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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 June 30, 2024
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)
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Delaware | | 45-3361983 |
State or Other Jurisdiction of Incorporation or Organization | | I.R.S. Employer Identification No. |
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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:
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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 | ☐ | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| | Emerging growth company | ☐ |
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 August 2, 2024 was 35,722,721.
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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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| | June 30, | | December 31, |
| | 2024 | | 2023 |
Assets | | | | |
Cash and cash equivalents | | $ | 72,871 | | | $ | 91,187 | |
Restricted cash | | 163,765 | | | 114,829 | |
Loans receivable at fair value | | 2,714,410 | | | 2,962,352 | |
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Credit cards receivable held for sale | | 55,720 | | | — | |
Capitalized software and other intangibles, net | | 99,688 | | | 114,735 | |
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Right of use assets - operating | | 9,947 | | | 21,105 | |
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Other assets | | 133,960 | | | 107,680 | |
Total assets | | $ | 3,250,361 | | | $ | 3,411,888 | |
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Liabilities and stockholders' equity | | | | |
Liabilities | | | | |
Secured financing | | $ | 156,436 | | | $ | 289,951 | |
Asset-backed notes at fair value | | 1,583,088 | | | 1,780,005 | |
Asset-backed borrowings at amortized cost | | 836,893 | | | 581,468 | |
Acquisition and corporate financing | | 230,382 | | | 258,746 | |
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Lease liabilities | | 21,734 | | | 28,376 | |
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Other liabilities | | 67,712 | | | 68,938 | |
Total liabilities | | 2,896,245 | | | 3,007,484 | |
Stockholders' equity | | | | |
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Common stock, $0.0001 par value - 1,000,000,000 shares authorized at June 30, 2024 and December 31, 2023; 35,994,744 shares issued and 35,722,721 shares outstanding at June 30, 2024; 34,741,076 shares issued and 34,469,053 shares outstanding at December 31, 2023 | | 7 | | | 7 | |
Common stock, additional paid-in capital | | 591,731 | | | 584,555 | |
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Accumulated deficit | | (231,313) | | | (173,849) | |
Treasury stock at cost, 272,023 shares at June 30, 2024 and December 31, 2023 | | (6,309) | | | (6,309) | |
Total stockholders’ equity | | 354,116 | | | 404,404 | |
Total liabilities and stockholders' equity | | $ | 3,250,361 | | | $ | 3,411,888 | |
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 June 30, | | Six Months Ended June 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Revenue | | | | | | | | |
Interest income | | $ | 231,373 | | | $ | 240,463 | | | $ | 461,963 | | | $ | 478,082 | |
Non-interest income | | 19,023 | | | 26,100 | | | 38,915 | | | 47,993 | |
Total revenue | | 250,396 | | | 266,563 | | | 500,878 | | | 526,075 | |
Less: | | | | | | | | |
Interest expense | | 54,244 | | | 41,448 | | | 108,709 | | | 80,445 | |
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Net decrease in fair value | | (136,119) | | | (106,490) | | | (252,969) | | | (322,200) | |
Net revenue | | 60,033 | | | 118,625 | | | 139,200 | | | 123,430 | |
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Operating expenses: | | | | | | | | |
Technology and facilities | | 40,625 | | | 55,116 | | | 87,730 | | | 111,990 | |
Sales and marketing | | 16,258 | | | 19,195 | | | 32,261 | | | 38,377 | |
Personnel | | 21,908 | | | 30,762 | | | 46,424 | | | 68,080 | |
Outsourcing and professional fees | | 8,375 | | | 9,900 | | | 18,616 | | | 23,702 | |
General, administrative and other | | 22,016 | | | 21,123 | | | 33,793 | | | 40,285 | |
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Total operating expenses | | 109,182 | | | 136,096 | | | 218,824 | | | 282,434 | |
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Income (loss) before taxes | | (49,149) | | | (17,471) | | | (79,624) | | | (159,004) | |
Income tax benefit | | (18,124) | | | (2,572) | | | (22,160) | | | (42,015) | |
Net loss | | $ | (31,025) | | | $ | (14,899) | | | $ | (57,464) | | | $ | (116,989) | |
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Net income (loss) attributable to common stockholders | | $ | (31,025) | | | $ | (14,899) | | | $ | (57,464) | | | $ | (116,989) | |
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Share data: | | | | | | | | |
Earnings (loss) per share: | | | | | | | | |
Basic | | $ | (0.78) | | | $ | (0.41) | | | $ | (1.46) | | | $ | (3.31) | |
Diluted | | $ | (0.78) | | | $ | (0.41) | | | $ | (1.46) | | | $ | (3.31) | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | 39,816,996 | | | 36,691,291 | | | 39,358,936 | | | 35,342,663 | |
Diluted | | 39,816,996 | | | 36,691,291 | | | 39,358,936 | | | 35,342,663 | |
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 Six Months Ended June 30, 2024 |
| | | | | | | Warrants | | Common Stock | | | | | | | | |
| | | | | | | | | | | | | Shares | | Additional Paid-in Capital | | Shares | | Par Value | | Additional Paid-in Capital | | | | Retained Earnings (Accumulated Deficit) | | Treasury Stock | | Total Stockholders' Equity |
Balance – January 1, 2024 | | | | | | | | | | | | | 4,193,453 | | | $ | 19,431 | | | 34,469,053 | | | $ | 7 | | | $ | 565,124 | | | | | $ | (173,849) | | | $ | (6,309) | | | $ | 404,404 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | | | | | | | | | | | | — | | | — | | | — | | | — | | | 4,239 | | | | | — | | | — | | | 4,239 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vesting of restricted stock units, net of shares withheld | | | | | | | | | | | | | — | | | — | | | 1,120,201 | | | — | | | (232) | | | | | — | | | — | | | (232) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | | | (26,439) | | | — | | | (26,439) | |
Balance – March 31, 2024 | | | | | | | | | | | | | 4,193,453 | | | $ | 19,431 | | | 35,589,254 | | | $ | 7 | | | $ | 569,131 | | | | | $ | (200,288) | | | $ | (6,309) | | | $ | 381,972 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | | | | | | | | | | | | — | | | — | | | — | | | — | | | 3,169 | | | | | — | | | — | | | 3,169 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vesting of restricted stock units, net of shares withheld | | | | | | | | | | | | | — | | | — | | | 133,467 | | | — | | | — | | | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | | | (31,025) | | | — | | | (31,025) | |
Balance – June 30, 2024 | | | | | | | | | | | | | 4,193,453 | | | $ | 19,431 | | | 35,722,721 | | | $ | 7 | | | $ | 572,300 | | | | | $ | (231,313) | | | $ | (6,309) | | | $ | 354,116 | |
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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)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2023 |
| | | | Warrants | | Common Stock | | | | | | | | |
| | | | | | | | Shares | | Additional Paid-in Capital | | Shares | | Par Value | | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | | | | | | | — | | | — | | | — | | | — | | | 5,329 | | | | | — | | | — | | | 5,329 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 | | | | | | | | 2,096,727 | | | $ | 6,672 | | | 33,884,346 | | | $ | 7 | | | $ | 551,764 | | | | | $ | (95,988) | | | $ | (6,309) | | | $ | 456,146 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock upon exercise of stock options, net of shares withheld | | | | | | | | — | | | — | | | 26,458 | | | — | | | (95) | | | | | — | | | — | | | (95) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | | | | | | | — | | | — | | | — | | | — | | | 4,754 | | | | | — | | | — | | | 4,754 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Vesting of restricted stock units, net of shares withheld | | | | | | | | — | | | — | | | 116,539 | | | — | | | (267) | | | | | — | | | — | | | (267) | |
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| | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of warrants to purchase common stock in connection with debt financing | | | | | | | | 2,096,726 | | | 12,759 | | | — | | | — | | | — | | | | | — | | | — | | | 12,759 | |
Net loss | | | | | | | | — | | | — | | | — | | | — | | | — | | | | | (14,899) | | | — | | | (14,899) | |
Balance – June 30, 2023 | | | | | | | | 4,193,453 | | | $ | 19,431 | | | 34,027,343 | | | $ | 7 | | | $ | 556,156 | | | | | $ | (110,887) | | | $ | (6,309) | | | $ | 458,398 | |
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See Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flow (Unaudited)
(in thousands)
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2024 |
| 2023 |
Cash flows from operating activities | | |
Net loss | | $ | (57,464) | | | $ | (116,989) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 26,204 | | | 27,158 | |
| | | | |
Fair value adjustment, net | | 252,969 | | | 322,200 | |
Origination fees for loans receivable at fair value, net | | (10,140) | | | (16,981) | |
Gain on loan sales | | (3,608) | | | (3,693) | |
Stock-based compensation expense | | 6,924 | | | 9,347 | |
| | | | |
| | | | |
Other, net | | (14,191) | | | (29,910) | |
Originations of loans sold and held for sale | | (50,664) | | | (25,678) | |
Proceeds from sale of loans | | 53,816 | | | 29,096 | |
Changes in operating assets and liabilities | | (10,237) | | | (15,193) | |
| | | | |
| | | | |
| | | | |
| | | | |
Net cash provided by operating activities | | 193,609 | | | 179,357 | |
Cash flows from investing activities | | | | |
Originations and purchases of loans held for investment | | (679,738) | | | (780,912) | |
Proceeds from loan sales originated as held for investment | | 2,240 | | | 1,653 | |
Repayments of loan principal | | 659,232 | | | 694,963 | |
Capitalization of system development costs | | (8,351) | | | (18,731) | |
| | | | |
| | | | |
Other, net | | (361) | | | (994) | |
| | | | |
Net cash used in investing activities | | (26,978) | | | (104,021) | |
Cash flows from financing activities | | | | |
Borrowings under secured financing | | 89,940 | | | 171,300 | |
| | | | |
Repayments of secured financing | | (224,193) | | | (3,140) | |
| | | | |
Repayments of asset-backed notes at fair value | | (225,950) | | | (330,406) | |
Borrowings under asset-backed borrowings at amortized cost | | 397,907 | | | 25,544 | |
Repayments of asset-backed borrowings at amortized cost | | (136,785) | | | — | |
Borrowings under acquisition and corporate financing | | — | | | 73,355 | |
| | | | |
Repayments of acquisition and corporate financing | | (34,271) | | | (10,195) | |
Payments of deferred financing costs | | (2,427) | | | (1,550) | |
| | | | |
Net payments related to stock-based activities | | (232) | | | (1,726) | |
Net cash used in financing activities | | (136,011) | | | (76,818) | |
Net increase (decrease) in cash and cash equivalents and restricted cash | | 30,620 | | | (1,482) | |
Cash and cash equivalents and restricted cash, beginning of period | | 206,016 | | | 203,817 | |
Cash and cash equivalents and restricted cash, end of period | | $ | 236,636 | | | $ | 202,335 | |
| | | | |
Supplemental disclosure of cash flow information | | | | |
Cash and cash equivalents | | $ | 72,871 | | | $ | 73,371 | |
Restricted cash | | 163,765 | | | 128,964 | |
Total cash and cash equivalents and restricted cash | | $ | 236,636 | | | $ | 202,335 | |
| | | | |
Cash paid for income taxes, net of refunds | | $ | 826 | | | $ | 1,171 | |
Cash paid for interest | | $ | 106,940 | | | $ | 77,453 | |
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 6,463 | | | $ | 7,430 | |
Supplemental disclosures of non-cash investing and financing activities | | | | |
Right of use assets obtained in exchange for operating lease obligations | | $ | (6,511) | | | $ | 1,979 | |
| | | | |
| | | | |
| | | | |
Non-cash investments in capitalized assets | | $ | 801 | | | $ | (507) | |
Non-cash financing activities | | $ | 16,603 | | | $ | 19,431 | |
See Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
| | | | | |
1. | Organization and Description of Business |
Oportun Financial Corporation (together with its subsidiaries unless the context indicates otherwise, "Oportun" or the "Company") is a mission driven fintech that puts its members’ financial goals within reach. With intelligent borrowing, savings, and budgeting 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 products powered by A.I., offered either directly or through partners, including unsecured and secured lending, and 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.
| | | | | |
2. | Summary of Significant Accounting Policies |
Basis of Presentation ‑ The Company meets the SEC's definition of a “Smaller Reporting Company”, and therefore qualifies for the SEC's reduced disclosure requirements for smaller reporting companies. The accompanying 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, 2023 (the "Annual Report"), filed with the Securities and Exchange Commission ("SEC") on March 15, 2024.
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.
Accounting Standards to be Adopted
Income Taxes - In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. This ASU requires entities to disclose in their rate reconciliation table additional categories or information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if the items meet a quantitative threshold and requires annual disclosure of income taxes paid to be disaggregated by federal, state and foreign taxes and to disaggregate the information by jurisdiction based on a quantitative threshold. The ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company has evaluated the effect of the new guidance and determined the ASU expands tax disclosures but it will not have a material impact on the consolidated financial statements.
Segment Reporting - In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The ASU enhances disclosures about significant segment expenses, provides new segment disclosure requirements for entities with a single reportable segment, enhances interim disclosure requirements, clarifies circumstances in which an entity is permitted to disclose multiple segment measures of profit or loss and other disclosure requirements. The ASU is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company has evaluated the effect of the new guidance and determined that the expanded segment disclosures will not have a material impact on the consolidated financial statements.
| | | | | |
3. | Earnings (Loss) per Share |
Basic and diluted earnings (loss) per share are calculated as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands, except share and per share data) | | 2024 | | 2023 | | 2024 | | 2023 |
Net loss | | $ | (31,025) | | | $ | (14,899) | | | $ | (57,464) | | | $ | (116,989) | |
| | | | | | | | |
| | | | | | | | |
Net income (loss) attributable to common stockholders | | $ | (31,025) | | | $ | (14,899) | | | $ | (57,464) | | | $ | (116,989) | |
| | | | | | | | |
Basic weighted-average common shares outstanding | | 39,816,996 | | | 36,691,291 | | | 39,358,936 | | | 35,342,663 | |
Weighted average effect of dilutive securities: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Diluted weighted-average common shares outstanding | | 39,816,996 | | | 36,691,291 | | | 39,358,936 | | | 35,342,663 | |
| | | | | | | | |
Earnings (loss) per share: | | | | | | | | |
Basic | | $ | (0.78) | | | $ | (0.41) | | | $ | (1.46) | | | $ | (3.31) | |
Diluted | | $ | (0.78) | | | $ | (0.41) | | | $ | (1.46) | | | $ | (3.31) | |
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 June 30, | | Six Months Ended June 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
Stock options | | 2,347,491 | | | 3,062,442 | | | 2,445,681 | | | 3,162,156 | |
Restricted stock units | | 4,058,597 | | | 3,730,803 | | | 3,842,349 | | | 3,842,100 | |
| | | | | | | | |
| | | | | | | | |
Total anti-dilutive common share equivalents | | 6,406,088 | | | 6,793,245 | | | 6,288,030 | | | 7,004,256 | |
| | | | | |
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 the Company is involved, it assesses whether it is the primary beneficiary of the VIE on an ongoing basis. In circumstances where the Company has 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, it would conclude that it is the primary beneficiary of the VIE, and it consolidates the VIE. In situations where the Company is not deemed to be the primary beneficiary of the VIE, it does not consolidate the VIE and only recognizes its interests in the VIE. In addition, on June 16, 2023 and August 3, 2023, the Company entered into forward flow whole loan sale agreements that are considered secured borrowings and are not considered VIEs. See Note 8, Borrowings for additional information on the secured borrowing under the caption of asset-backed borrowings at amortized cost.
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 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):
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
(in thousands) | | 2024 | | 2023 |
Consolidated VIE assets | | | | |
Restricted cash | | $ | 133,945 | | | $ | 91,466 | |
Loans receivable at fair value | | 2,185,915 | | | 2,539,186 | |
| | | | |
| | | | |
Total VIE assets | | 2,319,860 | | | 2,630,652 | |
Consolidated VIE liabilities | | | | |
Secured financing (1) | | 156,696 | | | 290,949 | |
Asset-backed notes at fair value | | 1,583,088 | | | 1,780,005 | |
Asset-backed borrowings at amortized cost | | 345,172 | | | 195,057 | |
Acquisition financing (1) | | 40,066 | | | 57,237 | |
Total VIE liabilities | | $ | 2,125,022 | | | $ | 2,323,248 | |
(1) Amounts exclude deferred financing costs. See Note 8, Borrowings for additional information.
| | | | | |
5. | Loans Held for Sale and Loans Sold |
Other Loan Sales - The Company enters into agreements to sell certain populations of its personal loans and credit card receivables from time to time, including non-performing loans and credit card receivables originated as held for investment. 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 ‑ The Company enters into whole loan sale agreements with third parties in which we agree to sell newly originated unsecured personal loans and secured personal loans.
The originations of loans sold and held for sale during the three months ended June 30, 2024 was $28.4 million and the Company recorded a gain on sale of $2.1 million and servicing revenue of $1.6 million. The originations of loans sold and held for sale during the three months ended June 30, 2023 was $15.6 million. The gain on sale recorded during the three months ended June 30, 2023 was $2.3 million. Servicing revenue during the same time period was $2.5 million.
The originations of loans sold and held for sale during the six months ended June 30, 2024 was $50.7 million and the Company recorded a gain on sale of $3.6 million and servicing revenue of $3.2 million. The originations of loans sold and held for sale during the six months ended June 30, 2023 was $25.7 million. The gain on sale recorded during the six months ended June 30, 2023 was $3.7 million. Servicing revenue during the same time period was $5.6 million.
Oportun® Visa® Credit Card - On June 21, 2024, the Company entered into a nonbinding letter of intent with a third-party to sell the credit card receivable portfolio originated under the Company's credit card program. Following the execution of the nonbinding letter of intent, the portfolio is considered to be held for sale and is presented within Credit cards receivable held for sale on the Condensed Consolidated Balance Sheet (Unaudited). The Company has elected the fair value option for the credit card portfolio and, as a result, we recorded a net decrease in fair value of $36.2 million associated with the terms contained within the nonbinding letter of intent. The Company has chosen to sell the credit card receivables portfolio because it believes it can achieve higher returns on its capital from allocating it to the Company's other products.
| | | | | |
6. | Capitalized Software and Other Intangibles |
Capitalized software, net consists of the following:
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
(in thousands) | | 2024 | | 2023 |
Capitalized software, net: | | | | |
System development costs | | $ | 167,726 | | | $ | 158,577 | |
Acquired developed technology | | 48,500 | | | 48,500 | |
Less: Accumulated amortization | | (140,172) | | | (119,810) | |
Total capitalized software, net | | $ | 76,054 | | | $ | 87,267 | |
Capitalized software, net
Amortization of system development costs and acquired developed technology for the three months ended June 30, 2024 and 2023 was $10.1 million and $10.6 million, respectively. System development costs capitalized in the three months ended June 30, 2024 and 2023 were $5.4 million and $7.7 million, respectively.
Amortization of system development costs and acquired developed technology for the six months ended June 30, 2024 and 2023 was $20.4 million and $20.7 million, respectively. System development costs capitalized in the six months ended June 30, 2024 and 2023 were $9.2 million and $18.3 million, respectively.
Acquired developed technology was $48.5 million and is related to the acquisition of Hello Digit, Inc. (“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:
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
(in thousands) | | 2024 | | 2023 |
Intangible assets: | | | | |
Member relationships | | $ | 34,500 | | | $ | 34,500 | |
Trademarks | | 5,626 | | | 5,626 | |
Other | | 3,000 | | | 3,000 | |
Less: Accumulated amortization | | (19,492) | | | (15,658) | |
Total intangible assets, net | | $ | 23,634 | | | $ | 27,468 | |
Amortization of intangible assets for the three months ended June 30, 2024 and 2023 was $1.9 million and $1.9 million, respectively. Amortization of intangible assets for the six months ended June 30, 2024 and 2023 was $3.8 million and $3.5 million, respectively. 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.
Expected future amortization expense for intangible assets as of June 30, 2024 is as follows:
| | | | | | | | |
(in thousands) | | Fiscal Years |
2024 (remaining six months) | | $ | 3,704 | |
2025 | | 4,929 | |
2026 | | 4,929 | |
2027 | | 4,929 | |
2028 | | 4,780 | |
2029 | | — | |
Thereafter | | — | |
Total | | $ | 23,271 | |
Other assets consist of the following:
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
(in thousands) | | 2024 | | 2023 |
Fixed assets | | | | |
Total fixed assets | | $ | 42,683 | | | $ | 48,944 | |
Less: Accumulated depreciation | | (37,763) | | | (41,953) | |
Total fixed assets, net | | $ | 4,920 | | | $ | 6,991 | |
| | | | |
Other Assets | | | | |
| | | | |
| | | | |
Prepaid expenses | | $ | 13,716 | | | $ | 15,758 | |
Deferred tax assets, net | | 71,615 | | | 48,123 | |
Current tax assets | | 4,315 | | | 4,731 | |
Receivable from banking partner | | 3,837 | | | 4,050 | |
Derivative asset | | 11,432 | | | 9,307 | |
Other | | 24,125 | | | 18,720 | |
Total other assets | | $ | 133,960 | | | $ | 107,680 | |
Fixed Assets
Depreciation and amortization expense related to fixed assets for the three months ended June 30, 2024 and 2023 was $1.0 million and $0.9 million, respectively, and for the six months ended June 30, 2024 and 2023 was $2.0 million, and $2.2 million, respectively.
The Company recognized an impairment of the right-of-use asset related to the leased office space in San Carlos, California due to a significant decrease in observed market rents for commercial office space, and the inability to find a sub-lessee given the remaining lease term and market conditions. As a result, the Company disposed of all related fixed assets of $3.7 million and related accumulated depreciation of $3.5 million resulting in a loss on disposal of $0.2 million.
Secured Financing
The following table presents information regarding the Company's Secured Financing facilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | June 30, 2024 | | December 31, 2023 |
Variable Interest Entity | | Facility Amount | | Maturity Date | | Interest Rate | | Balance | | Balance |
(in thousands) | | | | | | | | | | |
Oportun CCW Trust (1) | | $ | 80,000 | | | December 1, 2024 | | Adjusted SOFR + 3.41% | | $ | 57,978 | | | $ | 68,409 | |
Oportun PLW Trust | | 600,000 | | | September 1, 2024 | | Adjusted SOFR + 2.17% | | 98,458 | | | 221,542 | |
Total secured financing | | $ | 680,000 | | | | | | | $ | 156,436 | | | $ | 289,951 | |
(1) As of December 31, 2023, the facility amount of the Secured Financing - CCW facility (Oportun CCW Trust) was $100.0 million.
On January 31, 2024, the Company entered into an amendment to the Credit Card Warehouse facility to reduce the commitment amount from $100.0 million to $80.0 million and adjusted the minimum payment rate requirement, advance rate.
Asset-backed Notes at Fair Value
The following table presents information regarding asset-backed notes at fair value:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2024 |
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 | | | $ | 93,233 | | | $ | 106,868 | | | 10.35 | % | | N/A |
Oportun Issuance Trust (Series 2022-2) | | 400,000 | | | 410,212 | | | 78,006 | | | 90,145 | | | 9.87 | % | | N/A |
Oportun Issuance Trust (Series 2022-A) | | 400,000 | | | 410,211 | | | 394,945 | | | 415,204 | | | 5.44 | % | | 2 years |
Oportun Issuance Trust (Series 2021-C) | | 500,000 | | | 512,762 | | | 466,863 | | | 519,349 | | | 2.48 | % | | 3 years |
Oportun Issuance Trust (Series 2021-B) | | 500,000 | | | 512,759 | | | 443,817 | | | 486,952 | | | 2.05 | % | | 3 years |
Oportun Funding XIV, LLC (Series 2021-A) | | 375,000 | | | 383,632 | | | 106,224 | | | 119,066 | | | 1.79 | % | | 2 years |
| | | | | | | | | | | | |
Total asset-backed notes recorded at fair value | | $ | 2,475,000 | | | $ | 2,540,569 | | | $ | 1,583,088 | | | $ | 1,737,584 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 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 | | | $ | 145,732 | | | $ | 165,079 | | | 9.34 | % | | N/A |
Oportun Issuance Trust (Series 2022-2) | | 400,000 | | | 410,212 | | | 135,825 | | | 156,027 | | | 8.46 | % | | N/A |
Oportun Issuance Trust (Series 2022-A) | | 400,000 | | | 410,211 | | | 390,755 | | | 415,448 | | | 5.44 | % | | 2 years |
Oportun Issuance Trust (Series 2021-C) | | 500,000 | | | 512,762 | | | 459,212 | | | 519,612 | | | 2.47 | % | | 3 years |
Oportun Issuance Trust (Series 2021-B) | | 500,000 | | | 512,759 | | | 466,317 | | | 519,115 | | | 2.05 | % | | 3 years |
Oportun Funding XIV, LLC (Series 2021-A) | | 375,000 | | | 383,632 | | | 182,164 | | | 200,758 | | | 1.78 | % | | 2 years |
Oportun Funding XIII, LLC (Series 2019-A) | | 279,412 | | | 294,118 | | | — | | | — | | | — | % | | 3 years |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total asset-backed notes recorded at fair value | | $ | 2,754,412 | | | $ | 2,834,687 | | | $ | 1,780,005 | | | $ | 1,976,039 | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(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 June 30, 2024. The weighted average interest rate for Series 2022-A, 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 2021-A ended on March 1, 2023, Series 2021-B ended on May 1, 2024, and Series 2022-A ended on June 1, 2024. These asset-backed notes have been amortizing since then. Series 2022-2 and Series 2022-3 are both amortizing deals with no revolving period.
Asset-backed Borrowings at Amortized Cost
The following table represents information regarding the Company's Asset-backed borrowings at amortized cost:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2024 | | December 31, 2023 |
| | | Balance | | Balance |
Asset-backed borrowings at amortized cost | | | Pledged Asset (1) | | Associated Liability | | Pledged Asset (1) | | Associated Liability |
(in thousands) | | | | | | | | | |
Oportun Issuance Trust 2024-1 | | | $ | 150,656 | | | $ | 149,728 | | | $ | — | | | $ | — | |
Oportun CL Trust 2023-A | | | 197,390 | | | 195,444 | | | 197,390 | | | 195,057 | |
Other Asset Backed Borrowings | | | 488,613 | | | 491,721 | | | 382,712 | | | 386,411 | |
Total asset-backed borrowings recorded at amortized cost: | | | $ | 836,659 | | | $ | 836,893 | | | $ | 580,102 | | | $ | 581,468 | |
(1) The amount of pledged assets are recognized within the Loans Receivable at Fair Value on the Consolidated Balance Sheet.
On February 13, 2024, the Company announced the issuance of $199.5 million of Series 2024-1 fixed-rate asset-backed notes secured by a pool of its unsecured and secured personal installment loans (the "2024-1 Securitization"). The 2024-1 Securitization included four classes of fixed rate notes. The notes were offered and sold in a private placement in reliance on Rule 144A under the U.S. Securities Act of 1933, as amended, and were priced with a weighted average yield of 8.600% per annum and weighted average coupon of 8.434% per annum.
On October 20, 2023, the Company entered into a Receivables Loan and Security Agreement (the “Receivables Loan and Security Agreement”), pursuant to which the Company borrowed $197 million. Borrowings under the Receivables Loan and Security Agreement accrue interest at a weighted average interest rate equal to 10.05%.
Acquisition and Corporate Financing
The following table presents information regarding the Company's Acquisition and Corporate Financings:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | June 30, 2024 | | December 31, 2023 |
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% | | $ | 192,049 | | | $ | 204,100 | |
Oportun RF, LLC (2) | | 116,000 | | | January 10, 2025 | | SOFR (minimum of 0.00%) + 11.00% | | 38,333 | | | 54,646 | |
Total acquisition and corporate financings | | $ | 266,000 | | | | | | | $ | 230,382 | | | $ | 258,746 | |
(1) The Corporate Financing facility (Oportun Financial Corporation) was amended and upsized to $75.0 million on March 10, 2023.
(2) As of December 31, 2023, the maturity date of the Acquisition Financing facility (Oportun RF, LLC) was October 10, 2024.
Amendments to Corporate Financing
On March 12, 2024, the Company entered into Amendment No. 3 to the Corporate Financing (the “Third Amendment”). The Third Amendment included modifications to the minimum asset coverage ratio covenant levels, provided for an interest rate step-up of 3.00% per annum for certain months beginning in August 2024 in which the asset coverage ratio is less than 1.00 to 1.00, and required certain principal payments in amounts equal to $5.7 million per month to be made on the last business day of each of March, April and May 2024. In addition, the Third Amendment required principal payments equal to 100% of the net cash proceeds of any future issuance of indebtedness junior in priority to the obligations under the Corporate Financing.
Amendments to Acquisition Financing
On March 8, 2024, the Acquisition Financing facility (Oportun RF, LLC) was amended to provide for a three-month principal payment holiday for the months of March, April and May 2024, in amounts equal to $5.7 million per month. In addition, the amendment extended the term of the Acquisition Financing facility to January 10, 2025.
As of June 30, 2024, and December 31, 2023, 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:
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
(in thousands) | | 2024 | | 2023 |
Accounts payable | | $ | 9,872 | | | $ | 5,288 | |
Accrued compensation | | 10,670 | | | 15,359 | |
Accrued expenses | | 20,521 | | | 24,791 | |
Accrued interest | | 10,117 | | | 8,415 | |
Amount due to whole loan buyer | | 5,795 | | | 4,169 | |
| | | | |
Current tax liabilities | | 7,472 | | | 7,139 | |
Other | | 3,265 | | | 3,777 | |
Total other liabilities | | $ | 67,712 | | | $ | 68,938 | |
Preferred Stock - The board of directors of the Company (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 June 30, 2024 or December 31, 2023.
Common Stock - As of June 30, 2024 and December 31, 2023, 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 June 30, 2024, 35,994,744 and 35,722,721 shares were issued and outstanding, respectively, and 272,023 shares were held in treasury stock. As of December 31, 2023, 34,741,076 and 34,469,053 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 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 price of $0.01 per share. On June 30, 2023, in connection with the funding of the Incremental Tranche C Loans, the Company issued 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.
| | | | | |
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 June 30, | | Six Months Ended June 30, |
(in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Technology and facilities | | $ | 769 | | | $ | 1,159 | | | $ | 1,928 | | | $ | 2,208 | |
Sales and marketing | | 29 | | | 10 | | | 53 | | | 43 | |
Personnel | | 2,144 | | | 3,300 | | | 4,943 | | | 7,096 | |
Total stock-based compensation (1) | | $ | 2,942 | | | $ | 4,469 | | | $ | 6,924 | | | $ | 9,347 | |
(1) Amounts shown are net of $0.2 million and $0.5 million of capitalized stock-based compensation for the three and six months ended June 30, 2024, respectively, and net of $0.3 million and $0.7 million of capitalized stock-based compensation for the three and six months ended June 30, 2023, respectively.
As of June 30, 2024, and December 31, 2023, the Company’s total unrecognized compensation cost related to unvested stock-based option awards granted to employees was $1.5 million and $2.6 million, respectively, which will be recognized over a weighted-average vesting period of approximately 1.7 years and 1.9 years, respectively. As of June 30, 2024 and December 31, 2023, the Company's total unrecognized compensation cost related to time-based and performance-based unvested restricted stock unit awards granted to employees was $21.0 million and $24.8 million, respectively, which will be recognized over a weighted average vesting period of approximately 2.2 years and 2.1 years, respectively.
Cash flows from the tax benefits for tax deductions resulting from the exercise of stock options in excess of the compensation expense recorded for those options (excess tax benefits) are required to be classified as cash from financing activities. The Company recognized $2.0 million and $2.6 million of income tax benefit in its consolidated statement of operations related to stock-based compensation expense during the six months ended June 30, 2024 and 2023, respectively. Additionally, the total income tax expense (benefit) recognized in the income statement for share-based compensation exercises was $0.2 million and $1.7 million for the three and six months ended June 30, 2024, respectively. The total income tax expense recognized in the income statement for share-based compensation exercises was $0.3 million and $2.7 million for the three and six months ended June 30, 2023, respectively.
Interest Income - Total interest income included in the Condensed Consolidated Statements of Operations (Unaudited) is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Interest income | | | | | | | | |
Interest on loans | | $ | 228,242 | | | $ | 236,028 | | | $ | 453,925 | | | $ | 468,228 | |
Fees on loans | | 3,131 | | | 4,435 | | | 8,038 | | | 9,854 | |
Total interest income | | 231,373 | | | 240,463 | | | 461,963 | | | 478,082 | |
Non-interest Income - Total non-interest income included in the Condensed Consolidated Statements of Operations (Unaudited) is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
Non-interest income | | | | | | | | |
| | | | | | | | |
Servicing fees | | $ | 3,463 | | | $ | 3,544 | | | $ | 6,872 | | | $ | 7,224 | |
Subscription revenue | | 5,437 | | | 6,301 | | | 11,956 | | | 13,179 | |
Interest on member accounts | | 9,029 | | | 6,201 | | | 13,696 | | | 11,429 | |
Gain on loan sales and other | | 1,094 | | | 10,054 | | | 6,391 | | | 16,161 | |
Total non-interest income | | $ | 19,023 | | | $ | 26,100 | | | $ | 38,915 | | | $ | 47,993 | |
For the three and six months ended June 30, 2024 and 2023, the Company calculated its year-to-date income tax expense (benefit) by applying the estimated annual effective tax rate to the year-to-date income from operations before income taxes and adjusts the income tax expense (benefit) for discrete tax items recorded in the period.
During the three and six months ended June 30, 2024, the Company recorded income tax benefit of $18.1 million and $22.2 million, respectively, related to continuing operations, representing an effective tax rate of 36.9% and 27.8%, respectively. Income tax benefit for the three and six months ended June 30, 2023 was $2.6 million and $42.0 million, representing an effective income tax rate of 14.7% and 26.4%, respectively.
Income tax benefit increased by $15.6 million or 605%, from $2.6 million for the three months ended June 30, 2023 to $18.1 million benefit for the three months ended June 30, 2024, primarily as a result of having a larger pretax loss for the three months ended June 30, 2024. Income tax benefit decreased by $19.9 million or 47%, from $42.0 million for the six months ended June 30, 2023 to $22.2 million for the six months ended June 30, 2024, primarily as a result of having a lower pretax loss for the six months ended June 30, 2024. The Company's effective tax rates for the three and six months ended June 30, 2024 and 2023 differ from the statutory tax rates primarily due to the impacts of the research and development tax credit, and stock-based compensation.
The Company’s policy is to recognize interest and penalties associated with unrecognized tax positions in income tax expense. At the end of 2024, the Company expects it will no longer be subject to any significant U.S. federal tax examinations by tax authorities for all years prior to 2021. Thus, the Company expects to release $3.4 million of uncertain tax positions within the next twelve months due to the expiration of various statute of limitations.
In December 2021, the Organization for Economic Co-operation and Development Inclusive Framework on Base Erosion Profit Shifting released Model Global Anti-Base Erosion rules (“Model Rules”) under Pillar Two. The Model Rules set forth the “common approach” for a Global Minimum Tax at 15 percent for multinational enterprises with a turnover of more than 750 million euros. Rules under Pillar Two were effective from January 1, 2024. The Company does not expect adoption of Pillar Two rules to have a significant impact on its consolidated financial statements during fiscal year 2024.
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14. | Fair Value of Financial Instruments |
Financial Instruments at Fair Value
The table below compares the fair value of loans receivable and asset-backed notes to their contractual balances for the periods shown:
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| | June 30, 2024 | | December 31, 2023 |
(in thousands) | | Unpaid Principal Balance | | Fair Value | | Unpaid Principal Balance | | Fair Value |
Assets | | | | | | | | |
Loans receivable - personal loans | | $ | 2,656,551 | | | $ | 2,714,410 | | | $ | 2,824,342 | | | $ | 2,853,186 | |
Loans receivable - credit cards | | — | | | — | | | 111,145 | | | 109,166 | |
Total Loans Receivable at Fair Value | | $ | 2,656,551 | | | $ | 2,714,410 | | | $ | 2,935,487 | | | $ | 2,962,352 | |
Credit cards receivable held for sale | | 89,713 | | | 55,720 | | | — | | | — | |
Liabilities | | | | | | | | |
Asset-backed notes | | 1,648,456 | | | 1,583,088 | | | 1,874,406 | | | 1,780,005 | |
The Company calculates the fair value of the asset-backed notes using independent pricing services and broker price indications, which are based on quoted prices for identical or similar notes, which are Level 2 input measures.
The Company primarily uses a discounted cash flow model to estimate the fair value of Level 3 instruments based on the present value of estimated future cash flows. This model uses inputs that are inherently judgmental and reflect management’s best estimates of the assumptions a market participant would use to calculate fair value. The following tables present quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for Loans Receivable at Fair Value. The personal loans receivable balance at fair value as of June 30, 2024, consists of $2,578.9 million of unsecured personal loans receivable and $135.5 million of secured personal loans receivable.
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| | June 30, 2024 | | December 31, 2023 |
Personal Loans Receivable | | Minimum | | Maximum | | Weighted Average (2) | | Minimum | | Maximum | | Weighted Average (2) |
Remaining cumulative charge-offs (1) | | 7.51% | | 49.47% | | 11.57% | | 6.87% | | 51.00% | | 11.80% |
Remaining cumulative prepayments (1) | | 0.00% | | 25.62% | | 20.87% | | 0.00% | | 28.17% | | 23.83% |
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Average life (years) | | 0.07 | | 1.33 | | 1.02 | | 0.18 | | 1.37 | | 1.01 |
Discount rate | | 8.66% | | 8.66% | | 8.66% | | 10.10% | | 10.10% | | 10.10% |
(1) Figure disclosed as a percentage of outstanding principal balance.(2) Unobservable inputs were weighted by outstanding principal balance, which are grouped by risk (type of customer, original loan maturity terms).
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| | June 30, 2024 | | December 31, 2023 |
Credit Card Receivables | | Range (2) | | Range |
Remaining cumulative charge-offs (1) | | N/A | | 20.16% |
Principal payment rate (1) | | N/A | | 7.06% |
Average life (years) | | N/A | | 1.00 |
Discount rate | | N/A | | 10.20% |
(1) Figure disclosed as a percentage of outstanding principal balance.(2) As of June 30, 2024, the Company determined the fair value of the credit card receivables held for sale based on the terms outlined in the non-binding letter of intent.
The Company has derivative instruments in connection with its bank partnership program with Pathward, N.A. related to excess interest proceeds it expects to receive on loans retained by Pathward, N.A. Based on the agreement underlying the bank partnership program, for all loans originated and retained by Pathward, Pathward receives a fixed interest rate. The Company bears the risk of credit loss and has the benefit of any excess interest proceeds after satisfying various obligations under the agreement. The fair value of the derivative instrument as of June 30, 2024 and December 31, 2023, were $11.4 million and $9.3 million, respectively. The underlying cash flows as of June 30, 2024 and December 31, 2023, were $14.2 million and $12.2 million, respectively. The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for derivative instruments presented within Other Assets in the Condensed Consolidated Balance Sheets (Unaudited):
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| | June 30, 2024 | | December 31, 2023 |
| | Low | | High | | Weighted Average | | Low | | |