Okay, good afternoon, everybody, and welcome to Sidoti March Small Cap Conference. My name is Brendan McCarthy. I'm an analyst here at Sidoti, and I'm pleased to welcome Oportun Financial. The ticker is OPRT. Joining us from the company will be CEO Raul Vazquez and CFO Jonathan Coblentz. Quick reminder before we get going here, the Q&A tab is located at the bottom of your screen. Feel free to type in any questions throughout the presentation, and we can save time for Q&A towards the end. With that said, Raul, take it away.
Thank you, Brendan. We appreciate Sidoti's coverage of Oportun and being invited to speak today. I also want to thank all of you in the audience for joining us today. I am Raul Vazquez, CEO of Oportun Financial. With me today are Jonathan Coblentz, our Chief Financial Officer, and Dorian Hare, our SVP of Investor Relations. What I will be presenting today is our current investor presentation dated February 2025, which is on our Investor Relations website at investor.oportun.com. For those unfamiliar with Oportun, we provide loans and savings products to support hardworking individuals. Our mission is to empower our members to build a better future. We do so through our three core products, which I'll detail shortly: unsecured personal loans, secured personal loans, and an award-winning Set and Save savings product.
Our target market is comprised of thin file and no file low to moderate income individuals who are traditionally underserved. Our customer base is both English and Spanish speaking, and we seamlessly engage with them via our bilingual retail and contact center teams, as well as through our mobile app. I will now share more details on our product offering. Our responsibly structured credit products begin with our unsecured personal loans, which are the largest and most profitable part of Oportun's business. They allow our members a fast and convenient way to address pressing financial needs, such as car repair or a security deposit on an apartment they are renting. Our competitive differentiation in personal loans stems from our focus on underserved communities, our advanced technology and data capabilities, our AI-driven underwriting, and our ability to tailor our products to meet and exceed our members' expectations.
For loans originated in the Q4 of last year, the average loan size for our unsecured personal loans was approximately $3,300. The average term was 26 months, and the weighted average APR was 35.8%, which, as I'll discuss soon, provides a strong value proposition for our members. We're continuing to roll out our plans to expand our secured personal loan product, which is secured by members' autos. We are excited about the expansion of secured personal loans, which grew 38% year-over-year as of 4Q24, driven by its superior unit economics. In 2024, credit losses for secured personal loans were more than 500 basis points lower than unsecured loans, while revenue per loan was approximately 75% higher. This is primarily because, on average, secured personal loans in the Q4 were more than twice the size of unsecured loans.
The average loan size for our secured personal loans was approximately $6,700 in the Q4, while the average term was 35 months, and the weighted average APR was 35.1%. As I alluded to, our value proposition is supported by the fact that we deliver significant savings to our members as compared to alternatives that are generally available to them. With our APRs capped at 36%, competitor products and payday loans are, on average, seven times more expensive. We're proud to have helped 1.2 million members establish a credit history while saving them more than $2.4 billion in interest and fees. It is not surprising that we've been certified as a community development financial institution by the U.S. Treasury Department since 2009, which we consider validation of our mission-driven approach and commitment to provide capital access to underserved communities.
Beyond lower pricing, we keep our members satisfied by offering a diverse set of loan fulfillment and payment channels, allowing them to engage with us in the way that suits them best. In 2024, 53% of loan applicants used multiple fulfillment channels, including our retail stores, contact centers, and mobile and digital platform, to complete their applications. Notably, 73% of applicants used our mobile and digital channel for at least part of their applications. For payments, in addition to our direct locations, Oportun offers over 100,000 partner payment locations to our members at various PayNearMe, MoneyGram, and CheckFreePay affiliated facilities. Set and Save, our savings product, was rated number one app in its category by Bankrate in January and recognized by Forbes in October as an outstanding personal finance app for simplifying your money.
Members can seamlessly integrate their existing bank accounts into the platform and set personalized savings goals. Our AI engine then analyzes members' income and spending patterns to determine a safe, optimal allocation toward their goals. Funds are automatically transferred over time to help members reach their targets effortlessly. On average, our savings product helps members set aside $1,800 annually, contributing to a total of $11.4 billion saved since its launch. There is also a strong synergy between our credit and savings products. Our savings product fosters daily engagement with members even after they have repaid their most recent credit products, while our credit solutions provide essential support for unexpected expenses beyond their savings. Building on our progress in 2024, we will continue to advance our three key strategic priorities in 2025, which are improving credit outcomes, fortifying business economics, and identifying high-quality originations.
Regarding credit outcomes, we expect to reduce our net charge-off rate in 2025 by benefiting from our V12 credit model for a full year and from our Backbook of loans shrinking to just 1% of our own portfolio by year-end. We expect to attain an adjusted ROE in the teens, up from 8% in 2024, by generating 10%-15% full-year originations growth, returning to revenue growth by year-end, and targeting a 5% full-year decline in operating expenses. We will continue to identify high-quality originations by adhering to our current conservative credit standards, reinvesting in marketing, and attracting high-quality new members while deepening relationships with our best existing members.
As shown on slide 12, a key pillar of how we can successfully underwrite personal loans in this environment is the stability of our hardworking members, an outcome that's driven by our credit underwriting model, which actively seeks to identify people with strong stability in their communities. We ensure all borrowers, whether new or existing, undergo income verification before loan approval. For fourth-quarter originations, the median gross income of approved borrowers was approximately $50,000. Additionally, our borrowers had an average of 5.7 years at their current job and 6.4 years at their current residence. Moreover, 91% of our approved members had their loan proceeds disbursed to their U.S. bank accounts rather than opting to receive disbursements in the form of a check. Now, let's turn to our strong Q4 credit performance, a clear testament to the significant progress we've made.
Our front book of loans, originated since July 2022, continues to perform quite well, while our Backbook of pre-July 2022 loans continues to roll off. As shown on slide 13 of our investor presentation, our recent credit vintages have outperformed previous ones. As of our February 12th earnings call, losses on our front book, 12-plus months after disbursement, were up to 500 basis points lower than those on our Backbook, an improvement from the 400 basis points we had seen previously. This progress reflects our ongoing refinements to our credit model. Furthermore, you can see our annualized net charge-off rate for the Q4 by front book versus Backbook on slide 14. In total, our Q4 net charge-off rate of 11.7% was an improvement of 55 basis points year-over-year and the lowest level of losses since the Q3 of 2022.
The front book had an annualized net charge-off rate of 10.5%, which is within the 9%-11% net charge-off range that we are targeting in our unit economics model. Importantly, our Backbook continues to decline, making up just 5% of our year-end loan portfolio by the end of 2024, yet still accounting for 18% of gross charge-offs. In summary, we continue to feel very good about the quality of credit we are originating. Our credit performance and confidence in our underwriting model enabled us to return to originations growth in Q4 for the first time in 10 quarters. Originations of $522 million were up 19% year-over-year. On our February 12th earnings call, we stated that full-year 2025 originations would grow in the 10%-15% range, aligning with our unit economics model objective to grow our own portfolio by 10%-15% over time.
We also set the expectation on our earnings call that we would return to revenue growth by the end of this year. Now, I'd like to turn the presentation over to Jonathan for a financial review, including more details on our Q4 results. The strong results he will share with you are a testament to our team's execution and mark the beginning of a new chapter for Oportun. With the strong foundation we built in 2024, we are more focused than ever on driving growth and shareholder value in 2025. Jonathan?
Thanks, Raul, and good afternoon, everyone. We had a strong Q4 returning to GAAP profitability and meeting or exceeding our guidance expectations. We're confident that Oportun will build on this momentum in 2025, further enhancing profitability and achieving full-year GAAP profitability as we advance towards our long-term financial goals.
Total revenue of $251 million exceeded the top end of our prior guidance by $1 million and declined by 4% year-over-year, driven by a lower average daily principal balance in our personal loans portfolio due to prior credit-tightening actions. This impact was partially offset by a 155 basis point increase in portfolio yield to 34.2%. Given the successful completion of the sale of our credit card portfolio in mid-November, it's important to keep in mind that while the sale was accretive to the bottom line, our credit card business contributed $4 million of total revenue for Q4 2024 and $34 million for the full year. Q4 interest expense of $74 million was up $22 million year-over-year, primarily due to a one-time $17 million non-cash write-off of deferred financing costs related to the repayment of our prior corporate financing facility as part of our November refinancing.
Net revenue was $93 million, up 30% year-over-year, as lower net charge-offs and lower non-cash fair value marks on our asset-backed notes more than offset lower total revenue and higher interest expense. Turning now to operating expenses and efficiency, our $89 million in total operating expenses in Q4 reflected a 31% reduction from the prior year period. As noted on our earnings call, this figure includes approximately $6 million in one-time benefits that are not expected to recur as part of a normalized run rate. Accordingly, we set on our February 12th earnings call to expect $97.5 million in quarterly operating expenses for 2025, reflecting our $95 million exit rate, plus a modest increase in marketing investment to drive originations growth. We're pleased to have returned to GAAP profitability with $9 million in net income, a $51 million year-over-year improvement, and diluted EPS of $0.20.
Adjusted net income was $22 million, a $30 million improvement compared to the prior year quarter, resulting in adjusted EPS of $0.49. These improvements were principally driven by our sharply reduced cost structure along with improved credit performance. Adjusted EBITDA, which excludes the impact of fair value mark-to-market adjustments on our loan portfolio notes, was $41 million for the Q4. This reflected a year-over-year increase of $31 million, or 315%. Our adjusted EBITDA performance exceeded the high end of our guidance by $11 million, primarily on lower-than-anticipated operating expenses and net charge-offs. Regarding our capital and liquidity, as shown on slide 22, we deleveraged during Q4 by reducing our debt-to-equity ratio from 8.7 times to 7.9 times quarter over quarter, as we were GAAP profitable and utilized part of the $91 million of our operating cash flow to reduce debt outstanding by $49 million.
As of December 31st, total cash was $215 million, of which $60 million was unrestricted and $155 million was restricted. Further bolstering our liquidity was $776 million in warehouse lines and remaining whole-loan sale agreement capacity of $45 million. Following the Q4 in January, we issued $425 million in ABS notes. The transaction was a significant success, being over seven times oversubscribed and pricing at a 6.95% weighted average yield, 127 basis points lower than our previous August 2024 transaction. Our access to capital markets is well established since June of 2023. Oportun has raised approximately $2.8 billion in diversified financings, including whole-loan sales, securitizations, and warehouse agreements from fixed-income investors and banks. We anticipate we will come to market a few more times this year with ABS deals. Before handing the call back to Raul, I'd like to update you on our progress towards our long-term unit economic targets.
While our long-term targets are GAAP targets, I'll be using adjusted metric actuals for comparison because they remove non-recurring items and provide a better sense of our future run rate. It's clear that we made significant progress in Q4. Adjusted ROE was 25%, which was a 33 percentage point year-over-year improvement. The increase was driven principally by cost reductions, a higher loan yield, and lower net charge-offs. Full-year 2024 adjusted ROE was 8%, a 23 percentage point improvement over full-year 2023. While we're pleased to have reached the 20-28% adjusted ROE range in Q4 at 25%, our goal is to sustain this level annually. Slide 18 shows how we will continue to focus on improving our credit performance, reducing expenses as a percentage of owned principal balance, and reducing leverage to drive improvement in shareholder returns. Raul, back over to you.
Thanks, Jonathan.
To close, I'd like to emphasize three key points. First, we're pleased with our return to GAAP profitability in the Q4 and with our quarterly GAAP ROE of 10% and adjusted ROE of 25%. Second, we have a clear line of sight towards substantially improving our profitability from 2024's levels, and we expect to be GAAP profitable on a full-year basis. Confident in our outlook, on our February 12th earnings call, we increased our full-year 2025 adjusted EPS expectations by 7% at the midpoint to $1.10-$1.30, reflecting 53%-81% year-over-year growth. Finally, our February 12th guidance indicated that we will generate an adjusted ROE in the teens this year while making progress towards 20%-28% ROEs on an annual basis. We see a bright future ahead for Oportun by remaining laser-focused on improving credit outcomes, fortifying business economics, and identifying high-quality originations.
With that, Brendan, we're happy to answer questions from you or the audience.
Fantastic. Thanks, Raul. Thanks, Jonathan, for the overview. We can now open up for Q&A here and a couple of questions from our attendees. Our first one here involves the state of the consumer and really the financial health of your borrowing base. I guess, do you see any changes with consumers, you know, maxed out on their credit cards amid, you know, a higher interest rate environment? Maybe you just talk about the state of the borrowing base a little bit.
Yeah, on the state of the borrowing base, we continue to believe that given the adjustments that our consumer, our target consumer, has made in their own budgets and given the adjustments we made in our underwriting, that this is a constructive environment for us to make loans, right?
We continue to watch the macro very carefully, so I really like this question. Among the positives, I think our number one, it continues to be a very strong job market, in particular for blue-collar workers, right? That's who we serve. Median gross income we talked about is $50,000, so we like the job market. At the same time, right, we're keeping a close eye on inflation, as I think everyone is today, and overall macro conditions. Again, today we think it's constructive, right? Our credit metrics indicate that we can continue to look for this very modest 10%-15% growth, but we watch the environment carefully.
Got it. And you, you know, pointed to or hinted at, you know, the return to loan origination growth this year in fiscal 2025.
Maybe you could discuss your current go-to-market strategy as well as marketing efforts as it relates to that outlook.
Sure. Dorian, could you go to the—happy to do it. Dorian, could you please go to the slide that shows our channels? We alluded to this in our comments. We really go to market through a combination of three channels. We built a multi-channel business, and you see the three channels here on the left side. They are our retail channels, so we have 128 physical locations, and then we offer our loans through 490 partner locations. Think of them as locations that are paid for and staffed by our partners, but where they make Oportun loans available. That retail channel generated 34% of the loans that we originated in 2024. Our contact centers are basically two contact centers in which people can call us.
They tend to be already familiar with the application process. They know what we're going to ask of them, and as a consequence, they're very comfortable making a phone call, talking to one of our employees, and going through the application process that way. That's 43% of the loans originated in 2024. That's actually our top channel, and we like that channel because we see a lot of our repeat borrowers, who are among our best borrowers, use that channel to go ahead and, you know, start an application process and get a loan from us. Finally, we've got the mobile and digital channel that, although it says here is only 23% of loan originations, it was involved in about three quarters of applications in one way, shape, or form.
That is because we did create these channels where they could complement each other to be able to provide the most convenient means of getting a loan in the market, right? We think that convenience is one of the things that we really deliver. That is how our members come to us. The way they find out about us tends to be things like direct mail. We do do some digital advertising, and then word of mouth is a really, really big part of our business. We get a lot of high-quality originations through our customer referral programs as well.
Great. That is helpful. Could you provide an update on views related to the first two months of the Trump administration? Have you seen any regulatory change or potential for regulatory change, as well as early client response?
I want to be careful in terms of the fact that we're in March here, so we don't want to discuss anything that has to do with Q1 performance. I think to answer that question broadly, I think the whole financial services industry viewed the Trump administration as being positive for the industry. Certainly when Trump won the election, our whole sector saw stock prices move up, as did Oportun. So far, we would say that what we've seen from a policy perspective has been constructive.
Great, great. You mentioned, you know, pretty positive growth outlook for the SPL product. Perhaps you could talk about, you know, what kind of revenue mix you might expect Oportun to have in the coming years or quarters, and maybe just discuss what impact that might have on the loan portfolio as well as credit metrics and portfolio yield.
Yeah, we're big believers in our SPL product. We shared that it grew 38% year-over-year in Q4, so certainly growing faster than the core of the business, but it's off of a relatively small base. SPL represents 4%-5% of our lending portfolio. It is an objective of ours to increase the penetration of SPL in the business because, as we mentioned, revenue per loan tends to be about 75% higher. Losses are about five basis—I'm sorry, 500 basis points or five percentage points lower. The overall economics for SPL are really accretive to the business. We are trying to grow the SPL portion of the portfolio faster than the overall business. We really like this business.
Got it. We have a couple of questions from the attendees on the Findell Capital letter released this morning.
I know Oportun just recently released a press release, so maybe I'll just turn it over to you to perhaps address that however you'd like.
I think the first thing I would say is, as a company, we certainly value the input from all investors. Specifically with Findell, we've engaged actively, repeatedly, and in good faith with them for some time, striving to foster a constructive and collaborative relationship, really with the goal of enhancing value for all shareholders, right? That's what Findell wants. That's what we want as well. I think for kind of specific elements, I would point people to the response that we just published recently.
Got it. Maybe we could switch to the Backbook. I know you mentioned that should be roughly 1% of loans receivable looking at the end of 2025.
I guess, do you see the need or maybe the desire to change underwriting or credit performance at the end of this year and maybe any propensity for a higher average loan size?
When we think about adjustments to the risk engine, if you could go to slide 13, please, Dorian, and just bring that slide back up. One of the things that we've been presenting over the last year or so is a view of credit performance by quarterly vintage. The way that we've built our risk engine allows us to make both broad and very fast changes if we need to. That is very useful at times, like say the pandemic, right, where we realized that the world was changing and that we needed to make some very fast adjustments across the entire portfolio.
The risk engine allows us to do that, but the risk engine also allows us to make very granular changes as well. What we really like and what we hope investors respond to positively is that you see here that we continue to fine-tune the risk engine, and that has led to the situation that you see on the slide where Q1 2024 performance is better than the prior quarter, Q4 2023, which is better than the prior quarter and better than the prior quarter, right? Every subsequent quarter is better because of the fine-tuning of the risk engine. This is what we do all the time, right? We have a lot of data scientists, engineers, and credit risk analysts that look for opportunities to keep fine-tuning the engine.
Yes, we would expect to continue to make adjustments to the risk engine throughout the year, much as we've done here. We really like V12 and the underlying performance that we see from V12. The improvements in credit will come from having V12 for all year and then these ongoing adjustments.
Great. Perhaps we could turn to the lending partnerships. I know Oportun has pretty substantial or significant partnerships with Pathward as well as a relationship with Western Union. Maybe you could just talk about the value proposition of those two relationships.
Yeah, the partnerships, to your point, Brendan, are very valuable to us.
The relationship with Pathward is one in which we do the marketing for loans, they originate the loans, and that puts us in an opportunity to be able to serve nationwide in partnership with them, be able to serve most of the country with the responsible, affordable loans that Oportun provides. That has been a great partnership. We stepped into that partnership with them in 2021, and we think it has been mutually beneficial. The partnership with Dolex, Barri, and Western Union is slightly different. That is one in which at their locations, they serve their customers with their core products. Those are money service businesses, so they provide their services, but they also then market a loan.
If they have one of their customers that they believe is interested in a loan, they tell them about the relationship with Oportun, and then they give us an opportunity to be able to connect with that customer and start to take them through the loan application process. Both means of increasing awareness and consideration of Oportun, but done differently.
Great. That's helpful. Maybe we'll conclude on one more question. Just talk about, you know, maybe what investors might be misunderstanding about Oportun's story and why now is a particularly good time to take a look at the stock price or at the stock.
Yeah, I think I would say there are two ways to view the Oportun story, right. One is to look at the past, right, and to focus on the challenges that we had in 2022 and 2023.
There is certainly a group of people that are very focused on that. I think there is another group of people that look at the fact that we made changes to our product assortment, we made changes to our pricing, right? We made changes to our operating expenses and became a leaner, more focused version of Oportun. That group of investors is looking at where we are today and where we are going. We mentioned in our comments that we think this is the beginning of a new chapter for Oportun. That leaner, more focused company has returned to GAAP profitability, has given guidance to full GAAP profitability for this year and a significant increase in profitability, right? I would say that is the biggest distinction right now.
Those investors that are looking at where we're at and where we're going, we think are the ones that have really driven the superior performance in the stock price over the last 12 months.
Fantastic. Raul and Jonathan, we really appreciate the overview and the detailed insight. We'll conclude the conference there. Thanks everybody for your time.
Thank you very much, Brendan. Thank you everyone for joining.
Thanks everybody. Have a nice day.