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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, 2022
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.
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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 2, 2022 was 33,192,703.
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TABLE OF CONTENTS |
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PART I ‑ FINANCIAL INFORMATION |
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PART II ‑ OTHER INFORMATION |
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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, |
| | 2022 | | 2021 |
Assets | | | | |
Cash and cash equivalents | | $ | 175,857 | | | $ | 130,959 | |
Restricted cash | | 96,350 | | | 62,001 | |
Loans receivable at fair value | | 2,991,334 | | | 2,386,807 | |
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Interest and fees receivable, net | | 30,605 | | | 20,916 | |
Capitalized software and other intangibles, net | | 139,069 | | | 131,181 | |
Goodwill | | — | | | 104,014 | |
Right of use assets - operating | | 32,080 | | | 38,403 | |
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Other assets | | 74,699 | | | 72,344 | |
Total assets | | $ | 3,539,994 | | | $ | 2,946,625 | |
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Liabilities and stockholders' equity | | | | |
Liabilities | | | | |
Secured financing | | $ | 365,147 | | | $ | 393,889 | |
Asset-backed notes at fair value | | 2,238,331 | | | 1,651,706 | |
Acquisition and corporate financing | | 241,838 | | | 114,092 | |
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Lease liabilities | | 40,149 | | | 47,699 | |
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Other liabilities | | 105,416 | | | 135,358 | |
Total liabilities | | 2,990,881 | | | 2,342,744 | |
Stockholders' equity | | | | |
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Common stock, $0.0001 par value - 1,000,000,000 shares authorized at September 30, 2022 and December 31, 2021; 33,460,161 shares issued and 33,188,138 shares outstanding at September 30, 2022; 32,276,419 shares issued and 32,004,396 shares outstanding at December 31, 2021 | | 7 | | | 6 | |
Common stock, additional paid-in capital | | 540,890 | | | 526,338 | |
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Retained earnings | | 14,525 | | | 83,846 | |
Treasury stock at cost, 272,023 shares at September 30, 2022 and December 31, 2021 | | (6,309) | | | (6,309) | |
Total stockholders’ equity | | 549,113 | | | 603,881 | |
Total liabilities and stockholders' equity | | $ | 3,539,994 | | | $ | 2,946,625 | |
See Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Revenue | | | | | | | | |
Interest income | | $ | 232,115 | | | $ | 145,444 | | | $ | 632,007 | | | $ | 401,224 | |
Non-interest income | | 17,961 | | | 13,640 | | | 58,591 | | | 31,427 | |
Total revenue | | 250,076 | | | 159,084 | | | 690,598 | | | 432,651 | |
Less: | | | | | | | | |
Interest expense | | 26,671 | | | 10,574 | | | 57,452 | | | 36,241 | |
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Net decrease in fair value | | (76,422) | | | (8,987) | | | (135,935) | | | (26,457) | |
Net revenue | | 146,983 | | | 139,523 | | | 497,211 | | | 369,953 | |
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Operating expenses: | | | | | | | | |
Technology and facilities | | 56,113 | | | 34,226 | | | 158,090 | | | 100,274 | |
Sales and marketing | | 21,781 | | | 32,102 | | | 88,690 | | | 79,743 | |
Personnel | | 39,959 | | | 29,039 | | | 114,514 | | | 84,412 | |
Outsourcing and professional fees | | 18,620 | | | 13,348 | | | 50,112 | | | 40,762 | |
General, administrative and other | | 14,401 | | | 2,686 | | | 44,698 | | | 22,862 | |
Goodwill impairment | | 108,472 | | | — | | | 108,472 | | | — | |
Total operating expenses | | 259,346 | | | 111,401 | | | 564,576 | | | 328,053 | |
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Income (loss) before taxes | | (112,363) | | | 28,122 | | | (67,365) | | | 41,900 | |
Income tax expense (benefit) | | (6,536) | | | 5,143 | | | 1,956 | | | 8,652 | |
Net income (loss) | | $ | (105,827) | | | $ | 22,979 | | | $ | (69,321) | | | $ | 33,248 | |
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Net income (loss) attributable to common stockholders | | $ | (105,827) | | | $ | 22,979 | | | $ | (69,321) | | | $ | 33,248 | |
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Share data: | | | | | | | | |
Earnings (loss) per share: | | | | | | | | |
Basic | | $ | (3.21) | | | $ | 0.82 | | | $ | (2.12) | | | $ | 1.19 | |
Diluted | | $ | (3.21) | | | $ | 0.75 | | | $ | (2.12) | | | $ | 1.11 | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | 33,010,107 | | | 28,167,686 | | | 32,688,988 | | | 27,982,273 | |
Diluted | | 33,010,107 | | | 30,503,773 | | | 32,688,988 | | | 30,059,675 | |
Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2022 |
| | | | | | Common Stock | | | | | | | | |
| | | | | | | | | | | | Shares | | Par Value | | Additional Paid-in Capital | | | | Retained Earnings | | Treasury Stock | | Total Stockholders' Equity |
Balance – January 1, 2022 | | | | | | | | | | | | 32,004,396 | | | $ | 6 | | | $ | 526,338 | | | | | $ | 83,846 | | | $ | (6,309) | | | $ | 603,881 | |
Issuance of common stock upon exercise of stock options | | | | | | | | | | | | 505,945 | | | 1 | | | (4,749) | | | | | — | | | — | | | (4,748) | |
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Stock-based compensation expense | | | | | | | | | | | | — | | | — | | | 7,467 | | | | | — | | | — | | | 7,467 | |
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Vesting of restricted stock units, net of shares withheld | | | | | | | | | | | | 296,552 | | | — | | | (2,327) | | | | | — | | | — | | | (2,327) | |
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Net income | | | | | | | | | | | | — | | | — | | | — | | | | | 45,663 | | | — | | | 45,663 | |
Balance – March 31, 2022 | | | | | | | | | | | | 32,806,893 | | | $ | 7 | | | $ | 526,729 | | | | | $ | 129,509 | | | $ | (6,309) | | | $ | 649,936 | |
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Issuance of common stock upon exercise of stock options | | | | | | | | | | | | 32,345 | | | — | | | 78 | | | | | — | | | — | | | 78 | |
Repurchase of stock options | | | | | | | | | | | | (2,706) | | | — | | | (28) | | | | | — | | | — | | | (28) | |
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Stock-based compensation expense | | | | | | | | | | | | — | | | — | | | 7,642 | | | | | — | | | — | | | 7,642 | |
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Vesting of restricted stock units, net of shares withheld | | | | | | | | | | | | 63,064 | | | — | | | (273) | | | | | — | | | — | | | (273) | |
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Net loss | | | | | | | | | | | | — | | | — | | | — | | | | | (9,157) | | | — | | | (9,157) | |
Balance – June 30, 2022 | | | | | | | | | | | | 32,899,596 | | | $ | 7 | | | $ | 534,148 | | | | | $ | 120,352 | | | $ | (6,309) | | | $ | 648,198 | |
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Issuance of common stock upon exercise of stock options | | | | | | | | | | | | 5,261 | | | — | | | 29 | | | | | — | | | — | | | 29 | |
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Stock-based compensation expense | | | | | | | | | | | | — | | | — | | | 7,666 | | | | | — | | | — | | | 7,666 | |
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Vesting of restricted stock units, net of shares withheld | | | | | | | | | | | | 283,281 | | | — | | | (953) | | | | | — | | | — | | | (953) | |
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Net loss | | | | | | | | | | | | — | | | — | | | — | | | | | (105,827) | | | — | | | (105,827) | |
Balance – September 30, 2022 | | | | | | | | | | | | 33,188,138 | | | $ | 7 | | | $ | 540,890 | | | | | $ | 14,525 | | | $ | (6,309) | | | $ | 549,113 | |
See Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2021 |
| | | | | | Common Stock | | | | | | | | |
| | | | | | | | | | | | Shares | | Par Value | | Additional Paid-in Capital | | | | Retained Earnings | | Treasury Stock | | Total Stockholders' Equity |
Balance – January 1, 2021 | | | | | | | | | | | | 27,679,263 | | | $ | 6 | | | $ | 436,499 | | | | | $ | 36,432 | | | $ | (6,309) | | | $ | 466,628 | |
Issuance of common stock upon exercise of stock options | | | | | | | | | | | | 33,526 | | | — | | | 307 | | | | | — | | | — | | | 307 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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Stock-based compensation expense | | | | | | | | | | | | — | | | — | | | 5,088 | | | | | — | | | — | | | 5,088 | |
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Vesting of restricted stock units, net | | | | | | | | | | | | 261,794 | | | — | | | (2,794) | | | | | — | | | — | | | (2,794) | |
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Net income | | | | | | | | | | | | — | | | — | | | — | | | | | 3,019 | | | — | | | 3,019 | |
Balance – March 31, 2021 | | | | | | | | | | | | 27,974,583 | | | $ | 6 | | | $ | 439,100 | | | | | $ | 39,451 | | | $ | (6,309) | | | $ | 472,248 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock upon exercise of stock options | | | | | | | | | | | | 10,114 | | | — | | | 159 | | | | | — | | | — | | | 159 | |
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Stock-based compensation expense | | | | | | | | | | | | — | | | — | | | 5,366 | | | | | — | | | — | | | 5,366 | |
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Vesting of restricted stock units, net | | | | | | | | | | | | 49,227 | | | — | | | (442) | | | | | — | | | — | | | (442) | |
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Net income | | | | | | | | | | | | — | | | — | | | — | | | | | 7,250 | | | — | | | 7,250 | |
Balance – June 30, 2021 | | | | | | | | | | | | 28,033,924 | | | $ | 6 | | | $ | 444,183 | | | | | $ | 46,701 | | | $ | (6,309) | | | $ | 484,581 | |
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Issuance of common stock upon exercise of stock options | | | | | | | | | | | | 139,096 | | | — | | | 2,140 | | | | | — | | | — | | | 2,140 | |
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Stock-based compensation expense | | | | | | | | | | | | — | | | — | | | 4,868 | | | | | — | | | — | | | 4,868 | |
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Vesting of restricted stock units, net | | | | | | | | | | | | 211,902 | | | — | | | (2,977) | | | | | — | | | — | | | (2,977) | |
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Net income | | | | | | | | | | | | — | | | — | | | — | | | | | 22,979 | | | — | | | 22,979 | |
Balance – September 30, 2021 | | | | | | | | | | | | 28,384,922 | | | $ | 6 | | | $ | 448,214 | | | | | $ | 69,680 | | | $ | (6,309) | | | $ | 511,591 | |
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, |
| | 2022 |
| 2021 |
Cash flows from operating activities | | |
Net income (loss) | | $ | (69,321) | | | $ | 33,248 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 34,624 | | | 20,390 | |
Goodwill impairment | | 108,472 | | | — | |
Fair value adjustment, net | | 135,935 | | | 26,457 | |
Origination fees for loans receivable at fair value, net | | (17,699) | | | (9,070) | |
Gain on loan sales | | (5,708) | | | (17,083) | |
Stock-based compensation expense | | 20,752 | | | 14,542 | |
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Other, net | | 32,183 | | | 37,609 | |
Originations of loans sold and held for sale | | (50,643) | | | (136,285) | |
Proceeds from sale of loans | | 56,800 | | | 151,924 | |
Changes in other assets and other liabilities | | (86,052) | | | (18,004) | |
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Net cash provided by operating activities | | 159,343 | | | 103,728 | |
Cash flows from investing activities | | | | |
Originations of loans | | (2,178,675) | | | (1,113,515) | |
Proceeds from loan sales originated as held for investment | | 247,943 | | | — | |
Repayments of loan principal | | 1,055,113 | | | 817,843 | |
Capitalization of system development costs | | (36,824) | | | (18,508) | |
| | | | |
| | | | |
Other, net | | (3,434) | | | (2,561) | |
| | | | |
Net cash used in investing activities | | (915,877) | | | (316,741) | |
Cash flows from financing activities | | | | |
Borrowings under secured financing | | 1,687,050 | | | 895,535 | |
| | | | |
Borrowings under asset-backed notes, acquisition and corporate financing | | 967,761 | | | 867,251 | |
Repayments of secured financing | | (1,717,050) | | | (615,994) | |
Repayments of asset-backed notes, acquisition and corporate financing | | (87,253) | | | (875,007) | |
| | | | |
Payments of deferred financing costs | | (6,503) | | | — | |
Net payments related to stock-based activities | | (8,224) | | | (3,607) | |
Net cash provided by financing activities | | 835,781 | | | 268,178 | |
Net increase in cash and cash equivalents and restricted cash | | 79,247 | | | 55,165 | |
Cash and cash equivalents and restricted cash, beginning of period | | 192,960 | | | 168,590 | |
Cash and cash equivalents and restricted cash, end of period | | $ | 272,207 | | | $ | 223,755 | |
| | | | |
Supplemental disclosure of cash flow information | | | | |
Cash and cash equivalents | | $ | 175,857 | | | $ | 168,407 | |
Restricted cash | | 96,350 | | | 55,348 | |
Total cash and cash equivalents and restricted cash | | $ | 272,207 | | | $ | 223,755 | |
| | | | |
Cash paid for income taxes, net of refunds | | $ | (3,944) | | | $ | 2,048 | |
Cash paid for interest | | $ | 51,509 | | | $ | 36,582 | |
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 7,772 | | | $ | 13,802 | |
Supplemental disclosures of non-cash investing and financing activities | | | | |
Right of use assets obtained in exchange for operating lease obligations | | $ | 2,831 | | | $ | 6,677 | |
| | | | |
| | | | |
| | | | |
Non-cash investments in capitalized assets | | $ | 2,577 | | | $ | 1,960 | |
Non-cash financing activities | | $ | 2,325 | | | $ | 1,121 | |
See Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 2022
| | | | | |
1. | Organization and Description of Business |
Oportun is a financial technology company and digital banking platform driven by its mission to provide inclusive, affordable financial services that empower its members to build a better future. Oportun Financial Corporation (together with its subsidiaries, "Oportun" or the "Company") takes a holistic approach to serving its members and views as its purpose to responsibly meet their current capital needs, help grow its members' financial profiles, increase their financial awareness and put them on a path to a financially healthy life. With its acquisition of Hello Digit, Inc. ("Digit") on December 22, 2021, the Company can now offer access to a comprehensive suite of digital banking products, offered either directly or through partners, including lending, savings and investing powered by A.I. and tailored to each member's goals to make achieving financial health automated. The Company's credit products include personal loans, secured personal loans and credit cards. The Company's digital banking products include automated savings, digital banking, long-term investing and retirement savings. The Company is headquartered in San Carlos, California. The Company has been certified by the United States Department of the Treasury as a Community Development Financial Institution ("CDFI") since 2009.
Segments
Segments are defined as components of an enterprise for which discrete financial information is available and evaluated regularly by the chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer and the Company's Chief Financial Officer are collectively considered to be the CODM. The CODM reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company’s operations constitute a single reportable segment.
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2. | Summary of Significant Accounting Policies |
Basis of Presentation ‑ The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These statements are unaudited and reflect all normal, recurring adjustments that are, in management's opinion, necessary for the fair presentation of results. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior-period financial information has been reclassified to conform to current period presentation. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "Annual Report"), filed with the Securities and Exchange Commission ("SEC") on March 1, 2022.
Use of Estimates ‑ The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from those estimates and assumptions.
Accounting Policies - There have been no changes to the Company's significant accounting policies from those described in Part II, Item 8 - Financial Statements and Supplementary Data in the Annual Report, except for the new accounting pronouncements subsequently adopted as noted below.
Recently Adopted Accounting Standards
None.
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3. | Earnings (Loss) per Share |
Basic and diluted earnings (loss) per share are calculated as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except share and per share data) | | 2022 | | 2021 | | 2022 | | 2021 |
Net income (loss) | | $ | (105,827) | | | $ | 22,979 | | | $ | (69,321) | | | $ | 33,248 | |
| | | | | | | | |
| | | | | | | | |
Net income (loss) attributable to common stockholders | | $ | (105,827) | | | $ | 22,979 | | | $ | (69,321) | | | $ | 33,248 | |
| | | | | | | | |
Basic weighted-average common shares outstanding | | 33,010,107 | | | 28,167,686 | | | 32,688,988 | | | 27,982,273 | |
Weighted average effect of dilutive securities: | | | | | | | | |
Stock options | | — | | | 1,451,687 | | | — | | | 1,351,288 | |
Restricted stock units | | — | | | 884,400 | | | — | | | 726,114 | |
| | | | | | | | |
Diluted weighted-average common shares outstanding | | 33,010,107 | | | 30,503,773 | | | 32,688,988 | | | 30,059,675 | |
| | | | | | | | |
Earnings (loss) per share: | | | | | | | | |
Basic | | $ | (3.21) | | | $ | 0.82 | | | $ | (2.12) | | | $ | 1.19 | |
Diluted | | $ | (3.21) | | | $ | 0.75 | | | $ | (2.12) | | | $ | 1.11 | |
The following common share equivalent securities have been excluded from the calculation of diluted weighted-average common shares outstanding because the effect is anti-dilutive for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Stock options | | 3,456,494 | | | 1,597,130 | | | 3,596,792 | | | 2,229,446 | |
Restricted stock units | | 4,696,244 | | | — | | | 4,285,771 | | | 15,102 | |
| | | | | | | | |
| | | | | | | | |
Total anti-dilutive common share equivalents | | 8,152,738 | | | 1,597,130 | | | 7,882,563 | | | 2,244,548 | |
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4. | Variable Interest Entities |
Variable interest entities ("VIEs") are legal entities that either have an insufficient amount of equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the holders of equity investment at risk lack the ability to direct the entity's activities that most significantly impact economic performance through voting or similar rights, or do not have the obligation to absorb the expected losses or the right to receive expected residual returns of the entity.
For all VIEs in which we are involved, we assess whether we are the primary beneficiary of the VIE on an ongoing basis. In circumstances where we have both the power to direct the activities that most significantly impact the VIEs performance and the obligation to absorb losses or the right to receive the benefits of the VIE that could be significant, we would conclude that we are the primary beneficiary of the VIE, and we consolidate the VIE. In situations where we are not deemed to be the primary beneficiary of the VIE, we do not consolidate the VIE and only recognize our interests in the VIE.
Consolidated VIEs
As part of the Company’s overall funding strategy, the Company transfers a pool of designated loans receivable to wholly owned special-purpose subsidiaries ("VIEs") to collateralize certain asset-backed financing transactions. For these VIEs where the Company has determined that it is the primary beneficiary because it has the power to direct the activities that most significantly impact the VIEs’ economic performance and the obligation to absorb the losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs the VIEs assets and related liabilities are consolidated with the results of the Company. Such power arises from the Company’s contractual right to service the loans receivable securing the VIEs’ asset-backed debt obligations. The Company has an obligation to absorb losses or the right to receive benefits that are potentially significant to the VIEs because it retains the residual interest of each asset-backed financing transaction in the form of an asset-backed certificate. Accordingly, the Company includes the VIEs’ assets, including the assets securing the financing transactions, and related liabilities in its condensed consolidated financial statements.
Each consolidated VIE issues a series of asset-backed securities that are supported by the cash flows arising from the loans receivable securing such debt. Cash inflows arising from such loans receivable are distributed monthly to the transaction’s lenders and related service providers in accordance with the transaction’s contractual priority of payments. The creditors of the VIEs above have no recourse to the general credit of the Company as the primary beneficiary of the VIEs and the liabilities of the VIEs can only be settled by the respective VIE’s assets. The Company retains the most subordinated economic interest in each financing transaction through its ownership of the respective residual interest in each VIE. The Company has no obligation to repurchase loans receivable that initially satisfied the financing transaction’s eligibility criteria but subsequently became delinquent or a defaulted loans receivable.
The following table represents the assets and liabilities of consolidated VIEs recorded on the Company’s Condensed Consolidated Balance Sheets (Unaudited):
| | | | | | | | | | | | | | |
| | September 30, | | December 31, |
(in thousands) | | 2022 | | 2021 |
Consolidated VIE assets | | | | |
Restricted cash | | $ | 82,712 | | | $ | 41,803 | |
Loans receivable at fair value | | 2,924,567 | | | 2,267,205 | |
| | | | |
Interest and fee receivable | | 29,748 | | | 19,869 | |
Total VIE assets | | 3,037,027 | | | 2,328,877 | |
Consolidated VIE liabilities | | | | |
Secured financing (1) | | 368,000 | | | 398,000 | |
Asset-backed notes at fair value | | 2,238,331 | | | 1,651,706 | |
Acquisition financing (1) | | 104,764 | | | 116,000 | |
Total VIE liabilities | | $ | 2,711,095 | | | $ | 2,165,706 | |
(1) Amounts exclude deferred financing costs. See Note 9, Borrowings for additional information.
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5. | Loans Held for Sale and Loans Sold |
Structured Loan Sales - On March 31, 2022, the Company participated in a securitization whereby the Company and funds managed by Ellington Management Group both contributed collateral and were co-sponsors of the transaction, which totaled $400.0 million in issued asset-backed notes. As part of the securitization, the Company sold loans to OPTN Funding Grantor Trust 2022-1 ("Grantor Trust") through the issuance of amortizing asset-backed notes secured by a pool of its unsecured and secured personal installment loans. The Company also sold its share of the residual interest in the pool (collectively referred to as the "2022-1 transaction"). The Company's continued involvement in the unconsolidated VIEs is in the form of servicer of these loans. The Company does not have variable interest in the Grantor Trust or the issuer established for this transaction. The sold loans were accounted for under the fair value option and had an aggregate unpaid principal balance of approximately $227.6 million, a cumulative fair value mark of $15.9 million and unpaid interest of $1.5 million. The Company received $245.0 million of net proceeds and by selling both its notes and residual interest, the Company derecognized these loans from its Consolidated Balance Sheets.
Other Loan Sales - The Company enters into agreements to sell certain populations of its loans from time to time. The sold loans were accounted for under the fair value option. In April 2022, the Company sold loans that had an aggregate unpaid principal balance, including unpaid interest and fees, of approximately $16.3 million, and a cumulative fair value mark of $(14.1) million. The Company received $2.2 million of net proceeds (the "Q2 2022 Loan Sale"). During the third quarter of 2022, the Company sold loans that had an aggregate unpaid principal balance, including unpaid interest and fees, of approximately $22.2 million and a cumulative fair value mark of $(21.1) million. The Company received $0.7 million of net proceeds and has recorded a receivable of $0.4 million in Other assets on the Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2022 (the "Q3 2022 Loan Sales"). The loan sales qualified for sale accounting treatment and the Company derecognized these loans from its Consolidated Balance Sheets at the end of the quarter in which the loans were sold.
Whole Loan Sale Program ‑ In November 2014, the Company entered into a whole loan sale agreement with an institutional investor. Pursuant to the agreement, the Company sold at least 10% of its unsecured loan originations, with an option to sell an additional 5%, subject to certain eligibility criteria and minimum and maximum volumes. The Company chose not to renew the arrangement and allowed the agreement to expire on its terms on March 4, 2022.
The originations of loans sold and held for sale during the three months ended September 30, 2022 was insignificant. Servicing revenue during the same time period was $5.3 million. The gain on sale recorded during the three months ended September 30, 2022 was insignificant as a result of our whole loan sale agreement expiring on March 4, 2022. The originations of loans sold and held for sale during the three months ended September 30, 2021 was $61.3 million and the Company recorded a gain on sale of $7.3 million and servicing revenue of $3.3 million.
The originations of loans sold and held for sale during the nine months ended September 30, 2022 related to our loan sale program was $50.6 million and the Company recorded a gain on sale of $5.7 million and servicing revenue of $15.5 million. The originations of loans sold and held for sale during the nine months ended September 30, 2021 was $136.3 million and the Company recorded a gain on sale of $17.1 million and servicing revenue of $9.3 million.
On December 22, 2021, the Company completed its acquisition of Hello Digit, Inc. (or "Digit"). Digit is a digital banking platform that provides automated savings, banking and investing tools. Digit members can keep and integrate their existing bank accounts into the platform, or they can make Digit their primary banking relationship by opening new accounts via Digit’s bank partner. By acquiring Digit, Oportun further expanded its A.I. and digital banking capabilities, adding to its services to provide its members a holistic offering built to address their financial needs. The total consideration the Company provided for Digit, which consisted of cash and equity, was approximately $205.3 million.
The Company recognized acquisition and integration related costs of approximately $8.1 million in the three months ended September 30, 2022 and $22.4 million in the nine months ended September 30, 2022 which are included in the General, administrative and other expense in the Condensed Consolidated Statements of Operations (Unaudited).
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7. | Capitalized Software, Other Intangibles and Goodwill |
Capitalized software, net consists of the following:
| | | | | | | | | | | | | | |
| | September 30, | | December 31, |
(in thousands) | | 2022 | | 2021 |
Capitalized software, net: | | | | |
System development costs | | $ | 122,998 | | | $ | 84,550 | |
Acquired developed technology | | 48,500 | | | 48,500 | |
Less: Accumulated amortization | | (70,104) | | | (45,433) | |
Total capitalized software, net | | $ | 101,394 | | | $ | 87,617 | |
Capitalized software, net
Amortization of system development costs and acquired developed technology for three months ended September 30, 2022 and 2021 was $9.0 million and $4.4 million, respectively. System development costs capitalized in the three months ended September 30, 2022 and 2021 were $13.8 million and $7.5 million, respectively.
Amortization of system development costs and acquired developed technology for nine months ended September 30, 2022 and 2021 was $24.7 million and $11.7 million, respectively. System development costs capitalized in the nine months ended September 30, 2022 and 2021 were $39.2 million and $19.9 million, respectively.
Acquired developed technology was $48.5 million and is related to the acquisition of Digit on December 22, 2021.
Intangible Assets
The gross carrying amount and accumulated amortization, in total and by major intangible asset class are as follows:
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| | September 30, | | December 31, |
(in thousands) | | 2022 | | 2021 |
Intangible assets: | | | | |
Member relationships | | $ | 34,500 | | | $ | 34,500 | |
Trademarks | | 6,426 | | | 6,364 | |
Other | | 3,000 | | | 3,000 | |
Less: Accumulated amortization | | (6,251) | | | (300) | |
Total intangible assets, net | | $ | 37,675 | | | $ | 43,564 | |
Amortization of intangible assets for the three months ended September 30, 2022 was $2.0 million. There were no intangible assets subject to amortization for the three months ended September 30, 2021.
Amortization of intangible assets for the nine months ended September 30, 2022 was $6.0 million. There were no intangible assets subject to amortization for the nine months ended September 30, 2021.
Expected future amortization expense for intangible assets as of September 30, 2022 is as follows:
| | | | | | | | |
(in thousands) | | Fiscal Years |
2022 (remaining three months) | | $ | (1,998) | |
2023 | | (7,950) | |
2024 | | (7,798) | |
2025 | | (4,929) | |
2026 | | (4,929) | |
2027 | | (4,929) | |
Thereafter | | (4,780) | |
Total | | $ | (37,313) | |
Goodwill
The Company recorded goodwill of $104.0 million arising from the acquisition of Digit on December 22, 2021. The Company recorded increases to goodwill of $4.3 million and $4.5 million, during the three and nine months ended September 30, 2022, respectively, as part of the
twelve-month measurement period. These increases were primarily due to changes in deferred taxes resulting from the filing of Digit's pre-acquisition tax returns.
Goodwill represents the difference between the purchase price and the estimated fair value of identifiable assets acquired and liabilities assumed. The Company performs impairment tests related to its goodwill on an annual basis or when certain triggering events or circumstances are identified that would more likely than not reduce the estimated fair value of the goodwill below its carrying amount.
In response to a sustained decline in the Company’s share price primarily driven by macroeconomic conditions, the Company conducted a quantitative test of its goodwill as of September 30, 2022. The Company considered the income approach, the guideline public company multiples approach and the market approach in determining a fair value for the Company which was determined to be the only reporting unit for purposes of testing the goodwill. Given the uncertain macroeconomic environment there was a wide range of indications of fair value across the approaches. Although the corresponding value was the lowest in the range, the Company utilized the market approach because it was based on market observable inputs. The market approach estimates fair value using the market capitalization of the Company as a basis.
As of September 30, 2022, the market capitalization plus the estimated control premium was less than the carrying value of the Company. As a result, the Company recognized a non-cash pre-tax impairment charge of $108.5 million during the three and nine months ended September 30, 2022 to write down the carrying value of goodwill. The non-cash impairment charge is included in Goodwill impairment in the Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2022. There were no goodwill impairment charges during the three and nine months ended September 30, 2021 because the Company did not have a goodwill balance as of September 30, 2021.
The following table represents the changes in goodwill since December 31, 2021:
| | | | | | | | |
(in thousands) | | Goodwill |
Balance as of December 31, 2021 | | $ | 104,014 | |
Measurement adjustments during period | | 4,458 | |
Impairment | | (108,472) | |
Balance as of September 30, 2022 | | $ | — | |
Other assets consist of the following:
| | | | | | | | | | | | | | |
| | September 30, | | December 31, |
(in thousands) | | 2022 | | 2021 |
Fixed assets | | | | |
Total fixed assets | | $ | 45,794 | | | $ | 44,100 | |
Less: Accumulated depreciation | | (36,352) | | | (34,185) | |
Total fixed assets, net | | $ | 9,442 | | | $ | 9,915 | |
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Other Assets | | | | |
| | | | |
Loans held for sale | | 42 | | | 491 | |
Prepaid expenses | | 25,057 | | | 25,355 | |
Deferred tax assets | | 1,869 | | | 3,923 | |
Current tax assets | | 17,978 | | | 13,330 | |
Other | | 20,311 | | | 19,330 | |
Total other assets | | $ | 74,699 | | | $ | 72,344 | |
Fixed Assets
Depreciation and amortization expense for the three months ended September 30, 2022 and 2021 was $1.3 million and $1.3 million, respectively, and for the nine months ended September 30, 2022 and 2021 it was $3.8 million, and $8.7 million, respectively.
The following table presents information regarding the Company's Secured Financing facilities:
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| | | | | | | | September 30, 2022 | | December 31, 2021 |
Variable Interest Entity | | Facility Amount | | Maturity Date (1) | | Interest Rate | | Balance | | Balance |
(in thousands) | | | | | | | | | | |
Oportun CCW Trust (1) | | $ | 150,000 | | | December 1, 2023 | | Variable (1) | | $ | 76,456 | | | $ | 40,108 | |
Oportun PLW Trust | | 600,000 | | | September 1, 2024 | | LIBOR (minimum of 0.00%) + 2.17% | | 288,691 | | | 353,781 | |
Total secured financing | | $ | 750,000 | | | | | | | $ | 365,147 | | | $ | 393,889 | |
(1) The interest rate on the Secured Financing - CCW facility is LIBOR (minimum of 1.00%) plus 6.00% on the first $18.8 million of principal outstanding and LIBOR (minimum of 0.00%) plus 3.41% on the remaining outstanding principal balance.
The following table presents information regarding asset-backed notes:
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| | September 30, 2022 |
Variable Interest Entity | | Initial note amount issued (1) | | Initial collateral balance (2) | | Current balance (1) | | Current collateral balance(2) | | Weighted average interest rate(3) | | Original revolving period (4) |
(in thousands) | | | | | | | | | | | | |
Asset-backed notes recorded at fair value: | | | | | | | | | | | | |
Oportun Issuance Trust (Series 2022-2) | | $ | 400,000 | | | $ | 410,212 | | | $ | 370,417 | | | $ | 401,227 | | | 6.92 | % | | N/A |
Oportun Issuance Trust (Series 2022-A) | | 400,000 | | | 410,211 | | | 385,560 | | | 414,425 | | | 5.44 | % | | 2 years |
Oportun Issuance Trust (Series 2021-C) | | 500,000 | | | 512,762 | | | 440,585 | | | 519,928 | | | 2.48 | % | | 3 years |
Oportun Issuance Trust (Series 2021-B) | | 500,000 | | | 512,759 | | | 444,519 | | | 520,100 | | | 2.05 | % | | 3 years |
Oportun Funding XIV, LLC (Series 2021-A) | | 375,000 | | | 383,632 | | | 347,743 | | | 390,433 | | | 1.79 | % | | 2 years |
Oportun Funding XIII, LLC (Series 2019-A) | | 279,412 | | | 294,118 | | | 249,507 | | | 287,753 | | | 3.46 | % | | 3 years |
Total asset-backed notes recorded at fair value | | $ | 2,454,412 | | | $ | |