker Change: Any four 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 comparison of 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 at 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. Our reconciliation of non-gap-to-gap financial measures is included in our earnings press release, our first quarter 2025 financial supplement, and the appendix section of the first quarter 2025 earnings presentation, all of which are available at the investor relations section of our website at investor.opportun.edu.
Speaker Change: Also on today's call, we will present both Gap and non-GAAP financial measures which we believe can be useful measures for the period to period comparison of our core business and which will provide useful information to investors regarding our financial condition in results of operation.
Speaker Change: A full list of definitions can be found in our earnings materials available at the Investor Relations section on our website.
Speaker Change: non-GAAP financial Measures are presented in addition to, and not as a substitute for, Financial Measures, Calculated in accordance with Gap.
Speaker Change: A reconciliation of non-gap-to- GAAP financial measures is included in our earnings press release our first quarter 2025 financial supplement and the appendix section of the first quarter 2025 earnings presentation.
Speaker Change: All of which are available at the Investor Relations section of our website at Investor.opportunin.com In addition, this call is being webcast. In an archive version will be available after the call along with their copy of our prepared remarks. With that, I will now turn the call over to Raul.
Dorian Hare: 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.
Raul Vazquez: With that, I will now turn the call over to Raul. Thanks, Dorian. And good afternoon, everyone.
Raul Vazquez: Thank you for joining I'd also like to welcome Paul to the call. We started 2025 with a strong first quarter, building on our momentum. We've now met or exceeded guidance for six consecutive quarters while consistently driving financial and operational improvements.
Raul: Thanks Dorian, and good afternoon everyone. Thank you for joining us. I'd also like to welcome Paul to the calls for the first time.
Raul: We started 2025 with a strong first quarter, building on our momentum from last year. We've now met or exceeded guidance for six consecutive quarters while consistently driving financial and operational improvements across the business.
Raul Vazquez: The four key headlines from Q1 are... Continuing Debt Profitability Improving credit performance. Responsible Originations Growth and Ongoing Expenses. First, we were profitable again in Q1, continuing the momentum we regained in Q2. Our Q1 net income of $9.8 million with a $36 million improvement year over year and drove an ROE of $11.6 million. The adjusted net income of $19 million dollars represented a $15 million dollar year-over-year Moreover, we generated $34 million in Majesty to Die, a $32 million We achieve these results primarily through a combination of originations growth, ongoing expense discipline, and improved credit. I want to reiterate that we expect to be profitable on a gap basis for a full year.
Improving credit performance, responsible originations growth, and ongoing expense discipline.
Raul: First, we regapped profitable again in Q1, continuing the momentum we regained in Q4. Our Q1 net income of $9.8 million was a $36 million improvement year over year and drove an R.O.E. of 11%
Raul: A jufted net income of $19 million represented a $15 million year-over-year increase.
Raul: Moreover, we generated $34 million of Adjustity to Die, a $32 million increase.
Raul: We achieved these results primarily through a combination of originations growth, ongoing expense discipline and improved credit performance.
Raul: I want to reiterate that we expect to be profitable on a gap basis for full year 2025.
Raul Vazquez: Regarding improved credit performance, our annualized net charge-off rate was 12.2%, which was at the low end of our guidance. Importantly, our underlying trends remain positive with dollar net charge-offs down year-over-year for the sixth consecutive year. Our 30 plus day delinquency rate was 4.7. marching the fifth consecutive year-over-year in this instance, by 56%. I'm pleased to inform you that following the first quarter, our 30-day plus day delinquency rate declined further to 4.5% at the end of the year. The guidance Paul will share reflects lower net charge-off rates in the quarter. Third, originations were $469 million during Q1, up 39% year-over-year.
Raul: Regarding improved credit performance, our annualized net charge off rate was 12.2% which was at the low end of our guidance range.
Raul: Importantly, our underlying trends remain positive with dollar net charge-offs down year over year for the 6th consecutive quarter.
Raul: Our 30-plus day delinquency rate was 4.7%, marching the fifth consecutive year-over-year decline, in this instance, by 56 basis points.
Raul: I'm pleased to inform you that following the first quarter are 30-day plus-day delinquency rate declined further, so 4.5% at the end of April .
Paul Appleton: The guidance Paul will share reflects no lower net charge off rates in the quarters ahead.
Paul Appleton: Third, Originations were $469 million during Q1, up 39% year over year. It's important to note that this gross reflects the unusually low baseline from 1-2-24.
Raul Vazquez: It's important to note that this growth reflects the unusually low baseline from 1Q21. Your personal loans accounted for 19% of our 1Q25 personal loans. This is constructive to credit quality because losses on secured personal loans were approximately 500 basis points lower than unsecured personal loan slides. Furthermore, $32 million or 7% of Q1 originations were sold. For Q2, we expect year-over-year growth in the 10 percent. supported by Continued Outperformance and Secured. Sequentially, we still expect Originations to rise from Q1's $469 million to a higher level in Q4, aligning with our current budget. However, given current macroeconomic uncertainty, we're prudently moderating our full year 2025 Originations Growth Outlook to approximately down from our prior 10% to 15% while maintaining tight And lastly, we reported $93 million in operating expenses down 15%.
Paul Appleton: The cured personal loans accounted for 19% of our 1 to 25 personal loan growth. This is constructive to credit quality because losses on secured personal loans were approximately 500 basis points lower than unsecured personal loans last year.
Paul Appleton: Furthermore, $32 million or 7% of key one originations were sold to partners.
Paul Appleton: For Q2, we expect you over-year growth in the 10% range, supported by continued out performance and secured personal loans.
Paul Appleton: Equentially, we still expect originations to rise from Q1's 469 million dollars to a higher level in Q4, aligning with her typical seasonal pattern.
Paul Appleton: However, given current macroeconomic uncertainty, we're prudently moderating our full year 2025 originations growth outlook to approximately 10% down from our prior 10 to 15% range while maintaining tight credit standards.
Paul Appleton: And lastly, we reported $93 million in operating expenses, down 15% year-over-year. We reduced total expenses while increasing our marketing expenditure by $4 million or 24% which drove our origination's growth.
Raul Vazquez: We reduced total expenses while increasing our marketing expenditure by $4 million, or 24%, which drove our origin. We continue to expect 2025 GAAP operating expenses of approximately $390 million or $97.5 million per quarter.
Paul Appleton: We continue to expect 2025 gap operating expenses of approximately $390 million or $97.5 million per quarter on average.
Raul Vazquez: Now let me update you on our progress across our three strategic improving credit outcomes, strengthening business economics, and identifying high- For more information visit www.FEMA.gov Regarding improving credit outcomes, we continue to adjust our models based upon member behavior and the trends observed. were making further adjustments to better align risk levels by loan amount based upon recent vintage and to enhance her V12 credit model with additional data. On strengthening business economics, I'm pleased that our Q1 adjusted ROE was 21%. We are confident in our progress towards consistently attaining full-year GAAP ROEs in the 20-28% And we're continuing to identify high quality originations by reinvesting in money.
Paul Appleton: Now, let me update you on our progress across our three strategic priorities, improving credit outcomes, strengthening business economics, and identifying high quality originations.
Paul Appleton: Regarding improving credit outcomes, we continue to adjust our models based upon member behavior and the trends observed in the communities we serve.
Paul Appleton: We're making further adjustments to better align risk levels by loan amount based upon recent vintage performance and to enhance our V12 credit model with additional data on new members.
Paul Appleton: I'm strengthening business economics. I'm pleased that our 2-1 adjusted our week was 21%.
Paul Appleton: We are confident in our progress towards consistently attaining full-year gap are a week into 20 to 28% range over the long term.
Paul Appleton: and we're continuing to identify high-quality originations by reinvesting in marketing, targeting new members with higher levels of free cash flow, and supporting our best existing members all within our conservative credit standards.
Raul Vazquez: targeting new members with higher levels of free cash flow and supporting our best existing. all within our conservative. We also remain focused on expanding our Secured Personal Loans portfolio, which we grew by 59% year-over-year to $178 million, or the 7% of our own portfolio.
Paul Appleton: We also remain focused on expanding our secured personal loans portfolio, which we grew by 59% year over year to $178 million or the 7% of our own portfolio in the first quarter.
Raul Vazquez: Finally, I'd like to preview our revised 2025. While we acknowledge the uncertainty in today's economic environment, it's worth noting that Oportun, founded in 2005, has weathered multiple macro shocks, beginning with the global financial crisis, and consistently emerging. We continue to monitor key indicators such as inflation, unemployment, yield crisis, and evolving government policies alongside our internal performance. Supported by our more efficient cost structure and improved credit performance, this positions us to remain agile and well-prepared as possible.
Finally, I'd like to preview our revised 2025 guidance.
Paul Appleton: While we acknowledge the insurventy in today's economic environment, it's worth noting that Opportun founded in 2005 as whether multiple macro shocks beginning with the global financial crisis and consistently emerged stronger.
Paul Appleton: We continue to monitor key indicators such as inflation, unemployment, fuel prices and evolving government policies alongside our internal performance metrics.
Paul Appleton: reported by our more efficient cost structure and improved credit performance, these positions us to remain agile and well-prepared as conditions involved.
Raul Vazquez: Despite the uncertain environment, our guidance reflects our commitment to continue to drive for Paul will share with you that factoring both our Q1 performance and the tapering of our originations growth expectations to 10%, we're reiterating our full year 2025 adjusted EPS are adjusted EPS guidance range of $1.10. to $1.30. continues to reflect strong growth of 53% to 81%.
Paul Appleton: Despite the uncertain environment, our guidance reflects our commitment to continue to drive performance improvement. Paul will share with you that factoring both our Q1 performance and the tapering of our originations growth expectations to 10%, we're reiterating our full year 2025 adjusted EPS expectations.
Paul Appleton: Our Adjusted EPS guidance range of $1.10 to a $1.30 continues to reflect strong growth of 53 to 81% over 2024's Adjusted EPS of 72 cents.
Raul Vazquez: Over 2024 suggested In summary, we turned the corner in 2024 and continued to make progress.
Paul Appleton: In summary, we turned the corner in 2024 and continued it to make progress in Q1.
Paul Appleton: We are focused on executing our three strategic priorities and ensuring that With that, I will turn it over to Paul for additional details on our financial and credit performance as well as Thanks, Raul, and good afternoon, everyone. As you can see on slide 5, we had a strong first quarter, exceeding the high end of our total revenue and adjusted EBITDA guidance, while coming in at the favourable end of our annualised net charge-offering guidance. As shown on slide 6, we delivered total revenue of $236 million in the first quarter. We were GAAP profitable for the second consecutive quarter with $9.8 million of net income and diluted EPS of 21 cents.
Paul Appleton: We are focused on executing our three strategic priorities and ensuring that momentum continues.
Paul Appleton: With that, I will turn it over to Paul for additional details on our financial and credit performance as well as our guidance.
Paul Appleton: Thanks Raul and good afternoon everyone. As you can see on Slide 5 we had a strong first quarter exceeding the high end of our total revenue and adjusted EBITDA guidance while coming in at the favorite end of our annualized net charge of rate guidance.
Paul Appleton: As shown on slide 6, we delivered total revenue of $236 million in the first quarter. We were gapped profitable for the second consecutive quarter with $9.8 million of net income and diluted EPS of $0.21.
Paul Appleton: We were also profitable on an adjusted basis for the fifth consecutive quarter with adjusted net income of $18.6 million and an adjusted EPS of $46 million. While maintaining credit discipline, originations of $469 million were up 39% year-over-year, which as Raul mentioned, reflected an unusually low baseline in Q4'24. Sequentially, originations were down 10% from Q4's $522 million, consistent with the typical seasonality we've observed in prior years. Total revenue of $236 million, declined by $15 million, or 6% year over year. This decline was primarily due to the absence of $11 million of credit card revenue in the prior year quarter.
Paul Appleton: We were also profitable on an adjusted basis for the fifth consecutive quarter with adjusted net income of $18.6 million and an adjusted EPS of $0.40 [inaudible]
Paul Appleton: While maintaining credit discipline, originations of $469 million were up 39% year-over-year, which as Raul mentioned reflected an unusually low baseline in Q424.
Paul Appleton: Sequentially, originations were down 10% from Q4's $522 million, consistent with the typical seasonality we've observed in prior years.
Paul Appleton: Total revenue of $236 million, declined by $50 million or 6% year-over-year [inaudible]
Paul Appleton: This decline was primarily due to the absence of $11 million of credit card revenue in the prior year quarter. As a reminder, we completed the sale of our credit card portfolio in November of last year, which was a creative to our bottom line.
Paul Appleton: As a reminder, we completed the sale of our credit card portfolio in November of last year, which was accretive to our bottom line. Our total net decrease in fair value of $73 million was primarily driven by current period net charge-offs of $81 million. Furthermore, higher-yielding assets drove a favorable $12 million mark-to-market adjustment on our loan portfolio. First quarter interest expense of $57 million was up $3 million year over year, as sub 3% pandemic era ABS issuances continue to pay down. Net revenue was $106 million, up 34% year-over-year, as lower fair value marks and lower net charge-offs more than offset lower total revenue and higher interest expense.
Paul Appleton: Our total net decrease in fair value of $73 million was primarily driven by current period net charge of $81 million. Furthermore, higher yielding assets drove a favourable $12 million mark to market adjustment on our loan portfolio.
Paul Appleton: Net revenue was $106 million, up 34% year over year, as lower fair value marks and lower net charges, more than offset, lower total revenue and higher interest expense.
Paul Appleton: As a reminder, we elected to stop accounting for new debt financings using the fair value method in 2023. And as a result, we expect a fair value impact on our asset-backed notes to be minimal after this year as prior financings approach maturity. Operating expenses of $93 million, down 15% from the prior year, reflecting our ongoing cost discipline. As Raul mentioned, we continue to expect full year 2025 operating expenses of approximately $390 million, averaging $97.5 million a quarter for a 5% reduction from 2024. The adjusted EBITDA, which excludes the impact of fair value mark-to-market adjustments on our loan portfolio and notes, was $34 million in the first quarter.
Paul Appleton: As a reminder, we elected to stop accounting for new debt financing using the fair value method in 2023. And as a result, we expect a fair value impact on our asset back notes to be minimal after this year as prior financing's approach maturity.
Paul Appleton: Operating expenses of $93 million, down 15% from the prior year, reflecting our long-sowing cost discipline.
Paul Appleton: As Raul mentioned, we continue to expect full year 2025 operating expenses of approximately 390 million, averaging $97.5 million a quarter for a 5% reduction from 2024.
Speaker Change: Adjusted EBITDA, which excludes the impact of fair value market adjustments on our own portfolio and notes, was $34 million in the first quarter.
Paul Appleton: This reflected a significant year-over-year increase of $32 million driven by cost reductions and credit performance improvements. As a result, our adjusted EBITDA margin increased year-over-year by 13.4 percentage points, from 0.8% to 14.2%. adjusted net income increased to $19 million, an improvement of $15 million from last year, principally driven by our reduced operating expenses along with improved credit performance. Adjusted EPS increased year-over-year from $0.09 to $0.45.
Speaker Change: This reflected a significant year-over-year increase of $32 million driven by cost reductions and credit performance improvement. As a result, our adjusted EBITDA margin increased year-over-year by 13.4 percentage points, from 0.8% to 14.2%.
Speaker Change: Adjusted net income increased to $19 million, an improvement of $15 million from last year, principally driven by our reduced operating expenses, along with improved credit performance.
Adjusted EPS increased year over year from $0.09 to $0.40.
Paul Appleton: Next, I'd like to provide some additional color on our strong Q1 credit performance. Our front book of loans, originated since July 2022, continues to perform quite well, while our back book of pre-July 2022 loans continues to roll off. As you can see on slide seven, our more recent credit vintages have generally outperformed their predecessors, and as a result, the losses on our front book 12 months after disbursement are now generally running approximately 600 basis points lower than our back book. Furthermore, you can see our annualized net charge-off rate for the quarter by front book versus back book on slide 8.
Speaker Change: Next, I'd like to provide some additional color on our strong Q1 credit performance.
Speaker Change: As you can see on slide seven, our more recent credit ventages have generally outperformed their predecessors, and as a result, the losses on our front book, 12 months after disbursement are now generally running approximately 600 basis points lower than our back book.
Speaker Change: Furthermore, you can see our annualized net charge of rate for the quarter by Frontbook, Thirties Backbook on Slide 8.
Paul Appleton: In Q1, the front book had an annualized net charge-off rate of 11.5%, near the 9-11% net charge-off range that we target in our unit economics model. The back book continues to decline, representing just 4% of the loan portfolio at quarter end, but accounting for 14% of gross charge-off. We expect the back book to further diminish to 1% of our portfolio by the end of 2025. Finally, as you can see on slide 9, our net charge-off rate was 12.2% in the first quarter, which was at the low end of guidance. Our Q1 net charge-off dollar declined by 5% while we reduced our 30-plus-day delinquency rate by 56 basis points, which bodes well for future credit performance.
Speaker Change: In Q1, the front book had an annualized net charge of rate of 11.5%, near the 9-11% net charge of range that we target in our unit economics model.
Speaker Change: The backbook continues to decline, representing just 4% of the loan portfolio at quarter end, but accounting for 14% of gross charge-offs.
Speaker Change: We expect the backward to further diminish to 1% of our portfolio by the end of 2025.
Speaker Change: Finally, as you can see on slide 9, Matt Charge Off Rate was 12.2% in the first quarter, which was at the low end of guidance.
Speaker Change: Our Q1 net charge of dollars declined by 5% while we reduced our 30-plus-date delinquency rate by 56 basis points which boasts well for future credit performance. So in summary, we continue to feel good about the quality of the credit we are originating.
Paul Appleton: So in summary, we continue to feel good about the quality of the credit we are originating.
Paul Appleton: Regarding our capital and liquidity, as shown on slide 11, we deleveraged by reducing our debt-to-equity ratio from 7.9 times to 7.6 times quarter over quarter, supported by GAAP profitability and $101 million in operating cash flow, of which $29 million was used to pay down debt. We've now reduced leverage meaningfully from 3Q24's peak level of 8.7 times. In late April and following the close of the first quarter, we fully satisfied the $12.5 million in mandatory payments due by July 31st on our corporate debt facility. Completing the payments three months ahead of schedule. Consequently, Oportun has no further mandatory corporate debt repayment obligations during the remainder of 2025.
Speaker Change: Regarding our capital and liquidity, as shown on slide 11, we de-leveraged by reducing our debt to equity ratio from 7.9 times to 7.6 times quarter over quarter.
Speaker Change: Supported by gap profitability and $101 million in operating cash flow, of which $29 million was used to pay down debt.
Speaker Change: We've now reduced leverage meaningfully from 3Q24's peak level of 8.7 times.
Speaker Change: In late April and following the close of the first quarter, we fully satisfied the $12.5 million in mandatory payments due by July 31st on our corporate debt facility, completing the payments three months ahead of schedule.
Speaker Change: Consequently, Oportun has no further mandatory corporate debt repayment obligations during the remainder of 2025.
Paul Appleton: As of March 31st, total cash was $231 million, of which $79 million was unrestricted, and $152 million was restricted. Further bolstering our liquidity was $317 million in available funding capacity under our warehouse line. Our continued access to the capital markets is well-established. Since June, 2023, Oportun has raised approximately $3 billion in diversified financings, including whole loan sales, securitizations, and warehouse facilities from fixed income investors and banks. The company maintains an exemplary record in the ABS market, having completed 24 transactions and issued $6.3 billion in notes to date from the Oportun shelf. As a reminder, in January we issued $425 million in ABS notes which freed up warehouse capacity for future origination.
Speaker Change: As of March 31, total cash was $231 million of which $79 million was unrestricted and $152 million was restricted further bolstering our liquidity was $317 million in available funding capacity under our warehouse lines.
I'll continue to access to the capital markets as well established.
Speaker Change: Since June 2023, Oportun has raised approximately $3 billion in diversified financing, including whole-owned sales, securitizations, and warehouse facilities from fixed income investors and banks.
Speaker Change: The company maintains an exemplary record in the ABS market having completed 24 transactions and issued $6.3 billion in notes to date from the Opertine shelf.
Thank you.
Speaker Change: As a reminder, in January , we issued $425 million in ABS notes which freed up warehouse capacity for future
Paul Appleton: The transaction was a significant success, oversubscribed by more than seven times and pricing at a 6.95% weighted average yield, 127 basis points lower than our previous transaction in August 2024. We also closed on a two-year, $187.5 million committed warehouse facility in April. This transaction increased our total committed warehouse capacity to $954 million with a diversified group of lenders, and our available funding capacity at the end of April was $417 million.
Speaker Change: The transaction was a significant success over subscribed by more than seven times and pricing at a 6.95% weighted average yield, 127 basis points lower than our previous transaction in August 2024.
Speaker Change: We also closed on a two-year $187.5 million committed warehouse facility in April .
Speaker Change: This transaction increased our total committed warehouse capacity to $954 million with a diversified group of lenders, and our available funding capacity at the end of April was $417 million.
Paul Appleton: Turning now to our guidance, as shown on slide 12, our outlook for the second quarter is total revenue of $237 to $242 million, annualized net charge-off rate of 11.9 percent plus or minus 15 basis points. and adjusted EBITDA of $29 to $34 million. Our Q2 total revenue guidance reflects a 4% year-over-year decline at the midpoint, which is almost entirely due to the absence of the prior year's credit card revenue. Our Q2 adjusted EBITDA guidance of $32 million at the midpoint reflects disciplined expense management and growth over 2Q24's level of $30 million. We expect our Q2 annualized net charge offer rate to be 11.9% at the midpoint of guidance, down approximately 40 basis points year over year.
Speaker Change: Turning now to our guidance, as shown on slide 12, our outlook for the second quarter is total revenue of $237 to $242 million.
Speaker Change: Annualized net charge of rate of 11.9% plus or minus 15 basis points and adjusted EBITDA of 29 to 34 million dollars.
Speaker Change: Our Q2 total revenue guidance reflects a 4% year-over-year decline at the midpoint which is almost entirely due to the absence of the prior year's credit card revenue.
Speaker Change: Our Q2-adjusted EBITDA guidance of $32 million at the midpoint reflects disciplined expense management and growth over 2Q24's level of $30 million.
Speaker Change: We expect our Q2 annualized net charge of rate to be 11.9% at the midpoint of guidance down approximately 40 basis points year over year.
Paul Appleton: We are reiterating all aspects of our full year 2025 guidance, including total revenue of $945 to $970 million. annualized net charge off rate of 11.5% plus or minus 50 basis points, adjusted EBITDA of $135 to $145 million, adjusted net income of $53 to $63 million, and adjusted EPS of $1.10 to $1.30. Our full year guidance reflects our first quarter performance, the uncertain macroeconomic environment and a slight tapering of our full year origination's growth expectation from our prior 10-15% range to around 10%.
Speaker Change: We are reiterating all aspects of our 4-year 2025 guidance, including total revenue of $945 to $970 million.
Speaker Change: Analyze net charge off rate of 11.5% plus or minus 50 basis points, adjusted Vettar of $135 to $145 million, adjusted net income of $53 to $63 million, and adjusted EPS of $1.10 to $1.30.
Speaker Change: Our full-year guidance reflects our first quarter performance, the uncertain macroeconomic environment and a slight tapering of our full-year originations growth expectation from our prior 10 to 15% range to around 10%.
Paul Appleton: Before I turn it back to Raul, I'd like to update you on our progress towards our long-term unit economics target. While our long-term targets are gap targets, I'll be using adjusted metrics for comparison because they remove non-recurring items and provide a better sense of our future run rate. It's clear on slide 14 that we continue to make significant progress in Q1. Adjusted ROE was 21%, which was a 17 percentage point year-over-year improvement. The increase was driven principally by cost reductions, improved credit performance, and a higher loan yield. Our North Star continues to be delivering GAAP ROEs of 20-28% annually, driven by reduced annualized net charge-offs to 9-11%, lowering operating expenses to 12.5% of our owned portfolio, and attaining annual growth of 10-15% in our owned loan portfolio.
Speaker Change: Before I turn it back to Raul, I'd like to update you on our progress towards our long-term
Speaker Change: While our long-term targets are gap targets, I'll be using adjusted metrics for comparison because they remove non-recurring items and provide a better sense of our future run rate.
Speaker Change: It's clear on slide 14 that we continue to make significant progress in Q1. Adjusted ROE was 21%, which was a 17% each point year over year improvement. The increase was driven principally by cost reductions, improved credit performance, and a higher loan yield.
Speaker Change: Our North Star continues to be delivering gap ROEs of 20 to 28% annually driven by reduced annualized net charge offs to 9 to 11%, lowering operating expenses to 12.5% of our own portfolio, and attaining annual growth of 10 to 15% in our own loan portfolio.
Paul Appleton: We also intend to return to our six-to-one debt-to-equity leverage ratio over the longer term by reducing our corporate debt outstanding and continuing to increase our gap profitability.
Raul Vazquez: Raul, back over to you. Thanks, Paul.
Raul back over to you.
Raul Vazquez: To close, I'd like to emphasize three key First, we're pleased to have carried 2024's momentum into 2025 by being GAAP profitable for the second consecutive quarter with a GAAP ROE of 11% and an adjusted ROE Second, we are closely monitoring the macroeconomic environment, have factored it into our outlook, and are adjusting our underwriting and And finally, we're reiterating our full year 2025 guidance expectations for revenue, adjusted earnings, and adjusted Adjusted EPS guidance range from $1.10 to $1.30 reflects strong growth of 53% to 81%. And we continue to expect to be profitable on a. Our strategic focus on improving credit performance, strengthening business economics, and prioritizing high quality originations is delivering consistent improvement.
Raul: Thanks, Paul, to close. I'd like to emphasize three key points. First, we're pleased to have carried 2024's momentum into 2025 by being gap profitable for the second consecutive quarter, with a gap ROE of 11% and an adjusted ROE of 21%.
Raul: Second, we are closely monitoring the macroeconomic environment, have factored it into our outlook and are adjusting or underwriting end expenses as needed.
Raul: And finally, we're reiterating our full year 2025 guidance expectations for revenue, adjusted earnings, and adjusted EBITDA.
Raul: Our Adjusted EPS guidance range of $1.10 to $1.30 reflects strong growth of 53% to 81% and we continue to expect to de-gap profit of a long-awaited year basis.
Raul: Our strategic focus on improving credit performance, strengthening business economics, and prioritizing high-quality originations is delivering consistent improvements in our performance.
Raul Vazquez: I'm deeply grateful to our employees and shareholders for their unwavering commitment as we continue to advance.
Raul: I'm deeply grateful to our employees and shareholders for their unwavering commitment as we continue advancing on this journey.
Operator: With that, Operator, let's open up the lines for questions. Thank you.
Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the 1 on your touch-tone phone. You will hear a three-tone prompt acknowledging that You do have a question. Should you wish to decline from the polling process, please press the star followed by the. If you are using a speakerphone, please lift the handset before pressing any key.
Thank you.
Raul: Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press this step or follow by the one untouched tone phone. You will hear three tone prompt acknowledging that
You do have a question.
Raul: Should you wish to decline from a polling process, please press the star followed by the two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment please for your first question.
Operator: One moment, please, for your first question.
John Hecht: Your first question comes from John Jeffries, please go ahead. Hey guys, how are you?
Your first question comes from John and Jeffries. Please go ahead.
John Hecht: It's John Hecht. My name is not John Jeffries, but I work at Anyway, congratulations on a lot of the progress here.
John Hecht: Hey guys, how are you? It's John Hecht. My name is not John Jeffries, but I work at Jeffries.
Speaker Change: Anyway, congratulations on a lot of the progress here. I guess Raul, maybe can you give us an update on online or digital loan application activity versus in branch? Are you seeing
Raul Vazquez: I guess, Raul, maybe can you give us an update on, you know, online or digital loan application activity versus in branch? And are you seeing any? Changes there, you know, in terms of mix and behavior, you know, on the front end of the loan origination.
Speaker Change: Change is there, you know, in terms of mix and behavior, you know, on the front end of the loan originations.
Raul Vazquez: Hi, John. Thank you for, let me start with thank you for the congratulations. We felt really good about the way that the team executed in Q1. You're going to see when we print our investor deck, we give a quick update on originations, you're going to see, you know, pretty stable. There's been a small shift, I think, on the order of two points from physical to online, quarter over quarter. As you know, we manage the business at a portfolio level, we develop the channels so that they all work together. So we're not seeing any big changes, just very, very modest change.
Speaker Change: Hi, John . Thank you for, let me start with, thank you for the congratulations. We felt really good about the way that the team executed in Q1.
Speaker Change: As you know, we manage the business at a portfolio level. We develop the channel so that they all work together. So we're not seeing any big changes just very very modest change.
Raul Vazquez: Okay, and then, you know, I know you're targeting a higher, you're growing the secured business relative to the overall book. You know is that a is there a way to kind of execute that? You know that that involves kind of trying to steer customers to that product or how or is it finding all new?
Speaker Change: Okay, and then, you know, I know you're targeting a higher, you're growing the secured business relative to the overall book.
Speaker Change: You know, is that a is there a way to kind of execute that you know that that involves kind of trying to steer customers to that product or or is it finding all new customers or how does that you know I guess maybe give us the update on that on that strategic objective.
Raul Vazquez: Customers or how does that you know I guess maybe give us the update on that on that strategic objective Sure, so I'm really pleased with the performance of Secure Personal Loans in Q1. The book grew about 59% year-over-year, so we were able to add about $66 million to the principal balance of that book. Average loan size came down, right? We think that this environment, it makes sense for us to continue to be very discerning and very thoughtful, so average loan size came down about $2200 year-over-year for Secure Personal Loans. So I like the growth. I like the fact that the growth was driven by units, not by loan size.
Speaker Change: Sure, so I'm really pleased with the performance of secure personal loans in Q1.
Speaker Change: The book grew about 59% year over year, so we were able to add about $66 million to the principal balance of that book.
Speaker Change: Average loan size came down, right? We think that this environment, it makes sense for us to continue to be very discerning and very thoughtful so Average loan size came down about $2,200, year over year for secure personal loans.
Speaker Change: So I like the growth. I like the fact that the growth was driven by units, not by loan size, and from a strategy perspective it's both the things that you talked about so from a user experience perspective. Thank you.
Raul Vazquez: And from a strategy perspective, it's both the things that you talked about. So from a user experience perspective, we continue to focus on presenting both products to our members and giving them the option of picking whichever product is going to meet their needs. And at the same time, our marketing group is certainly trying to figure out how do we create some specific strategies to try to bring in more people that are going to be interested in that product. It's now about 7% of our book, and our goal this year is to continue to drive growth faster in that part of the business and to continue to increase the penetration of that as a percentage of our book.
Speaker Change: We continue to focus on presenting both products to our members and giving them the option of picking whichever product is going to meet their needs.
Speaker Change: And at the same time our marketing group is certainly trying to figure out how do we create some specific strategies.
Speaker Change: to try to bring in more people that are going to be interested in that product.
Speaker Change: It's now about 7% of our book and our goal this year is to continue to drive growth faster in that part of the business and to continue to increase the penetration of that as a percentage of our book.
Speaker Change: Okay, that makes sense, and then last question is maybe any comments on competition just given to Kelly at the uncertainty in the macro backdrop and what opportunities or challenges that presents for you guys?
Raul Vazquez: Any comments on competition given the uncertainty in the macro backdrop and what opportunities or challenges that presents for you guys? Yeah, we've always felt that we compete very well with others. When you look at the all in cost for our product, it is very favorable to some of the alternatives that are out there. Thankfully, we think that the competitors continue to behave in a very rational way, right? I think pricing still reflects elevated cost of funds across the board. So we, we think that the competitive environment right now continues to be very constructive for us.
Speaker Change: We've always thought that we compete very well with others when you look at the all-in cost for our product.
Speaker Change: It is very favorable to some of the alternatives that are out there.
Speaker Change: Thankfully, we think that the competitors continue to behave in a very rational way, right? I think pricing still reflects elevated costs of funds across the board.
Speaker Change: So we think that the competitive environment right now continues to be very constructive for us, and that's part of what's allowing us to perform in this manner.
Raul Vazquez: And that's part of what's allowing us to perform in this manner.
John Hecht: Hey, appreciate that guys.
John Hecht: Thanks.
John Hecht: Thank you, John.
Ok, appreciate that guys, thank you.
Thank you, John [inaudible]
Operator: Thank you.
Chris Saki: And your next question comes from Chris Saki from Singular Research. Please go ahead. Yes, I'm in for Gowshi.
Speaker Change: Thank you. And your next question comes from Chris Sackie from Singular Research. Please go ahead.
Yes, I'm I'm in for Gowshi I'm
Chris Saki: Just, let's see, how much has in-app features, such as payment reminders and dynamic pricing, reduced customer acquisition costs for secured loans versus unsecured? Is this replicable in new or marked? Yeah, it's a great question. So when we look at our cost to acquire, we look at it across the entire business. I'm really pleased with the fact that our cost to acquire was very stable on a year-over-year basis. So it was $139 this quarter, $138 a year ago in Q1. In terms of whether it's the app, whether it is direct mail, our referral program was also something that grew a lot.
Raul Vazquez: We have 352% year-over-year growth in referrals. We really try to take a whole holistic approach to how we make people aware, number one, that Oportun exists and that we're a great value relative to other options. And then to your point, Chris, we also try to make them aware, as John was just asking about as well, we try to make them aware of the fact that we have both an unsecured product and then a secured product. The secured product gives us an opportunity to make loans that are about twice as large. We love the product also because it has losses that last year ran 500 basis points lower than the loss rate for unsecured loans.
Speaker Change: We love the product also because it has losses that last year ran 500.
Raul Vazquez: So we're really focused across all touch points, Chris. We're focused on driving awareness of secured personal loans.
Speaker Change: Basis points lower than the loss rate for unsecured loans, so we're really focused across all touch points, Chris. We're focused on driving awareness of secured personal loans.
Chris Saki: Okay, great.
Chris Saki: If you notice any unexpected shifts in repayment patterns or customer engagement since phasing out.
Okay. Great.
Chris: Have you noticed any unexpected shifts in repayment patterns or customer engagement since facing out physical checks? And how does this trend influence your fraud prevention strategy?
Raul Vazquez: How does this trend influence your fraud prevention strategy? So, no, I wouldn't say we've noticed anything unexpected. When we think about both delinquencies and losses, you can see that where we expect it to be from a guidance perspective. So the fact that delinquencies, for example, came in at 4.7%, down 56 basis points year over year for the quarter, we gave a sense of where April came in. April delinquencies were even lower, so we like that downward trend. So when we think about both payment behavior and the potential for fraud, there's nothing alarming and nothing unexpected.
Chris: You can see that we're where we expect it to be from a guidance perspective Thank you.
Chris: We gave a sense of where April came in. April delinquencies were even lower so we liked that downward trend. So when we think about both payment behavior and the potential for fraud there's nothing alarming and nothing unexpected. We're performing in line with guidance and obviously this is an area that our team is very very focused on.
Raul Vazquez: We're performing in line with guidance, and obviously this is an area that our team is very, very focused on.
Chris Saki: Okay, great.
Raul Vazquez: And then last, from me, so... So we're turning borrowers to over-originations, it looks like. Is this shift intentional to improve unit economics? And if so, what's the long-term feeling for new customers? From an acquisition perspective, the things that we've been focused on have been, number one, to your point, are returning borrowers we know are among our best borrowers. They generally get access to more capital, they have a lower cost to acquire, the loss levels are lower, so we're very pleased with growth on the returning side of the business. From a cost-to-acquire perspective, I wouldn't say that it's going to drive any shift there.
Okay, great. And then last from me, so...
Speaker Change: So we're turning borrowers through originations. It looks like is this shift intentional to improve unit economics and if so what's the long term feeling for new customer acquisition?
Thank you for tuning in.
Speaker Change: From an acquisition perspective, the things that we've been focused on have been number one to your point of returning borrowers we know are among our best borrowers.
Speaker Change: They generally get access to more capital, they have a lower cost to acquire the lost levels or lower, so we're very pleased with growth on the returning side of the business.
Speaker Change: From a cost to acquire perspective, I wouldn't say that it's going to drive any shift there. We want to continue to acquire high quality new borrowers.
Raul Vazquez: We want to continue to acquire high-quality new borrowers. We've mentioned in the past that we look, in this environment in particular, we look for new borrowers that are going to do better in the different scores that we use from an underwriting perspective. I think, as you know, we use a few proprietary scores. We're looking for new borrowers that have higher levels of free cash flow. We think that that helps position them well for any unexpected macroeconomic environment that may develop. So the new borrowers with those characteristics we know become attractive returning borrowers in the future, so we're going to continue to look for both, high-quality new borrowers and then focus on our great returning borrowers.
Speaker Change: We've mentioned in the past that we look in this environment in particular, we look for new borrowers.
Speaker Change: that are going to do better in the different scores that we use from an underwriting perspective I think as you know as you know we use a few proprietary scores in the first place.
Speaker Change: We're looking for new borrowers that have higher levels of free cash flow, we think that that...
Speaker Change: helps position them well for any unexpected macroeconomic environment that may develop. So, the new borrowers with those characteristics, we know become attractive returning borrowers in the future. So, we're going to continue to look for both high-quality new borrowers and then focus on our great returning borrowers.
Chris Saki: Okay, thanks for this answer. Thank you, Chris.
Thank you for choosing to watch.
Okay, thanks for the answers.
Thank you, Chris.
Brendan Mccarthy: Thank you. And your next question comes from Brendan McCarthy from Sudati. Please go ahead. Rick, good afternoon. Thanks for taking my questions here. I just want to start off on the macro outlook. You mentioned your tapering. Outlook for Originations for this year down to 10% at the lower level of that original 10 to 15%. outlook. But I guess what are you just curious as to what you're seeing in the macroeconomic picture to drive this decision? Or is it more just of a cautious approach for the rest of the year?
Speaker Change: Thank you. And your next question comes from Brendan McCarthy from Sedotti, please go ahead.
Brendan Mccarthy: Good afternoon. Thanks for taking my questions here. I just want to start off on the macro outlook. You mentioned you're tapering the outlook for Originations for this year down to 10% at the lower level of that original 10 to 15%.
Brendan Mccarthy: Outlook, but I guess what are you just curious as to what you're seeing in the macroeconomic picture to drive this decision? Or is it more just a cautious approach for the rest of the year?
Raul Vazquez: It's the latter. I mean, I think Chair Powell, right, stated it very well yesterday. There is uncertainty in the macro, right? It's not clear what level of tariffs are going to exist over what time period. And I think, as he stated yesterday, there is the potential for higher unemployment and for higher inflation. We're not seeing it yet, right? We think the job market for a blue-collar worker that earns $50,000, that's our core customer. We think the job market is really, really strong for our customer. But we think it makes sense right now to take a bit of a wait-and-see perspective, from a macro perspective.
Brendan Mccarthy: and for higher inflation. We're not seeing it yet, right? We think the job market for a blue-collar worker that earns $50,000. That's our core customer. We think the job market is really, really strong for our customer, but we think it makes sense right now to take a bit of a weight and see perspective from a macro perspective. Thank you.
Raul Vazquez: Wait a little bit. Hopefully, there will be more deals like the ones announced this morning by the administration. And if that happens, right, and the macro gets clearer that it's going to be a strong environment, then we'll move back up within the range of the 10% to 15%.
Brendan Mccarthy: But right now, Brendan, we just think it's prudent to be on the lower end of that range and just to wait and see. Understood. Thanks for that, Raul.
Brendan Mccarthy: But right now, Brendan, we just think it's prudent to be on the lower end of that range and just to wait and see.
I understood that thanks for that, Raul Vazquez.
Brendan Mccarthy: Tipeting to the operating expense outlook, it looks like for the first quarter, the number of 93 million came in well below the outlook for the average of right around 98 million.
Brendan Mccarthy: David Caintic, Richard Shane, Dorian Hare, Raul Vazquez, Jonathan Coblentz, Harold Goetsch, Brendan McCarthy, Gowshihan Sriharan, Oportun Fincl I guess what factors could cause meaningful underperformance there or higher operating expenses there for the year-end, or what factors could cause that number to stay fairly low on a quarterly basis going forward? Well, we're clearly focused on continuing to be disciplined from an OpEx perspective, Brendan. I liked your question because one of the things we've done, again, within this kind of framework of really thinking about what's the prudent level of growth today and then being able to watch the environment and see how it develops.
Brendan Mccarthy: I guess what factors could cause meaningful underperformance there or higher operating expenses there for the year end or what factors could cause that number to stay fairly low on a quarterly basis going forward?
Brendan Mccarthy: Well, we're clearly focused on continuing to be disciplined from an OPEX perspective, Brendan. I liked your question because one of the things we've done, again within this kind of framework
Brendan Mccarthy: of really thinking about what's the prudent level of growth today, and then being able to watch the environment and see how it develops.
Raul Vazquez: Within that framework, we decided that we were going to push some of the marketing dollars into the back half of the year so that that way, if there's more clarity on the macro environment, if inflation continues to stay low, the job market is as strong as it is today, then we've got some dry powder from a marketing perspective to drive growth at the back half of the year and position us for a great 2026. If the macro remains uncertain, then we won't spend those dollars and we'll have a lower OpEx than the 390 we're projecting today.
Brendan Mccarthy: Within that framework, we decided that we were going to push some of the marketing dollars.
into the back half of the year. [inaudible]
Brendan Mccarthy: So that that way, if there's more clarity on the macro environment, if inflation continues to stay low, the job market is as strong as it is today, then we've got some dry powder from a marketing perspective to dry growth at the back half of the year and position us for a great 2026.
Brendan Mccarthy: If the macro remains uncertain, then we won't spend those dollars and we'll have a lower op-ex in the 390 we're projecting today.
Brendan Mccarthy: Understood.
Brendan Mccarthy: Thanks, Raul. I appreciate the color.
Brendan Mccarthy: One last question from me.
Speaker Change: Thanks for all. I appreciate the color. One last question from me. I saw the announcement yesterday on the board evolution of opportune and just curious if you could provide additional color. I guess on the decision to ultimately shrink the size of the board and how investors can really think about that.
Raul Vazquez: I saw the announcement yesterday on the forward evolution of Oportune and just curious if you could provide additional color, I guess, on the decision to ultimately shrink the size of the board and how investors can really think about that. Sure, so the board determined that a smaller board size would be both more conventional and more efficient. The board also felt that this reflects feedback that we've heard from shareholders and it really underscores our commitment to thoughtful board evolution. The board regularly reviews its composition, ensures that it's got the right mix of skills and expertise to effectively oversee the business.
Speaker Change: Sure. So, the board determined that a smaller board size would be both more conventional and more efficient. The board also felt that this reflects feedback that we've heard from shareholders and it really underscores our commitment to the thoughtful board.
Speaker Change: Evolution. The board regularly reviews its composition, ensures that it's got the right mix of skills and expertise to effectively oversee the business.
Raul Vazquez: So I'd say those were the drivers, Brendan.
So I'd say those were the drivers, Brendan.
Brendan Mccarthy: Thanks, Raul. Appreciate the insight.
Brendan Mccarthy: That's all for me.
Thanks, Harold. Appreciate the insight. That's all for me.
Operator: Thank you.
Thank you.
Hal Goetsch: And your next question comes from Hal Goetsch from Beads Rally Security. Please go ahead. Hey guys, good continued performance here.
Speaker Change: Thank you. And your next question comes from how Goetschich from Beade Riley to Kennedy, please go ahead.
Hal Goetsch: You know, could you just go over some of the data you gave on the whole loan sales again? I mean, you grew Originations quite nicely above your target.
Hal Gochich: Hey guys, good performance here. Can you just go over to some of the data you gave on the whole loan sales? Again, I mean, you grew, originally it's quite nicely above your target. Can you just go over the whole loan sales and maybe how that impacted the quarter?
Raul Vazquez: Could you just go over the whole loan sales and maybe how that impacted the quarter? Sure, Hal. So first, thank you. We feel really good about the quarter. So within the $469 million of originations that we had, there are a couple of ways to think about that. Number one, secured personal loans drove about 19% of that Q1 growth, right? So for all the reasons that we've talked about already, that's a big strategic priority. We think of those as very high-quality originations, given the fact that it's twice the revenue, losses that are 500 basis points lower.
Speaker Change: Sure, how? So first, thank you. You'll really go about the quarter. So within the $469 million of originations that we had, there are a couple of ways to think about that.
Speaker Change: Number one, secure personal loans drove about 19% of that Q1 growth, right? So for all the reasons that we've talked about already
Speaker Change: That's a big strategic priority. We think of those as very high quality originations given the fact that it's twice the revenue losses that are 500 basis points lower. To your point, when we're able to grow at these levels, one of the things that we also want to do is be able to sell loans to partners. That's a big priority.
Raul Vazquez: To your point, when we're able to grow at these levels, one of the things that we also want to do is be able to sell loans to partners. So we had about $32 million of loans that were sold to our partners, right? Those are people that like the cash flows. We think of it as a signal that these are high-quality assets that partners want to own.
Speaker Change: to our partners. Those are people that like the cash flows. We think of it as a signal that these are high quality assets that partners want to own. Those are two of the ways to think about the growth that took place and you want.
Hal Goetsch: So those are two of the ways to think about kind of the growth that took place in Q1. Okay, thank you. Thank you, Hal. Thank you.
Thank you.
OK, thank you.
Thank you, help.
Thank you. Bye. Bye.
Operator: And just as a reminder, if you do have a question, please press star 1.
Thank you.
Speaker Change: And just as a reminder, if you do have a question, please press star one [inaudible]
Rick Shane: And your next question comes from Rick Shane from J.P.
Speaker Change: And your next question comes from Rick Shane from JP Morgan. Please go ahead.
Rick Shane: Morgan. Please go ahead. Hey Raul, hope you're well. I actually am sitting here and wondering if Jonathan is ignoring this call or is off listening and having a beer, but either way, I think we all wish him well. I did want to have, yeah, I did have one question and I apologize if this was covered, we've had multiple calls this afternoon. You guys had talked last quarter about incorporating risk associated with inflation into your underwriting models. Can you talk a little bit about how you do that? It feels to me like, given where we are, that's probably the most important consideration.
Rick Shane: Hey, Raul, hope you're well. I actually am sitting here and wondering if Jonathan is ignoring this call or is off listening and having a beer, but either way, I think we all wish him
Speaker Change: I did have one question and I apologize if this was covered. We've had multiple calls this afternoon.
You guys had talked last quarter about...
Speaker Change: Can you talk a little bit about how you do that? It feels to me like, given where we are, that's probably the most important
Raul Vazquez: Who knows what's going to happen, but it is the wild card. Yeah, I really appreciate that question, Rick. So I say at a high level, there are two ways to think about this. So just for context, for others that may not be quite as aware. One of the things that we do with our underwriting engine is as much as happens with our phones, there are major upgrades and then minor upgrades. So the major ones we think of is going from v9 to v10 to v11. And what you're referring to, Rick, is v12, which we introduced for the first time last year.
Speaker Change: consideration. Who knows what's going to happen, but it is the wild card.
Speaker Change: Yeah, I really appreciate that question, Rick, so I say at a high level.
Speaker Change: There are two ways to think about this. So just for context, for others that may not be quite as aware.
Speaker Change: There are major upgrades and then minor upgrades so the major ones we think of is going from V9 to V10 to V11 and what you're referring to Rick is V12 which we introduced for the first time last year.
Raul Vazquez: So v12, one of the benefits of v12 is it was trained using data from this inflationary period that we've had recently. So the underwriting model v12 is much more equipped to think about who are going to be the borrowers that we want to approve within this environment that still has the compounding effects of inflation that have taken place over the last few years. So v12 was built in that way. And one of the things that's already planned is in the coming weeks, we're actually going to do one of the minor updates in v12. So we're going to look at the performance over the last year.
Speaker Change: So V12, one of the benefits of V12 is it was trained using data from this inflationary period that we've had recently.
Speaker Change: So, the underwriting model V12 is much more equipped to think about who are going to be the borrowers that we want to approve within this environment that still has the compounding complex of inflation that have taken place over the last few years.
Speaker Change: Weeks, we're actually going to do one of the minor updates in V12. So we're going to look at the performance over the last year and we're going to go ahead and make some tweaks to V12 and then introduce that as part of our new underwriting approach. So that's one of the things that's going to help us in this uncertain environment.
Raul Vazquez: And we're going to go ahead and make some tweaks to v12 and then introduce that as part of our new underwriting approach. So that's one of the things that's going to help us in this uncertain environment. The other thing that we've talked about in the past is one of the things that we were able to do was to look for some signals of individuals who are applying today who are likely to take on additional debt, either at the same time or after taking on debt from Opportune. Right. This has been one of the challenges in our industry in the past.
Speaker Change: Either at the same time or after taking on debt from Oportun
Raul Vazquez: It's been loan stacking, in particular, when the economic times get a bit more challenging. So I think that that's another set of signals and data that our data scientists and engineers have been able to build into our underwriting approach. And both of those things are going to help us in this environment. Got it. And, you know, look, you guys had made the comment about sort of shifting to the lower end of your origination guidance. when is that a function of? increasing the Importance of The Inflationary Factor in your model, and can you really dial things up and down like that within the model on a real-time basis, say, hey, here are the 17 factors.
Speaker Change: You know, our data scientists and engineers have been able to build into our underwriting approach and both of those things are going to help us in this environment.
Speaker Change: Got it. And, you know, look, you guys have made the comment about sort of shifting to the lower end of your origination guidance.
When is that a function of
Importance of
Speaker Change: Can you really dial things up and down like that within the model on a real-time basis, say, hey, here are the 17 factors, inflation is, aside the 4%, we're more worried about it now, so we're going to wait that 7%.
Raul Vazquez: Inflation is assigned to 4%. We're more worried about it now, so we're going to wait that 7%. I mean, there are a lot of factors that we take into consideration. So the short answer is yes, we can dial it up and down. That's the short answer. But we're not just looking at inflation. For example, the team also looks at trends at a state level, at a metro level, even within states, at an industry level. And then we do take into consideration, to your point, Rick, we take into consideration things like inflation, fuel prices, unemployment, again, at a national and a state level.
Speaker Change: I mean, there are a lot of factors that we take into consideration, so that the short answer is yes, we can dial it up and down. That's the short answer.
Raul Vazquez: So all those things are taken into account when we decide what adjustments we want to make to the credit box. As a reminder, throughout the year, when we have targeted this 10 to 15% growth, it wasn't going to be by opening up the credit box. It was going to be by funding more marketing investments, right, to flow through the currently conservative credit parameters. So one of the things that we've done, as I mentioned earlier, is just dialed back on the marketing and pushed that into the back half of the year to be at the lower end of our 10 to 15% range.
Speaker Change: What adjustments do we want to make to the credit box? As a reminder…
Speaker Change: Throughout the year when we have targeted this 10% to 15% growth, it wasn't going to be by opening up the credit box, it was going to be by funding more marketing investment to flow through the currently conservative.
Speaker Change: Credit Parameters. So, one of the things that we've done, as I mentioned earlier, is just dial back on the marketing and push that into the back half of the year to be at the lower end of our 10 to 15% range.
Operator: Got it. Okay. And that was that was a comment I missed. I appreciate the feedback and the answers. It's a fun part of this job. It really is interesting and appreciate the insight. Thank you. Thank you, Rick. Thank you. And there are no further questions at this time.
Speaker Change: That was a comment I missed. I appreciate the feedback and the answers. It's a fun part of this job. It really is interesting and appreciate the insight. Thank you.
Thank you, Rick.
Speaker Change: Thank you and there are no further questions at this time. Mr. Vazquez, you may continue your conference.
Operator: Mr. Vazquez, you may continue your I 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. Ladies and gentlemen, this concludes your conference call for today. We thank you very much for your participation and we ask that you please disconnect. Have a great day.
Speaker Change: I 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.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today. We thank you very much for your participation and we ask that you please disconnect. Have a great day.