Oportun Financial Corp

Results of Operations

The following tables and related discussion set forth our Condensed Consolidated Statements of Operations (Unaudited) for each of the three months ended March 31, 2024 and 2023.

Total revenue

Interest income. Total interest income decreased by $7.0 million, or 3.0%, from $237.6 million for the three months ended March 31, 2023 to $230.6 million for the three months ended March 31, 2024. The decrease is primarily attributable to a$218.3 million decrease in our Average Daily Principal Balance from $3.1 billion for the three months ended March 31, 2023 to $2.9 billion for the three months ended March 31, 2024, a decrease of 7.1%. The decrease was partially offset by an increase in portfolio yield of 113 basis points in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Non-interest income. Total non-interest income decreased by $2.0 million, or 9.1%, from $21.9 million for the three months ended March 31, 2023 to $19.9 million for the three months ended March 31, 2024. The decrease is primarily due to a $2.6 million decrease in subscription revenue, interest income earned on Set & Save member accounts.

See Note 2, Summary of Significant Accounting Policies, and Note 12, Revenue, of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for further discussion on our interest income, non-interest income and revenue.

Interest expense

Interest expense. Interest expense increased by $15.5 million, or 39.7%, from $39.0 million for the three months ended March 31, 2023 to $54.5 million for the three months ended March 31, 2024. Our Cost of Debt has increased due to increases in interest rates and wider credit spreads on our new asset-backed securitization issuances. We expect our interest expense to increase as our asset-backed notes issued at lower interest rates amortize and are replaced with more expensive funding at current interest rates.

See Note 8, Borrowings, in the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for further information on our Interest expense and our Secured Financing and asset-backed notes.

Total net increase (decrease) in fair value

Net increase (decrease) in fair value reflects changes in fair value of loans receivable held for investment and asset-backed notes at fair value on an aggregate basis and is based on a number of factors, including benchmark interest rates, credit spreads, remaining cumulative charge-offs and borrower payment rates. Increases in the fair value of loans increase Net Revenue. Conversely, decreases in the fair value of loans decrease Net Revenue. Increases in the fair value of asset-backed notes decrease Net Revenue. Decreases in the fair value of asset-backed notes increase Net Revenue. We also have a derivative instrument related to our bank partnership program with Pathward, N.A. Changes in the fair value of the derivative instrument are reflected in the total fair value mark-to-market adjustment below.

• Not meaningful

(1)The fair value mark on loans sold shown for the three months ended March 31, 2024 includes $(33.5) million related to the cumulative fair value mark on the loans sold in other loan sales in Q1 2024. The fair value mark on loans sold shown for the three months ended March 31, 2023 includes $(37.2) million related to the cumulative fair value mark on loans sold in other loan sales in Q1 2023. This fair value mark on loans sold represents the life-to-date mark-to-market adjustment for the loans sold and is presented separately for the loans sold to assist in reconciling to our non-GAAP measure, Adjusted EBITDA.

Net increase (decrease) in fair value. Net decrease in fair value for the three months ended March 31, 2024 was $116.9 million. This amount represents a total fair value mark-to-market increase of $3.0 million, and $85.3 million of charge-offs, net of recoveries on Loans Receivable at Fair Value. The total fair value mark-to-market adjustment consists of a $28.9 million mark-to-market adjustment on Loans Receivable at Fair Value due to (a) a decrease in the discount rate from 11.07% as of March 31, 2023 to 9.10% as of March 31, 2024 (b) an increase in average life from 0.96 years as of March 31, 2023 to 1.03 years as of March 31, 2024, (c) offset by an increase in remaining cumulative charge-offs from 11.72% as of March 31, 2023 to 11.92% as of March 31, 2024. The $(27.1) million mark-to-market adjustment on asset-backed notes is due to increasing prices on our asset-backed notes due to lower medium-term interest rates and tighter spreads. The total net increase (decrease) in fair value includes a $(33.5) million and a $(37.2) million adjustment related to the fair value mark on loans sold for the three months ended March 31, 2024 and March 31, 2023, respectively.

Charge-offs, net of recoveries

Charge-offs, net of recoveries. Our Annualized Net Charge-Off Rate decreased to 12.0% for the three months ended March 31, 2024 from 12.1% for the three months ended March 31, 2023. Net Charge-offs for the three months ended March 31, 2024 decreased primarily due to our efforts to tighten our credit underwriting standards and focus lending towards existing and returning members to improve credit outcomes. As the average life of our loans is only one year, we expect the back book to become less impactful on our losses by the end of 2023. Consistent with our charge-off policy, we evaluate our loan portfolio and charge a loan off at the earlier of when the loan is determined to be uncollectible or when the loan is 120 days contractually past due and we charge-off a credit card account when it is 180 days contractually past due.

Operating expenses

Operating expenses consist of technology and facilities, sales and marketing, personnel, outsourcing and professional fees and general, administrative and other expenses.

Technology and facilities

Technology and facilities expense is the largest segment of our operating expenses, representing the costs required to build and maintain our A.I.-enabled digital platform, and consists of three components. The first component comprises costs associated with our technology, engineering, information security, cybersecurity, platform development, maintenance, and end user services, including fees for consulting, legal and other services as a result of our efforts to grow our business, as well as personnel expenses. The second component includes rent for retail and corporate locations, utilities, insurance, telephony costs, property taxes, equipment rental expenses, licenses and fees, and depreciation and amortization. Lastly, the third component includes all software licenses, subscriptions, and technology service costs to support our corporate operations, excluding sales and marketing.

Technology and facilities. Technology and facilities expense decreased by $9.8 million, or 17.2%, from $56.9 million for the three months ended March 31, 2023 to $47.1 million for the three months ended March 31, 2024. The decrease is primarily due to a $8.6 million decrease in wages and salaries, benefits and bonuses due to the 2023 reductions in force, a $2.3 million decrease in outsourcing and professional fees and a $1.8 million decrease in service costs, software and office rent. The decrease was partially offset by a $3.3 million decrease in capitalization of internally developed software following the 2023 reductions in force.

Sales and marketing

Sales and marketing expenses consist of two components and represents the costs to acquire our members. The first component is comprised of the expense to acquire a member through various paid marketing channels including direct mail, digital marketing, and brand marketing. The second component is comprised of the costs associated with our telesales, lead generation and retail operations, including personnel expenses, but excluding costs associated with retail locations.

Sales and marketing. Sales and marketing expense to acquire our members decreased by $3.2 million, or 16.6%, from $19.2 million for the three months ended March 31, 2023 to $16.0 million for the three months ended March 31, 2024. The decrease was attributable to a $3.2 million decrease in wages and salaries and benefits due to streamlining operations and reduction in outsourcing and professional fees. As a result of our increase in number of loans originated during thethree months ended March 31, 2024, our CAC decreased by 28.1%, from $192 thousand the three months ended March 31, 2023 to $138 for the three months ended March 31, 2024. We expect sales and marketing to decrease in 2024 compared to 2023, as we continue to optimize marketing investment allocation across channels, focus on higher credit quality segments, and drive efficiency in telesales and retail operations.

Personnel

Personnel expense represents compensation and benefits that we provide to our employees, and include salaries, wages, bonuses, commissions, related employer taxes, medical and other benefits provided and stock-based compensation expense for all of our staff with the exception of our telesales, lead generation, and retail operations which are included in sales and marketing expenses and technology which is included in technology and facilities.

Personnel. Personnel expense decreased by $12.8 million, or 34.3%, from $37.3 million for the three months ended March 31, 2023 to $24.5 million for the three months ended March 31, 2024. The decrease is attributable to a $12.9 million reduction in wages and salary, bonuses, stock-based compensation expense and benefits primarily driven by the 2023 reductions in force. We expect our personnel expense to decrease in 2024 compared to 2023 due to further cost reductions.

Outsourcing and professional fees

Outsourcing and professional fees consist of costs for various third-party service providers and contact center operations, primarily for the sales, customer service, collections and store operation functions. The costs related to our third-party contact centers located in Colombia and the Philippines are included in outsourcing and professional fees. These third-party contact centers provide business support, including application processing, verification, customer service and collections. Professional fees also include the cost of legal and audit services, credit reports, recruiting, cash transportation, collection services and fees and consultant expenses. Direct loan origination expenses related to application processing are expensed when incurred. In addition, outsourcing and professional fees include any financing expenses, including legal and underwriting fees, related to our asset-backed notes at fair value.

Outsourcing and professional fees. Outsourcing and professional fees decreased by $3.6 million, or 25.8%, from $13.8 million for the three months ended March 31, 2023 to $10.2 million for the three months ended March 31, 2024. The decrease is primarily attributable to a $2.1 million decrease in outsourced call center professionals due to a shift to in-house call centers and a $1.4 million decrease in consulting services related to our credit card program and professional recruiting services. We expect our outsourcing and professional fees to decrease in 2024 compared to 2023 as a result of our continued focus on strong expense discipline and streamlining operations.

General, administrative and other

General, administrative and other expense includes non-compensation expenses for employees, who are not a part of the technology and sales and marketing organization, which include travel, lodging, meal expenses, political and charitable contributions, office supplies, printing and shipping. Also included are franchise taxes, bank fees, foreign currency gains and losses, transaction gains and losses, debit card expenses, litigation reserve, expenses related to workforce optimization and streamlining operations, and Digit-related acquisition and integration expenses.

General, administrative and other. General, administrative and other expense decreased by $7.4 million, or 38.5%, from $19.2 million for the three months ended March 31, 2023 to $11.8 million for the three months ended March 31, 2024, primarily due to the $6.8 million reserve related to the February 2023 reductions in force not present in the current period. We expect our general, administrative and other expense to decrease in 2024 compared to 2023 as a result of our continued focus on strong expense discipline.

Income taxes

Income taxes consist of U.S. federal, state and foreign income taxes, if any. For the periods ended March 31, 2024 and 2023, we recognized tax expense (benefit) attributable to U.S. federal, state and foreign income taxes.

Income tax expense. Income tax benefit decreased by $35.4 million or 89.8%, from $39.4 million for the three months ended March 31, 2023 to $4.0 million for the three months ended March 31, 2024, primarily due to lower pretax loss for the three months ended March 31, 2024.

Valuation Allowance. As of March 31, 2024, we have $50.5 million of U.S. net deferred tax assets, of which $75.6 million is related to tax-effected net operating losses, tax credits, and other carryforwards that can be used to offset future U.S. taxable income. Certain of these carryforwards will expire if they are not used within a specified timeframe. At this time, we consider it more likely than not that we will have sufficient U.S. taxable income in the future that will allow us to realize these net deferred tax assets. However, it is possible that some, or all, of these tax attributes could ultimately expire unused. Therefore, if we are unable to generate sufficient U.S. taxable income from our operations, a valuation allowance to reduce the U.S. net deferred tax assets may be required, which would materially increase income tax expense in the period in which the valuation allowance is recorded.

See Note 2, Summary of Significant Accounting Policies, and Note 13, Income Taxes, of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for further discussion on our income taxes.