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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 March 31, 2023
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 May 3, 2023 was 33,887,992.
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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)
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| | March 31, | | December 31, |
| | 2023 | | 2022 |
Assets | | | | |
Cash and cash equivalents | | $ | 74,075 | | | $ | 98,817 | |
Restricted cash | | 127,846 | | | 105,000 | |
Loans receivable at fair value | | 3,012,726 | | | 3,143,653 | |
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Interest and fees receivable, net | | 31,752 | | | 31,796 | |
Capitalized software and other intangibles, net | | 137,856 | | | 139,801 | |
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Right of use assets - operating | | 28,708 | | | 30,448 | |
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Other assets | | 89,094 | | | 64,180 | |
Total assets | | $ | 3,502,057 | | | $ | 3,613,695 | |
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Liabilities and stockholders' equity | | | | |
Liabilities | | | | |
Secured financing | | $ | 403,225 | | | $ | 317,568 | |
Asset-backed notes at fair value | | 2,300,201 | | | 2,387,674 | |
Acquisition and corporate financing | | 232,316 | | | 222,879 | |
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Lease liabilities | | 35,669 | | | 37,947 | |
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Other liabilities | | 74,500 | | | 100,028 | |
Total liabilities | | 3,045,911 | | | 3,066,096 | |
Stockholders' equity | | | | |
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Common stock, $0.0001 par value - 1,000,000,000 shares authorized at March 31, 2023 and December 31, 2022; 34,156,369 shares issued and 33,884,346 shares outstanding at March 31, 2023; 33,626,630 shares issued and 33,354,607 shares outstanding at December 31, 2022 | | 7 | | | 7 | |
Common stock, additional paid-in capital | | 558,436 | | | 547,799 | |
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Retained earnings (deficit) | | (95,988) | | | 6,102 | |
Treasury stock at cost, 272,023 shares at March 31, 2023 and December 31, 2022 | | (6,309) | | | (6,309) | |
Total stockholders’ equity | | 456,146 | | | 547,599 | |
Total liabilities and stockholders' equity | | $ | 3,502,057 | | | $ | 3,613,695 | |
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)
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| | Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
Revenue | | | | | | | | |
Interest income | | $ | 237,619 | | | $ | 192,237 | | | | | |
Non-interest income | | 21,893 | | | 22,483 | | | | | |
Total revenue | | 259,512 | | | 214,720 | | | | | |
Less: | | | | | | | | |
Interest expense | | 38,997 | | | 13,677 | | | | | |
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Net increase (decrease) in fair value | | (215,710) | | | 3,971 | | | | | |
Net revenue | | 4,805 | | | 205,014 | | | | | |
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Operating expenses: | | | | | | | | |
Technology and facilities | | 56,874 | | | 49,189 | | | | | |
Sales and marketing | | 19,182 | | | 34,541 | | | | | |
Personnel | | 37,318 | | | 35,926 | | | | | |
Outsourcing and professional fees | | 13,802 | | | 14,327 | | | | | |
General, administrative and other | | 19,162 | | | 13,361 | | | | | |
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Total operating expenses | | 146,338 | | | 147,344 | | | | | |
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Income (loss) before taxes | | (141,533) | | | 57,670 | | | | | |
Income tax expense (benefit) | | (39,443) | | | 12,007 | | | | | |
Net income (loss) | | $ | (102,090) | | | $ | 45,663 | | | | | |
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Net income (loss) attributable to common stockholders | | $ | (102,090) | | | $ | 45,663 | | | | | |
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Share data: | | | | | | | | |
Earnings (loss) per share: | | | | | | | | |
Basic | | $ | (3.00) | | | $ | 1.42 | | | | | |
Diluted | | $ | (3.00) | | | $ | 1.37 | | | | | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | 33,979,050 | | | 32,216,641 | | | | | |
Diluted | | 33,979,050 | | | 33,323,134 | | | | | |
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)
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For the Three Months Ended March 31, 2023 |
| | | | | | Common Stock | | | | Warrants | | | | | | |
| | | | | | | | | | | | Shares | | Par Value | | Additional Paid-in Capital | | | | Shares | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Total Stockholders' Equity |
Balance – January 1, 2023 | | | | | | | | | | | | 33,354,607 | | | $ | 7 | | | $ | 547,799 | | | | | $ | — | | | $ | — | | | $ | 6,102 | | | $ | (6,309) | | | $ | 547,599 | |
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Stock-based compensation expense | | | | | | | | | | | | — | | | — | | | 5,329 | | | | | — | | | — | | | — | | | — | | | 5,329 | |
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Vesting of restricted stock units, net of shares withheld | | | | | | | | | | | | 529,739 | | | — | | | (1,364) | | | | | — | | | — | | | — | | | — | | | (1,364) | |
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Issuance of warrants to purchase common stock in connection with debt financing | | | | | | | | | | | | — | | | — | | | — | | | | | 2,096,727 | | | 6,672 | | | — | | | — | | | 6,672 | |
Net loss | | | | | | | | | | | | — | | | — | | | — | | | | | — | | | — | | | (102,090) | | | — | | | (102,090) | |
Balance – March 31, 2023 | | | | | | | | | | | | 33,884,346 | | | $ | 7 | | | $ | 551,764 | | | | | 2,096,727 | | | $ | 6,672 | | | $ | (95,988) | | | $ | (6,309) | | | $ | 456,146 | |
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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)
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For the Three Months Ended March 31, 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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See Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flow (Unaudited)
(in thousands)
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| | Three Months Ended March 31, |
| | 2023 |
| 2022 |
Cash flows from operating activities | | |
Net income (loss) | | $ | (102,090) | | | $ | 45,663 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 13,389 | | | 10,697 | |
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Fair value adjustment, net | | 215,710 | | | (3,971) | |
Origination fees for loans receivable at fair value, net | | (4,743) | | | (4,685) | |
Gain on loan sales | | (1,352) | | | (5,715) | |
Stock-based compensation expense | | 4,878 | | | 6,773 | |
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Other, net | | (34,564) | | | 20,226 | |
Originations of loans sold and held for sale | | (10,032) | | | (48,665) | |
Proceeds from sale of loans | | 11,125 | | | 54,872 | |
Changes in other assets and other liabilities | | (15,507) | | | (36,630) | |
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Net cash provided by operating activities | | 76,814 | | | 38,565 | |
Cash flows from investing activities | | | | |
Originations of loans | | (376,280) | | | (707,108) | |
Proceeds from loan sales originated as held for investment | | 1,041 | | | 245,019 | |
Repayments of loan principal | | 348,104 | | | 351,324 | |
Capitalization of system development costs | | (11,743) | | | (10,641) | |
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Other, net | | (770) | | | (1,090) | |
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Net cash used in investing activities | | (39,648) | | | (122,496) | |
Cash flows from financing activities | | | | |
Borrowings under secured financing | | 87,900 | | | 699,000 | |
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Repayments of secured financing | | (2,614) | | | (620,000) | |
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Repayments of asset-backed notes | | (136,369) | | | (10,395) | |
Borrowings under acquisition and corporate financing | | 17,723 | | | — | |
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Repayments of acquisition and corporate financing | | (10,195) | | | — | |
Payments of deferred financing costs | | (775) | | | — | |
Borrowings allocated to warrants | | 6,632 | | | — | |
Net payments related to stock-based activities | | (1,364) | | | (7,076) | |
Net cash provided by (used in) financing activities | | (39,062) | | | 61,529 | |
Net decrease in cash and cash equivalents and restricted cash | | (1,896) | | | (22,402) | |
Cash and cash equivalents and restricted cash, beginning of period | | 203,817 | | | 192,960 | |
Cash and cash equivalents and restricted cash, end of period | | $ | 201,921 | | | $ | 170,558 | |
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Supplemental disclosure of cash flow information | | | | |
Cash and cash equivalents | | $ | 74,075 | | | $ | 109,864 | |
Restricted cash | | 127,846 | | | 60,694 | |
Total cash and cash equivalents and restricted cash | | $ | 201,921 | | | $ | 170,558 | |
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Cash paid for income taxes, net of refunds | | $ | 307 | | | $ | 328 | |
Cash paid for interest | | $ | 37,459 | | | $ | 13,816 | |
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 3,725 | | | $ | 4,238 | |
Supplemental disclosures of non-cash investing and financing activities | | | | |
Right of use assets obtained in exchange for operating lease obligations | | $ | 1,179 | | | $ | 1,064 | |
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Non-cash investments in capitalized assets | | $ | (1,143) | | | $ | 565 | |
Non-cash financing activities | | $ | 6,672 | | | $ | — | |
See Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 2023
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1. | Organization and Description of Business |
Oportun Financial Corporation (together with its subsidiaries, "Oportun" or the "Company") is a digital banking platform that puts its members’ financial goals within reach. With intelligent borrowing, savings, budgeting, and spending capabilities, the Company empowers members with the confidence to build a better financial future. Oportun 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. Oportun offers 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, 2022 (the "Annual Report"), filed with the Securities and Exchange Commission ("SEC") on March 14, 2023.
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:
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| | Three Months Ended March 31, | | |
(in thousands, except share and per share data) | | 2023 | | 2022 | | | | |
Net income (loss) | | $ | (102,090) | | | $ | 45,663 | | | | | |
| | | | | | | | |
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Net income (loss) attributable to common stockholders | | $ | (102,090) | | | $ | 45,663 | | | | | |
| | | | | | | | |
Basic weighted-average common shares outstanding | | 33,979,050 | | | 32,216,641 | | | | | |
Weighted average effect of dilutive securities: | | | | | | | | |
Stock options | | — | | | 733,503 | | | | | |
Restricted stock units | | — | | | 372,990 | | | | | |
| | | | | | | | |
Diluted weighted-average common shares outstanding | | 33,979,050 | | | 33,323,134 | | | | | |
| | | | | | | | |
Earnings (loss) per share: | | | | | | | | |
Basic | | $ | (3.00) | | | $ | 1.42 | | | | | |
Diluted | | $ | (3.00) | | | $ | 1.37 | | | | | |
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 March 31, | | |
| | 2023 | | 2022 | | | | |
Stock options | | 3,261,871 | | | 2,723,777 | | | | | |
Restricted stock units | | 3,953,396 | | | 1,692,599 | | | | | |
| | | | | | | | |
| | | | | | | | |
Total anti-dilutive common share equivalents | | 7,215,267 | | | 4,416,376 | | | | | |
| | | | | |
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):
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
(in thousands) | | 2023 | | 2022 |
Consolidated VIE assets | | | | |
Restricted cash | | $ | 114,382 | | | $ | 91,395 | |
Loans receivable at fair value | | 2,984,619 | | | 3,081,557 | |
| | | | |
Interest and fee receivable | | 31,449 | | | 30,443 | |
Total VIE assets | | 3,130,450 | | | 3,203,395 | |
Consolidated VIE liabilities | | | | |
Secured financing (1) | | 405,286 | | | 320,000 | |
Asset-backed notes at fair value | | 2,300,201 | | | 2,387,674 | |
Acquisition financing (1) | | 75,484 | | | 85,679 | |
Total VIE liabilities | | $ | 2,780,971 | | | $ | 2,793,353 | |
(1) Amounts exclude deferred financing costs. See Note 8, Borrowings for additional information.
| | | | | |
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. 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 Condensed Consolidated Balance Sheets (Unaudited).
Other Loan Sales - The Company enters into agreements to sell certain populations of its personal loans and credit card receivables from time to time. The sold loans were accounted for under the fair value option. The loan sales qualified for sale accounting treatment and the Company derecognized these loans from its Condensed Consolidated Balance Sheets (Unaudited) 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.
In November 2022, the Company entered into a forward flow whole loan sale agreement with an institutional investor. Pursuant to this agreement, the Company has a commitment to sell a minimum of $2.0 million of its unsecured loan originations each month, with an option to sell an additional $4.0 million each month, over an approximately one-year period, subject to certain eligibility criteria.
The originations of loans sold and held for sale during the three months ended March 31, 2023 was $10.0 million and the Company recorded a gain on sale of $1.4 million and servicing revenue of $3.0 million. The originations of loans sold and held for sale during the three months ended March 31, 2022 was $48.7 million and the Company recorded a gain on sale of $5.7 million and servicing revenue of $4.0 million.
| | | | | |
6. | Capitalized Software and Other Intangibles |
Capitalized software, net consists of the following:
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
(in thousands) | | 2023 | | 2022 |
Capitalized software, net: | | | | |
System development costs | | $ | 145,934 | | | $ | 135,303 | |
Acquired developed technology | | 48,500 | | | 48,500 | |
Less: Accumulated amortization | | (89,825) | | | (79,679) | |
Total capitalized software, net | | $ | 104,609 | | | $ | 104,124 | |
Capitalized software, net
Amortization of system development costs and acquired developed technology for three months ended March 31, 2023 and 2022 was $10.1 million and $7.4 million, respectively. System development costs capitalized in the three months ended March 31, 2023 and 2022 were $10.6 million and $11.2 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:
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
(in thousands) | | 2023 | | 2022 |
Intangible assets: | | | | |
Member relationships | | $ | 34,500 | | | $ | 34,500 | |
Trademarks | | 5,626 | | | 6,426 | |
Other | | 3,000 | | | 3,000 | |
Less: Accumulated amortization | | (9,879) | | | (8,249) | |
Total intangible assets, net | | $ | 33,247 | | | $ | 35,677 | |
On March 8, 2023, the Company revealed its rebranding of Oportun and Digit as a single brand. Therefore, the Company wrote off its $0.8 million Digit trademark. Amortization of intangible assets for the three months ended March 31, 2023 and 2022 was $1.6 million and $2.0 million, respectively.
Expected future amortization expense for intangible assets as of March 31, 2023 is as follows:
| | | | | | | | |
(in thousands) | | Fiscal Years |
2023 (remaining nine months) | | $ | 5,777 | |
2024 | | 7,539 | |
2025 | | 4,929 | |
2026 | | 4,929 | |
2027 | | 4,929 | |
2028 | | 4,780 | |
Thereafter | | — | |
Total | | $ | 32,883 | |
Other assets consist of the following:
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
(in thousands) | | 2023 | | 2022 |
Fixed assets | | | | |
Total fixed assets | | $ | 48,941 | | | $ | 48,212 | |
Less: Accumulated depreciation | | (38,984) | | | (37,688) | |
Total fixed assets, net | | $ | 9,957 | | | $ | 10,524 | |
| | | | |
Other Assets | | | | |
| | | | |
Loans held for sale | | $ | 310 | | | $ | 50 | |
Prepaid expenses | | 20,108 | | | 24,167 | |
Deferred tax assets | | 16,942 | | | 1,793 | |
Current tax assets | | 8,112 | | | 8,245 | |
Other | | 33,665 | | | 19,401 | |
Total other assets | | $ | 89,094 | | | $ | 64,180 | |
Fixed Assets
Depreciation and amortization expense related to Other Assets for the three months ended March 31, 2023 and 2022 was $1.3 million and $1.3 million, respectively.
The following table presents information regarding the Company's Secured Financing facilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | March 31, 2023 | | December 31, 2022 |
Variable Interest Entity | | Facility Amount | | Maturity Date | | Interest Rate | | Balance | | Balance |
(in thousands) | | | | | | | | | | |
Oportun CCW Trust (1) | | $ | 120,000 | | | December 1, 2024 | | Variable (2) | | $ | 74,029 | | | $ | 76,574 | |
Oportun PLW Trust | | 600,000 | | | September 1, 2024 | | LIBOR (minimum of 0.00%) + 2.17% | | 329,196 | | | 240,994 | |
Total secured financing | | $ | 720,000 | | | | | | | $ | 403,225 | | | $ | 317,568 | |
(1) The facility amount and maturity date on the Secured Financing - CCW facility (Oportun CCW Trust) were $150.0 million and December 1, 2023, respectively, as of December 31, 2022.
(2) The interest rate on the Secured Financing - CCW facility (Oportun CCW Trust) is LIBOR (minimum of 0.00%) plus 3.41% on the outstanding principal balance as of March 31, 2023. The interest rate on the CCW was 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 as of December 31, 2022.
The following table presents information regarding asset-backed notes:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 |
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 2022-3) | | $ | 300,000 | | | $ | 310,993 | | | $ | 248,158 | | | $ | 274,205 | | | 8.59 | % | | N/A |
Oportun Issuance Trust (Series 2022-2) | | 400,000 | | | 410,212 | | | 265,132 | | | 292,891 | | | 7.24 | % | | N/A |
Oportun Issuance Trust (Series 2022-A) | | 400,000 | | | 410,211 | | | 385,424 | | | 414,827 | | | 5.44 | % | | 2 years |
Oportun Issuance Trust (Series 2021-C) | | 500,000 | | | 512,762 | | | 447,610 | | | 518,999 | | | 2.48 | % | | 3 years |
Oportun Issuance Trust (Series 2021-B) | | 500,000 | | | 512,759 | | | 447,635 | | | 518,347 | | | 2.05 | % | | 3 years |
Oportun Funding XIV, LLC (Series 2021-A) | | 375,000 | | | 383,632 | | | 354,674 | | | 387,676 | | | 1.79 | % | | 2 years |
Oportun Funding XIII, LLC (Series 2019-A) | | 279,412 | | | 294,118 | | | 151,568 | | | 171,833 | | | 3.46 | % | | 3 years |
Total asset-backed notes recorded at fair value | | $ | 2,754,412 | | | $ | 2,834,687 | | | $ | 2,300,201 | | | $ | 2,578,778 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 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 2022-3) | | $ | 300,000 | | | $ | 310,993 | | | $ | 285,218 | | | $ | 301,967 | | | 8.43 | % | | N/A |
Oportun Issuance Trust (Series 2022-2) | | 400,000 | | | 410,212 | | | 313,689 | | | 344,218 | | | 7.03 | % | | N/A |
Oportun Issuance Trust (Series 2022-A) | | 400,000 | | | 410,211 | | | 380,313 | | | 414,293 | | | 5.44 | % | | 2 years |
Oportun Issuance Trust (Series 2021-C) | | 500,000 | | | 512,762 | | | 435,951 | | | 518,929 | | | 2.48 | % | | 3 years |
Oportun Issuance Trust (Series 2021-B) | | 500,000 | | | 512,759 | | | 432,123 | | | 519,182 | | | 2.05 | % | | 3 years |
Oportun Funding XIV, LLC (Series 2021-A) | | 375,000 | | | 383,632 | | | 348,046 | | | 389,740 | | | 1.79 | % | | 2 years |
Oportun Funding XIII, LLC (Series 2019-A) | | 279,412 | | | 294,118 | | | 192,334 | | | 218,571 | | | 3.46 | % | | 3 years |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total asset-backed notes recorded at fair value | | $ | 2,754,412 | | | $ | 2,834,687 | | | $ | 2,387,674 | | | $ | 2,706,900 | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(1)Initial note amount issued includes notes retained by the Company as applicable. The current balances are measured at fair value for asset-backed notes recorded at fair value.
(2)Includes the unpaid principal balance of loans receivable, the balance of required reserve funds, cash, cash equivalents and restricted cash pledged by the Company.
(3)Weighted average interest rate excludes notes retained by the Company. There were no notes retained by the Company as of March 31, 2023. The weighted average interest rate for Series 2022-2 and Series 2022-3 will change over time as the notes pay sequentially (in class priority order).
(4)The revolving period for Series 2019-A ended on August 1, 2022 and Series 2021-A ended on March 1, 2023. These asset-backed notes have been amortizing since then. Series 2022-2 and Series 2022-3 are both amortizing deals with no revolving period.
The following table presents information regarding the Company's Acquisition and Corporate Financings:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | March 31, 2023 | | December 31, 2022 |
Entity | | Original Balance | | Maturity Date | | Interest Rate | | Balance | | Balance |
(in thousands) | | | | | | | | | | |
Oportun Financial Corporation (1) | | $ | 150,000 | | | September 14, 2026 | | SOFR (minimum of 0.00% + 12.00% | | $ | 160,892 | | | $ | 141,957 | |
Oportun RF, LLC (2) | | 116,000 | | | October 1, 2024 | | SOFR (minimum of 0.00%) + 11.00% | | 71,424 | | | 80,922 | |
Total acquisition and corporate financing | | $ | 266,000 | | | | | | | $ | 232,316 | | | $ | 222,879 | |
(1) The Corporate Financing facility (Oportun Financial Corporation) was upsized and amended on March 10, 2023 to provide the ability to be able to borrow up to an additional $75.0 million. The interest rate on the Corporate Financing facility was SOFR (minimum of 0.00%) plus 9.00% as of December 31, 2022.
(2) The Acquisition Financing facility (Oportun RF, LLC) was amended and upsized several times in 2022 increasing the size of the facility to $119.5 million and amending the maturity date. The maturity date and interest rate of the Acquisition Financing facility was May 1, 2024 and SOFR (minimum of 0.00%) plus 8.00% as of December 31, 2022.
On February 10, 2023, the Acquisition Financing facility (Oportun RF, LLC) was further amended, including among other things, revising the interest rate to SOFR plus 11.00% and adjusting the amortization schedule to defer $42.0 million in principal payments through July 2023, with final payment in October 2024.
On March 8, 2023, the Credit Card Warehouse (Oportun CCW Trust) was amended. This amendment, among other things, extends the revolving period by a year, to December 31, 2024, and reduces the commitment amount from $150.0 million to $120.0 million.
On March 10, 2023 (the “Second Amendment Closing Date”), the Company amended its Corporate Financing facility by entering into an Amendment No. 2 (the “Second Amendment”) by and among the Company, as borrower, the subsidiaries of the Company party thereto as guarantors, certain affiliates of Neuberger Berman Specialty Finance as lenders, and Wilmington Trust, National Association, as administrative agent and collateral agent (the “Agent”), which amended the Credit Agreement, dated as of September 14, 2022 (as amended, supplemented or otherwise modified, including by the Second Amendment, the “Amended Credit Agreement”), by and among the Company, the lenders from time to time party thereto and the Agent.
On the Second Amendment Closing Date, the Company borrowed $20.8 million of incremental term loans (the “Incremental Tranche A-1 Loans”) and borrowed an additional $4.2 million of incremental term loans (the “Incremental Tranche A-2 Loans”) on March 27, 2023. Under the Amended Credit Agreement, the Company borrowed an additional $25.0 million of incremental term loans (the "Incremental Tranche B Loans") on May 5, 2023 and may borrow up to an additional amount of $25.0 million on an uncommitted basis (the “Incremental Tranche C Loans”) expected to be available, if provided by the applicable lenders, on or about June 23, 2023.
The loans (the “Loans”) and other obligations under the Amended Credit Agreement are secured by the assets of the Company and certain of its subsidiaries guaranteeing the Loans, including pledges of the equity interests of certain subsidiaries that are directly or indirectly owned by the Company, subject to customary exceptions.
Following the Second Amendment Closing Date the Loans bear interest, at (a) an amount equal to 1-month term SOFR plus 9.00% plus (b) an amount payable in cash or in kind, at the Company's option, equal to 3.00%. The Loans are scheduled to mature on September 14, 2026, and are not subject to amortization. Certain prepayments of the Loans are subject to a prepayment premium.
Pursuant to the Amended Credit Agreement, as of the three months ended March 31, 2023, the Company issued warrants (the “Warrants”) to the lenders providing the Incremental Tranche A-1 and Incremental Tranche A-2 Loans. The Company allocated proceeds from the incremental borrowings of the Corporate Financing facility to the Corporate Financing facility and the Warrants based on their relative fair values at time of issuance. The value of the proceeds allocated to the Corporate Financing facility, net of discount, and the Warrants in the first quarter 2023, was $17.8 million and $6.7 million, respectively. The value of the Warrants are accounted for as a discount on the incremental borrowings and will be amortized into interest expense over the term of the loans using the effective interest method.
In addition, pursuant to the Amended Credit Agreement, on May 5, 2023, the Company issued to the lenders providing the Incremental Tranche B Loans warrants to purchase 1,048,363 shares of the Company’s common stock, at an exercise price of $0.01 per share. There may be further warrants issued to the lenders in connection with the potential future incremental tranche loans described above. See Note 10, Stockholders' Equity for additional information on the Warrants.
As of March 31, 2023, and December 31, 2022, the Company was in compliance with all covenants and requirements of the Secured Financing, Acquisition and Corporate Financing facilities and asset-backed notes.
Other liabilities consist of the following:
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
(in thousands) | | 2023 | | 2022 |
Accounts payable | | $ | 6,989 | | | $ | 9,670 | |
Accrued compensation | | 14,302 | | | 12,502 | |
Accrued expenses | | 28,083 | | | 26,193 | |
Accrued interest | | 8,773 | | | 8,445 | |
Amount due to whole loan buyer | | 1,738 | | | 3,073 | |
Deferred tax liabilities | | 5,133 | | | 30,575 | |
Current tax liabilities and other | | 9,482 | | | 9,570 | |
Total other liabilities | | $ | 74,500 | | | $ | 100,028 | |
Preferred Stock - The Board has the authority, without further action by the Company's stockholders, to issue up to 100,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by the Board. There were no shares of undesignated preferred stock issued or outstanding as of March 31, 2023 or December 31, 2022.
Common Stock - As of March 31, 2023 and December 31, 2022, the Company was authorized to issue 1,000,000,000 shares of common stock with a par value of $0.0001 per share. As of March 31, 2023, 34,156,369 and 33,884,346 shares were issued and outstanding, respectively, and 272,023 shares were held in treasury stock. As of December 31, 2022, 33,626,630 and 33,354,607 shares were issued and outstanding, respectively, and 272,023 shares were held in treasury stock.
Warrants - On March 10, 2023, pursuant to the Second Amendment of the Corporate Financing facility, the Company issued detachable warrants (the “Warrants”) to the lenders providing the Incremental Tranche A-1 Loans to purchase 1,980,242 shares of the Company’s common stock at an exercise price of $0.01 per share. On March 27, 2023, in connection with the funding of the Incremental Tranche A-2 Loans, the Company issued Warrants to the lenders providing the Incremental Tranche A-2 Loans to purchase 116,485 shares of the Company’s common stock at an exercise price of $0.01 per share. On May 5, 2023, in connection with the funding of the Incremental Tranche B Loans, the Company issued Warrants to the lenders providing the Incremental Tranche B loans to purchase 1,048,363 shares of the Company's common stock at an exercise prices of $0.01 per share. In addition, in connection with the funding of the Incremental Tranche C Loans, the Company will issue Warrants to the lenders providing the Incremental Tranche C Loans to purchase 1,048,363 shares of the Company’s common stock at an exercise price of $0.01 per share.
The value of the proceeds allocated to the Corporate Financing facility and the Warrants in the first quarter 2023 was $17.8 million and $6.7 million, respectively. The portion of the proceeds so allocated to the warrants has been recorded as part of additional paid-in capital.
See Note 8, Borrowings for additional information on the Second Amendment of the Corporate Financing facility.
| | | | | |
11. | Equity Compensation and Other Benefits |
The Company's stock-based plans are described and informational disclosures are provided in the Notes to the Consolidated Financial Statements included in the Annual Report.
Stock-based Compensation - Total stock-based compensation expense included in the Condensed Consolidated Statements of Operations (Unaudited) is as follows:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
(in thousands) | | 2023 | | 2022 | | | | |
Technology and facilities | | $ | 1,049 | | | $ | 1,870 | | | | | |
Sales and marketing | | 33 | | | 31 | | | | | |
Personnel | | 3,796 | | | 4,872 | | | | | |
Total stock-based compensation (1) | | $ | 4,878 | | | $ | 6,773 | | | | | |
(1) Amounts shown are net of $0.5 million of capitalized stock-based compensation for the three months ended March 31, 2023 and net of $0.7 million of capitalized stock-based compensation for the three months ended March 31, 2022.
As of March 31, 2023, and December 31, 2022, the Company’s total unrecognized compensation cost related to unvested stock-based option awards granted to employees was $4.9 million and $