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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
or
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
 
PART I ‑ FINANCIAL INFORMATION
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II ‑ OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 
 
SIGNATURE


2


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


3


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.


4


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.


5


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.

6


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.

7


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