Oportun Financial Corp

Results of Operations

The following tables and related discussion set forth our Consolidated Statements of Operations for the years ended December 31, 2024 and 2023. For a discussion regarding our operating and financial data for the year ended December 31, 2023, as compared to the same period in 2022, refer to Part II, Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 15, 2024.

Total revenue

Interest income. Total interest income decreased by $38.0 million, or 3.9%, from $963.5 million for 2023 to $925.5 million for 2024. The decrease is primarily attributable to a decline in our Average Daily Principal Balance, which declined from $2.99 billion for 2023 to $2.77 billion for 2024, a decrease of 7.6%, offset by anincrease in portfolio yield of 125 basis points in the year ended December 31, 2024, compared to the year ended December 31, 2023.

Non-interest income. Total non-interest income decreased by $17.1 million, or 18.3%, from $93.4 million for 2023 to $76.3 million for 2024. This decrease is primarily due to a $11.3 million decrease in fees related to our Pathward program, $3.2 million decrease in subscription revenue, $2.4 million decrease related to the gain on loan sales, $2.1 million decrease attributable to a decrease in interchange and servicing fees due to the amortization of our serviced portfolio, and $1.1 million decrease in credit card and sublease income. The decrease was offset by a $3.0 million increase in interest earned on Set & Save member accounts.

See Note 2, Summary of Significant Accounting Policies, and Note 12, Revenue, of the Notes to the Consolidated Financial Statements 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 $58.7 million, or 32.7%, from $179.4 million for 2023 to $238.2 million for 2024. Our Average Daily Debt Balance decreased from $2.97 billion to $2.85 billion for 2024, adecrease of 4.1%. Our Cost of Debt hasincreased due to higher interest rates and credit spreads on current debt issuances as compared to lower cost funding issued in 2021 that is amortizing. Additionally, interest expense in 2024 included a $16.6 million write off of deferred financing costs related to our Corporate Financing, which was refinanced in the fourth quarter of 2024; excluding this write-off, cost of debt would have been 7.8%.

See Note 8, Borrowings, in the Notes to the Consolidated Financial Statements included elsewhere in this report for further information on our Interest expense and our borrowings.

Total net 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.

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(1)Thefair value mark-to-market adjustment on Loans Receivable at Fair Valuefor the year ended December 31, 2024, includes a fair value mark-to-market adjustment of $(33.7) million related to the credit cards receivable portfolio reclassified as held for sale. See Note 5, Loans Held for Sale and Loans Sold in the Notes to the Consolidated Financial Statements included elsewhere in this report for further information on Credit cards receivable held for sale.

(2)The fair value mark-to-market adjustment on loans receivable at fair value shown for the year ended December 31, 2023 and December 31, 2024, includes $(118.2) million and $(75.2) million, respectively, related to the cumulative fair value mark on loans sold in other sales in 2023 and 2024. 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 decrease in fair value. Net decrease in fair value for 2024 was $468.4 million. This amount represents a total fair value mark-to-market decrease of $69.3 million on Asset-backed notes, Loans Receivable at fair value, and our derivative assets. The total fair value mark-to-market adjustment consists of a $(1.7) million mark-to-market adjustment on Loans Receivable at Fair Value due toa decrease in remaining cumulative charge-offs from 12.10% as of December 31, 2023 to 11.68% as of December 31, 2024, a decrease in the discount rate from 10.10% as of December 31, 2023 to 7.92% as of December 31, 2024, and an increase in average life from 1.01 years as of December 31, 2023 to 1.11 yearsas of December 31, 2024. These were offset by a $33.7 million decrease in fair value associated with the sale of the credit cards receivable portfolio. The $(72.1) million mark-to-market adjustment on Asset-backed notes is due to falling rates and narrowing asset-backed securitization spreads. The net decrease in charge-offs, net of recoveries, for 2024 was $331.4 million. The total net decrease in fair value for the year ended December 31, 2024 includes a $(75.2) million adjustment related to the fair value mark on other loan sales in 2024. We expect to continue to see volatility in fair value primarily as a result of macroeconomic conditions.

Net decrease in fair value for 2023 was $596.8 million. This amount represents a total fair value mark-to-market decrease of $109.5 million on Asset-backed notes, Loans Receivable at fair value, and our derivative assets. The total fair value mark-to-market adjustment consists of a $(18.2) million mark-to-market adjustment on Loans Receivable at Fair Value due to an increase in remaining cumulative charge-offs from 10.38% as of December 31,2022 to 12.10% as of December 31,2023, partially offset by a decrease in the discount rate from 11.48% as of December 31,2022 to 10.10% as of December 31,2023. The $(100.0) million mark-to-market adjustment on Asset-backed notes is due to falling rates and narrowing asset-backed securitization spreads. The net decrease in charge-offs, net of recoveries, for 2023 was $363.8 million. The total net decrease in fair value for the year ended December 31,2023 includes a $(118.2) million adjustment related to the fair value mark on other loan sales in 2023.

Charge-offs, net of recoveries

Charge-offs, net of recoveries.

Our Annualized Net Charge-Off Rate decreased to 12.0% for the year ended December 31, 2024, from 12.2% for the year ended December 31, 2023. When measured in dollars, Net Charge-Offs decreased by $32.4 million for the year ended December 31, 2024. The annualized net charge-off rate decreased by 18 basis points due to an 8.9% decrease in total charge-offs net of recoveries, offset by a 7.6% decrease in average daily principal balance. Our annualized net charge-offs decreased in 2024 as loans from our back-book, originated prior to our significant credit tightening actions in July 2022, decreased as a percentage of our owned receivables. As of December 31, 2024, loans from our back-book represented only 5% of our owned receivables balance, and as a result, we expect the back book to become less impactful in 2025. 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. We anticipate operating expenses to decrease in 2025 as compared to 2024, primarily driven by the continued diversification of the workforce to lower-cost geographies and a reduction in non-essential vendor spend. This will be partially offset by additional investments in loan originations and portfolio growth.

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 multi-channel 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 $53.2 million, or 24.3%, from $219.4 million for 2023 to$166.2 million for 2024. The decrease is primarily due to a $21.7 million decrease in wages and salaries, $13.8 million decrease in services and software costs driven by lower usage, $8.0 million decrease in outsourcing and professional fees, $5.5 million decrease driven by the write-off of embedded finance, investing, and retirement products in 2023, $4.7 million decrease in office rent, and $2.7 million decrease in depreciation costs. Thedecrease was offset by a $4.0 million decrease in capitalization of internally developed software following the reductions in force in 2023 and 2024.

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 expenses to acquire our members decreased by $8.3 million, or 11.0%, from $75.3 million for 2023 to $67.0 million for 2024. Our net decrease in sales and marketing expenses during the year ended December 31, 2024 was primarily attributable to a $7.7 million decrease in wages and salaries due to the decrease in headcount following our efforts to streamline operations, $1.3 million decrease in service costs, $1.8 million decrease in our digital marketing and pay per lead channels, and $1.1 million decrease in our outsourcing and professional fees. This decrease was offset by a $3.5 million increase in our direct mail marketing channel. As a result of our increase in number of loans originated and decrease in our sales and marketing expenses during the year ended December 31, 2024, our CAC decreased by 22.4%, from $161 for the year ended December 31, 2023, to $125 for the year ended December 31, 2024.

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 $34.7 million, or 28.5%, from $121.8 million for 2023, to $87.2 million for 2024. The decrease isprimarily driven by our workforce optimization efforts in 2023 and 2024. We expect our 2025 personnel expense to be similar to the personnel expense for 2024.

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. 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. The costs related to our third-party contact centers located in Colombia and the Philippines are included in outsourcing and professional fees, however, both locations were closed during 2024.

Outsourcing and professional fees. Outsourcing and professional fees decreased by $8.6 million, or 18.8%, from $45.4 million for 2023 to $36.8 million for 2024. The decrease is primarily attributable to a $5.8 million decrease in outsourcing services, a $3.0 million decrease in professional services, credit reports and legal fees, and a $1.1 million decrease in accounting and auditing fees. These were offset by a $2.0 million increase in expenses associated with debt recovery and court filings.

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 acquisition-related expenses.

General, administrative and other. General, administrative and other expense decreased by $19.2 million, or 26.5%, from $72.4 million for 2023, to $53.2 million for 2024, primarily due to a decrease of $19.3 million driven by lower costs related to our workforce optimization, $6.5 million decrease in acquisition and integration related expenses, and $1.2 million decrease in postage and printing. These were offset by a $6.4 million increase related to impairment of right-of-use asset and fixed asset disposal of our San Carlos office and a $2.0 million increase due to loss on foreign currency exchange.

Income taxes

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

Income tax benefit. Income tax benefit decreased by $37.2 million or 50.5%, from $73.7 million for 2023 to $36.5 million for 2024, primarily resulting from lower pretax losses for the annual period ended December 31, 2024, the tax benefits of the return-to-provision adjustments and the generation of tax credits.

Valuation Allowance. As of December 31, 2024, we have $80.3 million of U.S. net deferred tax assets, of which $71.5 million is related to the 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 Consolidated Financial Statements included elsewhere in this report for further discussion on our income taxes.