Everyone and welcome to Sidoti's June small cap conference. My name is Brendan McCarthy, I'm an analyst here at Sidoti and I'm pleased to welcome Oportun Financial with us today. The ticker is OPRT. Joining us from the firm will be CEO Raul Vazquez and CFO Paul Appleton. Before I hand it over, a quick reminder. The Q& A tab is located right at the bottom of the screen there. 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 the audience for joining us. I'm Raul Vazquez, CEO of Oportun Financial. With me today are Paul Appleton, our Treasurer, Head of Capital Markets and interim CFO, and Dorian Hare, our SVP of Investor Relations. What I will be presenting today is our current investor presentation dated May 2025, which is on our investor relations website at investor.oportun.com. For those of you who are unfamiliar with Oportun, we provide loans and savings products to support hard-working individuals. Our mission, as you can see on this page, is to empower our members to build a better future. We do so through our three products, which I'll detail shortly, but those products are unsecured personal loans, secured personal loans, and our award-winning Set & Save savings product.
Our target market is comprised of thin file and no file, low to moderate income individuals who we feel 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'll now share more details regarding our product offering. Our responsibly structured credit products begin with unsecured personal loans which are the largest and most profitable part of Oportun's business. These unsecured loans allow us to serve our members with a fast and convenient way to address pressing financial needs such as car repair or a security deposit on an apartment that they want to rent.
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 first quarter of this year, the average loan size for our unsecured personal loans was approximately $3,200. The average term was 26 months and the weighted average APR was 35.7%, which, as I'll discuss soon, provides a strong value proposition for our members. We also offer a secured personal loan product, which is secured by members' automobiles. We are excited about the expansion of secured personal loans, which we grew 59% year- over- year to $178 million, or 7% of our own portfolio in 2024. Credit losses for secured personal loans were more than 500 basis points lower than for unsecured loans.
Furthermore, secured personal loans originated during the first quarter are expected to generate approximately twice the revenue per loan compared to unsecured personal loans, primarily due to the higher average loan sizes which as you see on this page were approximately $6,700 in the first quarter while the average term was 35 months and the weighted average APR was 35.1%. As I alluded to just a minute or two ago, our value proposition is supported by the fact that we deliver significant savings to our members as compared to the 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 than the Oportun pricing. We're proud to have helped 1.3 million members establish a credit history while saving them more than $2.4 billion in interest and fees.
When you think about those things, it's 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 our commitment to providing capital access specifically to underserved communities. I'd like to take a moment now to explain our proprietary underwriting engine, which is a key differentiator for how we operate and serve our members. Our underwriting is 100% centralized and 100% automated, with no exceptions. In fact, there is no one with the title of underwriter at Oportun. We have used AI and machine learning to analyze billions of data points, producing over 1,000 endnotes that enable highly precise credit and fraud decisions, including who we approve and for how much.
We leverage multiple independent frameworks in our decisioning, including our alternative data score, which allows us to score 100% of customers, even those without a credit file. We also leverage raw data from the credit bureaus to formulate our own custom bureau score, and because we verify incomes 100% of the time, we are able to formulate a borrower's ability to pay. In addition, our proprietary bank transaction model leverages 90 days of bank account activity to derive custom features that are leveraged in our machine learning model, in addition to features like average balance income and non sufficient funds, our custom features identify payments made to buy now, pay later lenders, and many cash advances from Dave, Chime, MoneyLion and others.
Most of these loan and cash advances are not reported to the credit bureaus, so this bank transaction model gives us valuable insight into other forms of credit that applicants may be using. We built an underwriting platform that can respond quickly and is even able to modify underwriting parameters overnight as market dynamics shift, which we think is especially important and valuable in times like these where we continue to experience some degree of uncertainty in the current macroeconomic environment. Now, I'd like to provide you with some color on our loan fulfillment and servicing beyond the lower pricing that I already talked about. We keep our members satisfied by offering a diverse set of channels, allowing them to engage with us in a way that suits them best.
In the first quarter of 2025, for example, 43% of loan applicants used multiple fulfillment channels, including our retail stores, contact centers, and our mobile and digital platform to complete their applications. Notably, 75% of applicants used our mobile or digital channel for at least part of their applications and 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. Now I'll provide you with more information on Set & Save, which is our savings product. It was rated the 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 more than $11.7 billion saved in total since the launch of the savings product. There is also a synergy between our credit and savings product. Our savings product fosters daily engagement with members even after they have repaid their most recent loan, while our credit solutions provide essential support for unexpected expenses beyond their savings. Building on the progress that we were able to deliver in 2024, we have continued to advance our three key strategic priorities in 2025, which are number one, improving credit outcomes, number two, strengthening business economics, and finally, 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 back book of loans shrinking to just 1% of our own portfolio by year end. On strengthened business economics, we're proud to have reported our second consecutive quarter of 20%+ adjusted ROEs with a level of 21% achieved in Q1. Furthermore, we expressed on our Q1 earnings call that we intend to grow loan originations in the 10% range this year which will drive future revenue growth and operating leverage. 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 at the same time deepening relationships with some of our best existing and returning members.
Levers to responsibly grow continue right for us to be the following. Number one, we're going to focus on growing secured personal loan originations, which accounted for 19% of personal loan growth during Q1 and has superior credit performance and unit economics. Number two, we're ramping up our referral program, which grew 352% in Q1 to enable $35 million of originations in the quarter. Finally, we're optimizing our pre screened programs to qualify high quality new members. Let me now shift to some details on our current underwriting practices and strong Q1 credit performance, which are a key testament to the significant progress that we've made.
A key pillar of how we successfully underwrite personal loans in this environment is the stability of our hard working members, which is an outcome driven by our credit underwriting model, which actively identifies people with high degrees of stability in their communities. I mentioned before that we verify incomes for personal loan members 100% of the time. For first quarter originations, the median gross income of approved borrowers was approximately $50,000. Additionally, our Q1 borrowers had an average of 5.2 years at their current job and 5.7 years at their current residence. Moreover, 92% 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.
Shifting to credit performance, you can see on slide 14 that our front book of loans, which was originated since July 2022, continues to perform quite well while our back book of pre-July 2022 loans continues to roll off. In addition, our recent front book credit vintages have generally outperformed previous vintages. As of our May 8 earnings call, losses on our front book 12+ months after disbursement were up to 600 basis points lower than those on our back book, an improvement over the 400 basis points that we had previously seen when tracking our front book performance. This progress really reflects our ongoing refinements to our credit model. You can see our annualized net charge-off rate for the first quarter disaggregated by front book versus back book on slide 15.
The front book had an annualized net charge-off rate of 11.5% which was near the 9-11% net charge-off range that we are targeting in our unit economics model. Importantly, our back book continues to decline, making up just 4% of our quarter-end loan portfolio. Yet its net loss rate was 23.1% and it still accounted for 14% of gross charge-offs. You can see a path towards us lowering our net charge-off rate further both in Q2 and in the second half as we think about the back book continuing to diminish and as we continue to feel good about the quality of the credit that we're originating in this environment. Now I'd like to turn the presentation over to Paul for a financial review including more details on our Q1 results.
The strong results he will share with you are a testament to our team's strong execution. We continue to be highly focused on driving shareholder value in 2025.
Paul.
Thanks Raul and good afternoon everyone. The company had a strong first quarter, exceeding the high end of our total revenue and adjusted EBITDA guidance while coming in at the favorable end of our annualized net charge-off rate guidance. We were 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. We were also profitable on a GAAP basis for the second consecutive quarter with a GAAP EPS of $0.21. During the first quarter, loan originations of $469 million were up 39% year- over- year, though this did reflect an unusually low baseline in the prior year. Quarter total revenue of $236 million was 6% lower than the prior year quarter driven primarily by the absence of credit card revenue.
We completed the sale of our credit card portfolio in November of last year, which was accretive to our bottom line. Net revenue of $106 million was up 34% year- over- year driven by lower fair value marks and lower net charge offs. Dollar net charge offs declined 5% in the first quarter, which, as Raul mentioned, was our sixth consecutive quarter of dollar net charge off declines. First quarter operating expenses of $93 million were down 15% from the prior year reflecting our ongoing cost discipline, and finally adjusted EBITDA, which excludes the impact of fair value mark to market adjustments, was $34 million in the first quarter. This was a $32 million year- over- year increase driven by the combination of lower operating expenses and improved credit performance.
Turning to our outlook for the full year, as Raul mentioned, we expect loan originations growth in the 10% range, which we think is a prudent level of growth given the macro uncertainty we've all observed in recent months. With this full year growth rate, we do expect originations to ramp through the year, reflecting the typical seasonality of the business. We continue to expect full year 2025 operating expenses of approximately $390 million, which would be a 5% reduction from 2024. On our May 8 earnings first quarter earnings call, we maintained our full year guidance with an adjusted EPS in the $1.10-$1.30 range and we also reiterated our expectation for full year GAAP profitability in 2025. Regarding our capital and liquidity in the first quarter, 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 3Q 2024's peak level of 8.7 times . In late April, we fully satisfied the $12.5 million in mandatory principal payments due by July 31st on our corporate debt facility, completing these payments three months ahead of schedule. Consequently, Oportun has no further mandatory corporate debt repayment obligations during the remainder of 2025. 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 through our warehouse lines. Our continued access to the capital markets is well established.
In the last 24 months, 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 25 rated transactions and issued $6.7 billion in bonds to date from the Oportun shelf. In our most recent ABS transaction that closed just last week, we issued $439 million of bonds. The most senior bonds were rated AAA by Fitch, which was a first for the company. The transaction was received positively by investors and resulted in favorable funding costs of 5.675%. This was 128 basis points lower than our last ABS transaction in January. 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.
Now, before I hand the call back to Raul, I'd like to update you on our progress towards our long term unit economics targets. We made 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, expense, improved credit performance, and a higher loan yield. We continue to focus on further optimizing credit performance, reducing expenses as a percentage of earned principal balance, and reducing leverage to drive improvement in shareholder returns on our path towards attaining 20-28% ROEs on a GAAP and full year basis over time. Raul, back over to you.
Thanks Paul. To close, I'd like to emphasize three key points. First, we're pleased to have carried 2024's momentum into this year by being GAAP profitable for the second consecutive quarter with a GAAP ROE of 11% and an adjusted ROE of 21%. Second, we are closely monitoring the macroeconomic environment, have factored it into our outlook and we are adjusting our underwriting and expenses as needed. Finally, on our May 8, April. I'm sorry, on our May 8 earnings call, as Paul just mentioned, we reiterated our full year 2025 guidance, expectations for revenue, adjusted earnings and adjusted EBITDA. Our adjusted EPS guidance range of $1.10-$1.30 reflects strong growth of 53% to 81%. In addition, we continue to expect to be GAAP profitable on a full year basis.
Our strategic focus on improving credit performance, strengthening business economics, and prioritizing high quality originations is delivering consistent improvements in our performance. With that, Brendan, we're happy to answer questions from you or the audience.
Fantastic. Thanks Raul. Thank you Paul for the overview. We can now open the floor for Q& A here. Why do not we start off with the secured personal loan product? I know there is very strong growth there in the first quarter, 59% year- over- year. Can you discuss the secured revenue mix trend and what level of revenue concentration in the secured product might make sense or would be optimal on a long term basis?
Sure. The mix continues to grow right on purpose. It is one of our major focus areas. I mentioned it within the goal of identifying high quality origination. Secured personal loans is one of our big, big objectives. I am really pleased with the work that the team is doing to go drive that percentage of the portfolio higher in terms of where we would like it to be. Our long term aspiration is to have a mix that is similar to OneMain's. OneMain is about 50% of their portfolio is secured, and that is certainly what we would like to achieve over time as well.
Great, that makes sense. In regards to the company's long-term charge-off target range of I think it's 9%-11%?
Correct.
You're looking at the growth in the secured in the SPL product. Maybe I guess you can talk about how exponential growth in that product or quicker growth or faster growth than anticipated might ultimately impact you reaching your charge-off rate objective.
It would be very helpful. We've shared over time that when we look at the performance from a credit perspective in secured personal loans, it is better than the unsecured personal loan product. In fact, for 2024, losses for the secured personal loan portfolio were 5 percentage points lower than they were for the unsecured portfolio. That is yet another reason why we like this product. Revenue is twice as high revenue per loan than it is for unsecured and credit performance is significantly better.
Got it. That makes sense. Looking at the balance sheet long term, do you have a target leverage, the target leverage level that you're comfortable with for the business?
We do.
We'd like to get to six times from a leverage perspective. That's our goal at this time. I'm really pleased with the progress that we've made. At our peak we were at 8.7 times . From a leverage ratio perspective, we ended the year at 7.9 times and at the end of Q1 we were down to 7.6. When we think about our uses of capital, the number one use is going to be to fund profitable growth in the portfolio. A very close second is going to be to continue to pay down debt and continue to make progress towards our goal of six times.
Great. Looking at the recent ABS deals that Paul mentions, a favorable rate experience there. Can you discuss what ultimately drove those deals and the pricing of those deals?
Thanks, Brendan. Yeah, we're really pleased with the outcome of the ABS transaction. That showed Oportun's ability to continue to access the capital markets in a more volatile macro environment. As the rating agency looked at our improvement in credit trends, that clearly reflected in the assumptions and the ultimate ratings we achieved. Investor demand was robust and we were very pleased to close that deal last week, freeing up our liquidity runway as we look forward to.
Got it. Roy, you mentioned the potential synergies between the credit products and the savings product. Do you disclose any maybe cross sales data or metrics as far as members who utilize both products? Just curious as to how you think about those two lines of business interacting.
We do not right now. We certainly know that strategically there is that benefit of maintaining a relationship after the loan ends. The number one priority right now for our savings team, aside from the mission benefit for our customers, are being able to build savings. The number one priority for our savings team is just generate cash, just run at high levels of profitability. The revenue contribution just for the savings product has two components to it. If someone is not a borrower, right, someone does not have a loan relationship with us, if they do not, then to use the savings product, they pay $5 a month, right. We get $60 a year of subscription revenue and then we basically get fed funds rate on the savings that are built up for that individual.
We're really, really pleased with the millions and millions of dollars of cash contribution and profitability that we've seen from that product over the last few years.
Got it, got it. Pivoting back to the balance sheet. You know, I know you mentioned paying down debt is a priority for the company at this point, but would you ever consider buying back shares, considering the current share price and where it trades relative to tangible book value?
At this time.
We think the best thing for the company and the best thing for our shareholders is the two priorities. Right. That I mentioned. Funding profitable growth that'll create a lot of benefits for the business and then paying down debt.
Got it. That makes sense. Turning to loan origination growth, can you share which distribution channels have been most attractive for growth and I guess which channels you view as, you know, relatively less attractive?
We like all of the channels and all of the channels contribute in very important and significant ways to our business. Thank you, Dorian. As you can see here, there's a nice balance from an origination perspective to all three of the channels. Our contact centers are happy to take a phone call from one of our members and go ahead and work through the application process. That tends to happen more with repeat borrowers, someone that already has a sense of what we're going to ask for. Having that be our top channel is something we're pleased with. Retail, you can see, is about a third of the originations in the first quarter, so a very important channel for us.
We think it maximizes the TAM because there are people there that, you know, want to meet with us in person, they want to make cash payments in person. Having a third of our originations really shows how important that channel is. Mobile has both the role of a fourth of our originations. As I mentioned in my comments, because of the multi channel business and the way that our channels can seamlessly interact with each other, 3/4 of applicants used mobile and digital in some way during their application. Our multi channel strategy, our strategy of being the most convenient provider where someone can deal with us in whatever way makes most sense for them, we think is really playing out nicely.
Got it. And then from a geographic perspective, you know what? Geographies have been performing better than others. And are there any specific geographies or states that you are not currently operating in that you'd eventually like to break into?
From a growth perspective, we're focused on growing across the nation. We're in about 41-42 states right now, from a lending perspective. We send direct mail in those locations, we do online advertising, and we certainly know that word of mouth is a big, big part of what we do. That part, from a geographic perspective, we're just looking for growth and we're looking to take share wherever we can. In terms of states that we're not in, New York is certainly a state that we think over time we would be able to help a lot of people there and be able to grow our customer base. The laws there at this time don't make it feasible for us to be able to lend there.
Certainly when I think about the business over a longer period of time, we would love to be in New York and some of the other states that we're not in today.
Got it. One last question here. I want to talk about the underwriting model. I know that we've discussed, you know, the recent V12 underwriting model has incorporated inflation data. Just wanted to talk about your outlook with the underwriting model. Do you foresee any other updates being made to the model as we look out over the next 12-18 months?
We do. As a reminder, V12 has really helped us from a credit perspective because it was trained with the largest data set we have ever used and included data from this recent inflationary time period. Very much a model that was tuned to underwrite in the environment that we are in today. That said, we have a lot of data scientists and engineers and product managers that continue to work on enhancing our models. The engineering team as well is really focused right now on version 12.5, which we would expect to release in the coming months. It is yet another set of tuning and adjustments to make V12 even better than it has been.
Fantastic. Raul and Paul, we really appreciate the overview and the detailed information. I know there may have been questions we did not get to. Feel free to contact Oportun directly or you can reach out to us here at Sidoti. Guys, thanks again for your time. We appreciate it.
Thank you. We're very grateful for the opportunity to talk about our business. Thanks, Brendan.
Thanks, everybody. Have a great day.