Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number 001-39050

OPORTUN FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)



Delaware		45-3361983
State or Other Jurisdiction of Incorporation or Organization		I.R.S. Employer Identification No.

2 Circle Star Way
San Carlos,	CA	94070
Address of Principal Executive Offices		Zip Code

(650) 810-8823

Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	OPRT	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Smaller reporting company	☐
Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The number of shares of registrant’s common stock outstanding as of November 8, 2019 was 27,001,251.



TABLE OF CONTENTS
GLOSSARY

PART I ‑ FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations and Comprehensive Income	5
	Condensed Consolidated Statements of Change in Stockholders' Equity	6
	Condensed Consolidated Statements of Cash Flow	8
	Notes to the Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	47

PART II ‑ OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults Upon Senior Securities	77
Item 4.	Mine Safety Disclosures	77
Item 5.	Other Information	77
Item 6.	Exhibit Index	78

SIGNATURE		79

GLOSSARY

Terms and abbreviations used in this report are defined below.



Term or Abbreviation		Definition
30+ day delinquency rate		Unpaid principal balance for our loans that are 30 or more calendar days contractually past due as of the end of the period divided by owned principal balance as of such date
Active customers		Number of customers with an outstanding loan serviced by us at the end of a period. Active customers includes customers whose loans are owned by us and loans that have been sold that we continue to service. Customers with charged-off accounts are excluded from active customers
Adjusted EPS		Adjusted EPS is a non-GAAP financial measure calculated by dividing Fair Value Pro Forma Adjusted Net Income by adjusted weighted-average diluted common shares outstanding. Weighted-average diluted common shares outstanding have been adjusted to reflect the conversion of all preferred shares as of the beginning of each annual period
Aggregate originations		Aggregate amount disbursed to borrowers during a specific period. Aggregate originations excludes any fees in connection with the origination of a loan
Annualized net charge-off rate		Annualized loan principal losses (net of recoveries) divided by the Average daily principal balance of owned loans for the period
AOCI		Accumulated other comprehensive income (loss)
APR		Annual Percentage Rate
Average daily debt balance		Average of outstanding debt principal balance at the end of each calendar day during the period
Average daily principal balance		Average of outstanding principal balance of owned loans at the end of each calendar day during the period
Board		Oportun’s Board of Directors
Cost of debt		Interest expense divided by average daily debt balance
Customer acquisition cost		Sales and marketing expenses, which include the costs associated with various paid marketing channels, including direct mail, digital marketing and brand marketing and the costs associated with our telesales and retail operations divided by number of loans originated to new and returning customers during a period
Fair value pro forma adjusted operating efficiency		Fair value pro forma total operating expenses (excluding stock-based compensation expense and litigation reserve) divided by fair value pro forma total revenue
Fair value pro forma return on equity		Annualized fair value pro forma adjusted net income divided by average fair value pro forma total stockholders’ equity
FICO® score or FICO®		A credit score created by Fair Issac Corporation
Leverage		Average daily debt divided by average daily principal balance
Managed principal balance at end of period		Total amount of outstanding principal balance for all loans, including loans sold, which we continue to service, at the end of the period
New products and services		New products and services include auto, credit cards and OportunPath
Operating efficiency		Total operating expenses divided by total revenue
Owned principal balance at end of period		Total amount of outstanding principal balance for all loans, excluding loans sold, at the end of the period
Principal balance		Original principal balance reduced by principal payments received to date
Return on equity		Annualized net income divided by average stockholders' equity for a period
TDR finance receivables		Troubled debt restructured finance receivables. Debt restructuring in which a concession is granted to the borrower as a result of economic or legal reasons related to the borrower’s financial difficulties
Secured financing		$400 million asset-backed revolving debt facility issued by Oportun Funding V, LLC
VIEs		Variable interest entities
Weighted average interest rate		Annualized interest expense as a percentage of average debt
Yield		Annualized interest income as a percentage of average daily principal balance

PART I ‑ FINANCIAL INFORMATION

Item 1. Financial Statements

OPORTUN FINANCIAL CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)



	September 30,			December 31,
	2019			2018
Assets
Cash and cash equivalents	$	154,512		$	70,475
Restricted cash	65,907			58,700
Loans receivable at fair value	1,681,889			1,227,469
Loans receivable at amortized cost	76,167			323,814
Less:
Unamortized deferred origination costs and fees, net	(264		)	(1,707		)
Allowance for loan losses	(6,922		)	(26,326		)
Loans receivable at amortized cost, net	68,981			295,781
Loans held for sale	4,186			—
Interest and fees receivable, net	14,366			13,177
Right of use assets - operating	39,170			—
Deferred tax asset	1,562			1,039
Other assets	62,014			73,298
Total assets	$	2,092,587		$	1,739,939

Liabilities and stockholders' equity
Liabilities
Secured financing	$	—		$	85,289
Asset-backed notes at fair value	1,133,095			867,278
Asset-backed notes at amortized cost	358,753			357,699
Amount due to whole loan buyer	30,100			27,941
Lease liabilities	41,844			—
Deferred tax liabilities	19,529			13,925
Other liabilities	48,149			41,258
Total liabilities	1,631,470			1,393,390
Stockholders' equity
Preferred stock, $0.0001 par value - 100,000,000 and 16,550,904 shares authorized at September 30, 2019 (unaudited) and December 31, 2018; 0 and 14,043,977 shares issued and outstanding (liquidation preference of $0 and $261,343) at September 30, 2019 (unaudited) and December 31, 2018, respectively	—			16
Preferred stock, additional paid-in capital	—			257,887
Common stock, $0.0001 par value - 1,000,000,000 and 28,181,818 shares authorized at September 30, 2019 (unaudited) and December 31, 2018; 27,264,754 shares issued and 27,001,251 shares outstanding at September 30, 2019 (unaudited); 3,194,731 shares issued and 2,935,249 shares outstanding at December 31, 2018	6			3
Common stock, additional paid-in capital	416,196			44,411
Common and convertible preferred stock warrants	63			130
Accumulated other comprehensive loss	(168		)	(132		)
Retained earnings	53,516			52,662
Treasury stock at cost, 263,503 and 259,482 shares at September 30, 2019 (unaudited) and December 31, 2018, respectively	(8,496		)	(8,428		)
Total stockholders’ equity	461,117			346,549
Total liabilities and stockholders' equity	$	2,092,587		$	1,739,939

See Notes to the Condensed Consolidated Financial Statements.

OPORTUN FINANCIAL CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(in thousands, except share and per share data)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue
Interest income	$	139,272		$	115,863		$	395,778		$	323,956
Non-interest income	14,608			12,621			39,026			34,611
Total revenue	153,880			128,484			434,804			358,567
Less:
Interest expense	15,499			11,932			44,751			33,622
Provision (release) for loan losses	(426		)	7,066			(3,755		)	19,597
Net increase (decrease) in fair value	(24,339		)	(6,869		)	(78,567		)	34,047
Net revenue	114,468			102,617			315,241			339,395

Operating expenses:
Technology and facilities	26,772			20,879			72,849			60,410
Sales and marketing	24,717			20,855			69,084			54,084
Personnel	28,637			16,005			66,414			45,997
Outsourcing and professional fees	16,041			12,902			42,797			35,920
General, administrative and other	3,886			2,895			10,816			7,703
Total operating expenses	100,053			73,536			261,960			204,114

Income before taxes	14,415			29,081			53,281			135,281
Income tax expense	4,386			8,242			14,846			37,160
Net income	$	10,029		$	20,839		$	38,435		$	98,121
Change in post-termination benefit obligation, net of tax	8			2			(36		)	7
Total comprehensive income	$	10,037		$	20,841		$	38,399		$	98,128

Net (loss) income attributable to common stockholders	$	(27,427	)	$	2,565		$	—		$	12,843

Share data:
(Loss) Earnings per Share:
Basic	$	(6.39	)	$	0.97		$	—		$	5.20
Diluted	$	(6.39	)	$	0.64		$	—		$	3.42
Weighted average common shares outstanding:
Basic	4,294,107			2,631,416			3,397,503			2,468,792
Diluted	4,294,107			3,990,374			3,397,503			3,750,768

See Notes to the Condensed Consolidated Financial Statements.

OPORTUN FINANCIAL CORPORATION

Condensed Consolidated Statements of Change in Stockholders' Equity (Unaudited)

(in thousands, except share data)



For the Nine Months Ended September 30, 2019
	Convertible Preferred Stock								Preferred and Common Stock Warrants					Common Stock
	Shares		Par Value			Additional Paid-in Capital			Shares		Par Value			Shares		Par Value		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Stockholders' Equity
Balance – January 1, 2019	14,043,977		$	16		$	257,887		24,959		$	130		2,935,249		$	3	$	44,411		$	(132	)	$	52,662		$	(8,428	)	$	346,549
Issuance of common stock upon exercise of stock options	—		—			—			—		—			7,317		—		142			—			—			—			142
Stock-based compensation expense	—		—			—			—		—			—		—		1,980			—			—			—			1,980
Cumulative effect of adoption of ASC 842	—		—			—			—		—			—		—		—			—			(125		)	—			(125		)
Change in post-termination benefit obligation	—		—			—			—		—			—		—		—			(3		)	—			—			(3		)
Net income	—		—			—			—		—			—		—		—			—			14,614			—			14,614
Balance – March 31, 2019	14,043,977		$	16		$	257,887		24,959		$	130		2,942,566		$	3	$	46,533		$	(135	)	$	67,151		$	(8,428	)	$	363,157

Issuance of common stock upon exercise of stock options	—		—			—			—		—			2,216		—		4			—			—			—			4
Stock-based compensation expense	—		—			—			—		—			—		—		2,035			—			—			—			2,035
Change in post-termination benefit obligation	—		—			—			—		—			—		—		—			(41		)	—			—			(41		)
Net income	—		—			—			—		—			—		—		—			—			13,792			—			13,792
Balance – June 30, 2019	14,043,977		$	16		$	257,887		24,959		$	130		2,944,782		$	3	$	48,572		$	(176	)	$	80,943		$	(8,428	)	$	378,947

Issuance of common stock upon exercise of stock options	—		—			—			—		—			96,371		—		645			—			—			—			645
Repurchase of stock options	—		—			—			—		—			—		—		(86		)	—			—			—			(86		)
Issuance of common stock upon initial public offering, net of offering costs	—		—			—			—		—			4,873,356		—		60,479			—			—			—			60,479
Stock-based compensation expense	—		—			—			—		—			—		—		11,163			—			—			—			11,163
Conversion of convertible preferred stock to common stock in connection with initial public offering	(14,043,977	)	(16		)	(257,887		)	—		—			19,075,167		3		295,356			—			(37,456		)	—			—
Issuance of preferred stock and conversion to common stock upon exercise of warrants, net	—		—			—			(9,090	)	(67		)	3,969		—		67			—			—			—			—
Vesting of restricted stock units	—		—			—			—		—			11,627		—		—			—			—			—			—
Restricted stock units tax withholding	—		—			—			—		—			(4,021	)	—		—			—			—			(68		)	(68		)
Change in post-termination benefit obligation	—		—			—			—		—			—		—		—			8			—			—			8
Net income	—		—			—			—		—			—		—		—			—			10,029			—			10,029
Balance – September 30, 2019	—		$	—		$	—		15,869		$	63		27,001,251		$	6	$	416,196		$	(168	)	$	53,516		$	(8,496	)	$	461,117

See Notes to the Condensed Consolidated Financial Statements.

OPORTUN FINANCIAL CORPORATION

Condensed Consolidated Statements of Change in Stockholders' Equity (Unaudited)

(in thousands, except share data)



For the Nine Months Ended September 30, 2018
	Convertible Preferred Stock							Preferred and Common Stock Warrants			Common Stock
	Shares		Par Value		Additional Paid-in Capital			Shares	Par Value		Shares	Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Deficit)			Treasury Stock			Total Stockholders' Equity
Balance – January 1, 2018	14,460,517		$	16	$	267,974		24,959	$	130	2,328,278	$	3	$	24,700	$	(142	)	$	(70,732	)	$	(5,222	)	$	216,727
Issuance of common stock upon exercise of stock options	—		—		—			—	—		96,667	—		161		—			—			—			161
Stock-based compensation expense	—		—		—			—	—		—	—		1,477		—			—			—			1,477
Change in post-termination benefit obligation	—		—		—			—	—		—	—		—		2			—			—			2
Net income	—		—		—			—	—		—	—		—		—			38,369			—			38,369
Balance – March 31, 2018	14,460,517		$	16	$	267,974		24,959	$	130	2,424,945	$	3	$	26,338	$	(140	)	$	(32,363	)	$	(5,222	)	$	256,736

Issuance of common stock upon exercise of stock options	—		—		—			—	—		49,419	—		341		—			—			—			341
Stock-based compensation expense	—		—		—			—	—		—	—		1,709		—			—			—			1,709
Change in post-termination benefit obligation	—		—		—			—	—		—	—		—		3			—			—			3
Net income	—		—		—			—	—		—	—		—		—			38,913			—			38,913
Balance – June 30, 2018	14,460,517		$	16	$	267,974		24,959	$	130	2,474,364	$	3	$	28,388	$	(137	)	$	6,550		$	(5,222	)	$	297,702

Issuance of common stock upon exercise of stock options	—		—		—			—	—		32,024	—		374		—			—			—			374
Stock-based compensation expense	—		—		—			—	—		—	—		1,850		—			—			—			1,850
Issuance of common stock upon conversion of preferred stock	(416,540	)	—		(10,087		)	—	—		444,279	—		10,087		—			—			—			—
Change in post-termination benefit obligation	—		—		—			—	—		—	—		—		2			—			—			2
Net income	—		—		—			—	—		—	—		—		—			20,839			—			20,839
Balance – September 30, 2018	14,043,977		$	16	$	257,887		24,959	$	130	2,950,667	$	3	$	40,699	$	(135	)	$	27,389		$	(5,222	)	$	320,767

See Notes to the Condensed Consolidated Financial Statements.

OPORTUN FINANCIAL CORPORATION

Condensed Consolidated Statements of Cash Flow (Unaudited)

(in thousands)



	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities
Net income	$	38,435		$	98,121
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	9,658			8,698
Fair value adjustment, net	78,567			(34,047		)
Origination fees for loans receivable at fair value, net	(2,172		)	(14,032		)
Gain on loans sale	(25,291		)	(23,371		)
Stock-based compensation expense	15,178			5,036
Provision (release) for loan losses	(3,755		)	19,597
Deferred tax provision	5,082			20,891
Other, net	6,557			5,071
Originations of loans sold and held for sale	(248,441		)	(201,271		)
Proceeds from sale of loans	269,546			224,982
Changes in operating assets and liabilities:
Interest and fee receivable, net	(3,407		)	(3,793		)
Other assets	(23,283		)	(6,191		)
Amount due to whole loan buyer	2,159			1,664
Other liabilities	48,408			(921		)
Net cash provided by operating activities	167,241			100,434
Cash flows from investing activities
Originations of loans	(1,035,536		)	(938,957		)
Repayments of loan principal	753,072			647,421
Purchase of fixed assets	(5,765		)	(7,631		)
Capitalization of system development costs	(11,734		)	(2,145		)
Net cash used in investing activities	(299,963		)	(301,312		)
Cash flows from financing activities
Borrowings under secured financing	82,000			207,000
Proceeds from initial public offering, net of offering costs	60,479			—
Borrowings under asset-backed notes	249,951			413,163
Payments of secured financing	(169,000		)	(145,049		)
Repayment of asset-backed notes	—			(274,836		)
Repayments of capital lease obligations	(102		)	(173		)
Net payments related to stock-based activities	638			876
Net cash provided by financing activities	223,966			200,981
Net increase in cash and cash equivalents and restricted cash	91,244			103
Cash and cash equivalents and restricted cash, beginning of period	129,175			94,155
Cash and cash equivalents and restricted cash, end of period	$	220,419		$	94,258