Oportun Financial Corporation (OPRT) Q3 2026 Earnings Report, Transcript and Summary

Greetings. Welcome to Oportun Financial's Third Quarter 2026 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Dorian Hare, Investor Relations. Thank you. You may begin.

Thanks, and hello, everyone. With me to discuss Oportun's third quarter 2026 results are Doug Bland, our Chief Executive Officer; and Bill Franklin, our Chief Financial Officer. I'll remind everyone on the call or webcast that some of the remarks made today will include forward-looking statements related to our business, future results of operations and financial position, including projected adjusted ROE attainment and expected originations growth, planned products and services, including Oportun Forward business strategy, expense savings measures and plans and objectives of management for our future operations. Actual results may differ materially from those contemplated or implied by these forward-looking statements, and we caution you not to place undue reliance on these forward-looking statements. A more detailed discussion of the risk factors that could cause these results to differ materially are set forth in our earnings press release and in our filings with the Securities and Exchange Commission under the caption Risk Factors, including our upcoming Form 10-Q filing for the quarter ended September 30, 2026. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events other than as required by law. Also on today's call, we will present both GAAP and non-GAAP financial measures, which we believe can be useful measures for period-to-period comparisons of our core business and which will provide useful information to investors regarding our financial condition and results of operations. A full list of definitions can be found in our earnings materials available at the Investor Relations section of our website. Non-GAAP financial measures are placed in addition to and not a substitute for financial measures calculated in accordance with GAAP. A reconciliation of non-GAAP to GAAP financial measures is included in our earnings press release, our third quarter 2026 financial supplement and the appendix section of the third quarter 2026 earnings presentation, all of which are available at the Investor Relations section of our website at investor.oportun.com. In addition, this call is being webcast, and an archived version will be available after the call, along with a copy of our prepared remarks. With that, I will now turn the call over to Doug.

Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. Q3 was a strong quarter, and it's clear that our momentum is building. We returned to year-over-year revenue growth for the first time since the fourth quarter of 2023. Revenue grew 3%, an encouraging step toward rebuilding a durable growth engine. Sustaining that growth while maintaining expense discipline will be important to improving operating leverage over time. At the same time, interest expense declined 27% year-over-year, supported by our balance sheet optimization initiatives and net charge-off dollars declined 10%. Together with continued expense discipline, these improvements drove higher profitability. GAAP EPS sharply increased year-over-year. Adjusted EPS increased 31% and our annualized GAAP return on equity reached 21.6%, our highest level since the first quarter of 2022. We also increased originations by 12% year-over-year while maintaining a disciplined credit posture amid continued macroeconomic uncertainty. We remain focused on lower risk growth through returning unsecured members and secured personal loans. Our portfolio mix and disciplined underwriting supported an annualized net charge-off rate of 10.6%, our lowest since the third quarter of 2022. These results outperformed our guidance for revenue, adjusted EBITDA and net charge-offs. I want to thank the entire Oportun team for its continued focus and execution in delivering these results while advancing our mission. We also strengthened our leadership team during the quarter with the additions of Bill Franklin as Chief Financial Officer; Bernardo Martinez as Chief Retail and Sales Officer; and Garrett Hope as Chief Product Officer. These additions strengthen our ability to execute Oportun Forward, our strategy for driving durable growth, building lasting member relationships and delivering predictable returns. On my first call as CEO earlier this year, I committed to return with a clear path forward for Oportun. On our second quarter call, I outlined our immediate priorities, responsibly rebuilding new member growth, deepening member relationships and maintaining financial discipline. Our new strategy builds on these priorities. Today, I will share our plan to simplify our core business and strengthen our growth engine. Let me begin with the opportunity and capabilities behind the strategy. We estimate our total addressable market at 119 million U.S. adults. This estimate starts with the total U.S. adult population and uses our internal analysis to exclude consumers who fall outside our credit risk criteria or whom we estimate do not need our products. That market includes approximately 42 million Latino adults and 77 million non-Latino adults. Our business model is built to serve consumers in both Spanish and English with particular strength in the Latino communities we have served for 2 decades. With approximately 1.1 million active members today, we see substantial growth potential. We will pursue this opportunity with discipline, matching consumers with products that meet their needs and focusing on channels where we can deliver strong member outcomes and attractive risk-adjusted returns. Our opportunity is grounded in the mission that has guided Oportun for 2 decades, empowering members to build a better future. We remain committed to expanding access to responsible and affordable credit for underserved consumers, including those living in low- and moderate-income communities. As we advance Oportun forward, that commitment will continue to guide how we serve our members and pursue growth. We are bilingual by design. Members can apply, borrow and receive service in English or Spanish across all of our channels. Our community presence, cultural understanding and earned trust gives us a distinctive position in the markets we serve. 9 out of 10 members tell us they would recommend Oportun to a friend. Oportun Forward starts with simplifying and optimizing our core business. We have built valuable advantages over 2 decades, proprietary data, credit experience and trusted member relationships. Our opportunity is to use those advantages to work more effectively across our entire business platform. We intend to remove unnecessary steps from the member experience and better connect the data and processes that support lending and servicing. Our aim is to make more precise offers to qualified applicants, strengthen relationships with returning members and lower our cost to serve while maintaining credit and capital discipline. These improvements are the foundation of Oportun Forward. Oportun Forward focuses our business on 3 priorities: driving durable growth, building lasting member relationships and delivering predictable returns. Our first priority is to drive durable growth. Today, many consumers who apply for a loan do not receive or accept an offer. We see a meaningful opportunity to rebuild our new member engine by matching qualified consumers with products and terms that fit their needs, affordability and credit profile. Depending on the applicant, that could include risk-based pricing for an unsecured loan, a secured loan where appropriate or guidance on steps that may improve future eligibility when providing a loan is not appropriate today. Our objective is to acquire new members using price, term and collateral optimized for sustainable risk-adjusted returns while providing transparency and knowledge to our members about our lending products. Our second priority is to build lasting member relationships. Historically, the experience we provide returning members has not consistently reflected the value of the relationship with Oportun. Some members with strong payment histories still encounter a lengthy application process or offers that do not fully reflect the relationship with us. We intend to recognize responsible member behavior through better offers and pricing where appropriate, along with a simpler application process and a more connected experience. Lending decisions will continue to reflect current creditworthiness and affordability. We aim to help members make progress through proactive payment solutions, credit building and clear eligibility milestones. We will drive better value to our members through an improved experience, which will, in turn, drive higher lifetime value for Oportun. Our third priority is to deliver predictable returns. Over the past several years, our performance has been too volatile. Our goal is to produce more consistent outcomes as credit and funding conditions change. We intend to reduce that volatility in 3 ways. We plan to use our proprietary data and credit experience more effectively across underwriting, pricing and servicing. We will evaluate growth based on the expected economics of the member relationship, including credit losses, funding costs and cost to serve. We intend to build a more efficient operating platform with greater use of AI to help our teams serve more members without a proportionate increase in cost. And we intend to maintain the capital, liquidity and funding capacity needed to operate and grow responsibly through economic cycles. Our immediate focus is on improving offers for qualified applicants, simplifying the experience for returning members and making the operating processes that support them more efficient. We believe Oportun Forward can extend our mission to more members and enhance shareholder value over time. We look forward to updating you on our progress. Before I finish my opening remarks, I want to thank Paul Appleton for his steady leadership as our Interim CFO over the past 6 quarters. Paul played a pivotal role in our successful balance sheet optimization efforts, and we are fortunate to continue benefiting from his expertise as Treasurer and Head of Capital Markets for Oportun. With that, I will turn the call over to our new CFO, Bill Franklin, for a more detailed review of our third quarter financial results. He will also provide our fourth quarter guidance and discuss our updated full year outlook. Bill, welcome to the team.

Thank you, Doug, and good afternoon, everyone. I'm pleased to be part of the Oportun team and encouraged by the trends in the business. I'll start with our performance versus our Q3 guidance on Slide 6. We delivered better-than-guided results across all these metrics. Moving to Slide 7. I want to congratulate the team on delivering our best quarterly net income and EPS in over 4 years. These results that I'll discuss and the trends in the business support our optimism for the future. We recorded our eighth consecutive quarter of GAAP profitability with net income of $23 million, up $18 million year-over-year and diluted EPS of $0.45. Adjusted net income was $26 million, up 38% year-over-year, and adjusted EPS increased 31% from $0.39 to $0.51 per share. Let me walk through the drivers of these results. We returned to top line growth with total revenue of $246 million, up $7.6 million or 3% year-over-year. Revenue growth reflected a 12% increase in originations and a 136 basis point improvement in loan yield to 34.4%. Our average daily principal balance remained essentially flat as a greater mix of returning members led to higher payment rates year-over-year. Responsibly growing the loan portfolio over time remains an opportunity to drive further revenue growth. Third quarter interest expense was $41 million, down $15 million year-over-year. This improvement reflects balance sheet optimization actions, which I will discuss in more detail later. The net decrease in fair value was $79 million, approximately $1.6 million higher than in the prior year period. Net charge-offs were $8.2 million lower and the mark-to-market adjustment on our asset-backed notes was $3.8 million lower. These improvements were offset by a $13 million unfavorable year-over-year swing in the mark on the loan portfolio. That reflected a $6.5 million unfavorable mark this quarter, primarily due to rising benchmark rates compared to a favorable $6.6 million mark a year ago. Net revenue was $127 million, up $22 million year-over-year as higher total revenue and lower interest expense more than offset the slightly unfavorable impact from the fair value decrease. Operating expenses were $92 million, up $1.2 million or 1% year-over-year. The quarter included $5.6 million of nonrecurring interest and fees received in connection with the resolution of a Mexico value-added tax refund. This benefit was partially offset by higher direct mail marketing spend, which supported the strong originations. Together, net revenue growth and expense discipline supported pretax income of $35 million, up $20 million year-over-year. Adjusted EBITDA was $56 million in the third quarter, up $15 million or 37% year-over-year, driven primarily by lower interest expense. This measure excludes the impact of the fair value mark-to-market adjustments on our loan portfolio and notes. GAAP net income was $23 million, up $18 million, a substantial year-over-year increase due to similar drivers. Adjusted net income increased 38% year-over-year to $26 million, supported by higher total revenue, lower interest expense and lower net charge-offs. These benefits were partially offset by a $7.8 million increase in adjusted operating expenses, which exclude the favorable Mexico value-added tax claim resolution. Turning to credit performance on Slide 8. The annualized net charge-off rate declined sharply to 10.6%, its lowest level since the third quarter of 2022. This represented an improvement of 139 basis points sequentially and 121 basis points year-over-year. The improvement was driven by our continued conservative risk posture with a heightened focus on returning members, growth in the secured loan portfolio and stable to improving vintage trends. Our 30-plus day delinquency rate, the best indicator of mid-range loss performance, declined by 61 basis points year-over-year to 4.1% in Q3. This was our lowest third quarter rate in 5 years, supported by strong collections performance and asset quality trends. On Slide 9, our 12% originations growth during Q3 was supported by lower risk segments. Originations from returning unsecured and secured personal loans increased by a combined 25%. We remain in a tight credit posture and continue to benefit from our portfolio mix and the strong performance of returning members. Returning members accounted for 80% of originations volume in Q3, up from 70% in the prior year quarter. Originations from those returning members grew 25%, reflecting the strength of our existing relationships. Secured personal loan originations grew 24% during Q3 and increased slightly to 10% of our total portfolio, up from 8% at the end of the prior year period. As a reminder, these loans are roughly twice the size of our unsecured loans and have lower losses. As Doug indicated, we see a meaningful opportunity to improve conversion and responsibly rebuild our new member engine by streamlining the application experience and matching qualified consumers with the right product fit. We also expect risk-based pricing to allow us to serve a broader range of qualified applicants while targeting appropriate risk-adjusted returns. Turning to capital and liquidity on Slide 10. We continue to strengthen our capital structure by reducing higher cost corporate debt, lowering our overall cost of capital and enhancing liquidity. We ended the quarter with a debt-to-equity ratio of 6.2x, down from 7.1x a year ago and materially below the peak of 8.7x reported 2 years ago. Since that peak, consistent GAAP profitability has contributed to a $106 million or 32% increase in shareholders' equity, while total debt outstanding has declined by $134 million or 5%. As I mentioned earlier, Q3 interest expense was $41 million, down $15 million or 27% from the prior year quarter. Our balance sheet optimization efforts included prior period corporate debt repayments and actions involving our ABS notes and warehouse facilities. Corporate debt repayments have totaled $100 million since the facility's inception in October 2024, resulting in $15 million in annualized run rate interest expense savings. Strong cash flow generation from the underlying business strengthened our liquidity position. Compared with the prior year quarter, unrestricted cash increased by $77 million to $181 million, while corporate debt declined by $68 million to $135 million. Together, higher liquidity, lower leverage and reduced funding costs allow us greater flexibility to fund responsible growth and further optimize our debt structure over time. Before turning to Q4 and revised full year guidance, I'll discuss our return on equity performance. As shown on Slide 11, third quarter GAAP ROE was 21.6%, an improvement of 16.2 percentage points from the prior year period. This is only the second quarter since we became a public company that we have achieved our long-term GAAP ROE target range of 20% to 28%. Adjusted ROE was 24.4% in the quarter, also within the target range. Through the first 3 quarters of 2026, GAAP ROE was 11% compared with 6.8% for full year 2025. Adjusted ROE was 18.4% compared with 17.5% last year. Based on our performance to date, we remain on pace to exceed our 2025 ROE on both a GAAP and adjusted basis. I'll now turn to our updated guidance, as shown on Slide 12. Our members remain resilient despite high inflation, uneven job creation, policy uncertainty and higher gas prices, which continue to create a cautious environment for low-income consumers. We have not seen any deterioration in our credit metrics as a result of this macro backdrop, but we recognize the pressure it can place on our members. Our outlook, therefore, assumes we maintain a tight credit posture through the balance of the year, and we remain well positioned to adjust quickly as conditions evolve. For the fourth quarter, we expect total revenue in the range of $247 million to $252 million, an annualized net charge-off rate of 11.05%, plus or minus 15 basis points and adjusted EBITDA in the range of $49 million to $54 million. Starting with total revenue. At the midpoint, this would continue the modest year-over-year revenue growth we drove in Q3 as a result of the strong originations. Moving to the net charge-off rate. The 11.05% midpoint is 45 basis points above Q3's 10.6%, reflecting year-end seasonality. It would still be 125 basis points lower year-over-year and our best fourth quarter net charge-off rate in 5 years. Our credit outlook is supported by the 30-plus day delinquency trends I discussed earlier and expected progression through late-stage delinquency buckets. At the midpoint, our adjusted EBITDA guidance of $52 million represents strong year-over-year growth of 21%. For full year 2026, we continue to expect mid-single-digit originations growth, though now toward the higher end of that range. Demand remains strong in the lower-risk segments driving this year's growth. We are also slightly increasing our full year expense outlook from substantially flat year-over-year to a low single-digit increase. This reflects spending to support the higher originations and year-to-date restructuring-related severance costs. Our revised full year 2026 guidance includes total revenue of $955 million to $960 million, annualized net charge-off rate of 11.6%, plus or minus 10 basis points, adjusted EBITDA of $183 million to $188 million, adjusted net income of $80 million to $85 million and adjusted EPS of $1.60 to $1.70. I'll speak to the full year adjusted net income and adjusted EPS as we only provide those on a full year basis. We are raising both despite greater fair value headwinds from higher benchmark rates. The midpoint of our adjusted net income guidance range is a $4.5 million increase or 6% higher than our prior expectation. Our revised adjusted EPS midpoint of $1.65 would deliver 21% year-over-year growth compared with our prior 16% growth expectation. This reflects the strong results for the third quarter and an improved outlook for the remainder of the year. The outlook I've shared today assumes we maintain our tight credit posture. We will continue to drive durable growth and execute against the Oportun Forward strategy by making better use of capabilities and improving conversion for the communities we serve. With that, Doug, back to you.

Thanks, Bill. To close, Q3 was an important step forward. We returned to revenue growth, improved profitability and credit performance and strengthened our balance sheet and funding profile. We increased originations while maintaining credit discipline and made progress towards more consistent returns. Our improved full year outlook reflects our progress and confidence in continued execution. At the same time, we recognize that substantial opportunity remains ahead of us so long as we continue to execute. Oportun Forward gives us a clear direction for our next phase, durable growth, lasting member relationships and predictable returns. Our focus now is execution. We intend to put our capabilities to work more effectively, improve the experience for new and returning members and build a larger, more resilient Oportun. We believe this will allow us to extend our mission to more members while creating greater long-term value for shareholders. We look forward to updating you on our progress. With that, operator, let's open the line for questions.

[Operator Instructions] Our first question is from Zachary Oster with Citizens Capital Markets.

Congratulations on the strong quarter. I wanted to see if we can get a little bit more detail on the macro commentary and any trends you've been seeing over the past 3 months.

Yes. Zachary, it's Doug. Thank you for the question. From a macro backdrop, we continue to see resilience among our members. We recognize household budgets remain pressured. We have quite a few metrics that we're monitoring both internal as well as external, things like jobless claims, unemployment trends, inflation, energy costs, et cetera. But we just -- we have not seen anything show up in our metrics as of the time of this call.

Understood. I -- sorry, go ahead.

No, go ahead, sorry.

And if I could just ask one more question. I wanted to also dig in a little bit on the trends in the credit performance. So obviously, strong year-over-year improvements in credit losses. But I wanted to see if there's any way to kind of get a little bit more detail on how that breaks out from a mix shift. Obviously, the share of secured loans and also returning borrowers is increasing. So I wanted to see if there's more detail on how much of that's kind of driving this credit upside versus just kind of core improvements in the underwriting or kind of collections process.

Yes, sure. I'll start and Bill will let you jump in with any views that you're seeing coming in. Look, we continue to see when you step back and just look at the overall vintage trends within our business and really across all of the different asset categories to think about unsecured loans, secured loans as well as both new and returning, we're seeing our vintage is stable to improving. We also have been doing quite a bit of work and we'll continue around collection effectiveness to ensure that we're managing the business properly. And then as you know, we've talked about -- we've been taking a fairly conservative credit posture as macroeconomic uncertainty continues. But we feel good about what we're seeing in terms of overall performance.

Yes. No, I agree with you, Doug. And I think third quarter definitely benefited from some seasonality and the fourth quarter guidance speaks to the normal seasonality where we see the net charge-off rate increase, but the overall mix in terms of those returning members and secured members are at one of the highest levels in our portfolio, and that just kind of speaks to that risk posture that we have right now.

Our next question is from John Hecht with Jefferies.

Bill, good to hear your voice and look forward to working with you.

Yes. You too, John.

First question is, I guess it does pertain to volumes. I mean it sounds like you have a lot of options to, call it, engage in more risk-adjusted pricing and some other factors tied to understanding the data. But there's also a lot of channels of opportunity at Oportun. You have the branch system. You've got some of the partnerships, some of which have been recently announced. So I guess the question, Doug, is where are you seeing the best opportunities to lean into growth within the channel side of the business? And is that something that is going to be kind of slow build over time? Or do you think you can take advantage of some of it in the next quarter or 2?

Yes. Great question, John. And we are -- as part of the Oportun Forward strategy, a lot of what you've heard hopefully in the message, it's about optimizing the business platform that has been built over a couple of decades and leveraging the omnichannel approach that we have. We have 123 retail stores. We have a very strong phone-based channel, and then we have a digital channel. So we're hyper focused on optimizing across those 3 channels. We've had some additions in leadership, both from a product standpoint as well as retail and sales perspective to raise the bar, if you will, in terms of what we're doing overall. But we are taking -- continuing to take somewhat of a cautious approach for online. We just see a lot of organic demand that continues to come to Oportun from the communities that we are serving. And frankly, one of the big opportunities is how do we convert that demand into good customers. So the other thing that we're hyper focused on is the member experience is how do we improve the overall experience, which ultimately creates better conversion rates for us. Obviously, from a risk-adjusted perspective.

Yes. Okay. That's very helpful. And then, Bill, you gave us some good detail about the sizable decrease in the run rate interest expense. Maybe talk about -- remind us if there's any maturities or anything that you can address next year on that side? And then also maybe what would you have -- at this point, do you have kind of a target leverage that you want to kind of focus on for the business?

Yes. No, good question, John. So in terms of -- I'll start with the latter part of your question. So in terms of leverage, very pleased with the progress we've made in terms of moving into kind of that mid- to low-6x leverage ratio. Near term, we've talked about 6x being a good spot to be. But I think longer term, a little bit below that is where we ultimately want to be. In terms of maturities, we do have some of our regular ABS maturities, as you can see, if you pull them up on Bloomberg. But the one that I'm focused on as -- not a maturity, but focused on as a new CFO in the seat is we do have the expense of kind of 15% corporate debt. So that's something that we're going to look at and see what optionality we have there.

[Operator Instructions] Our next question is from Brendan McCarthy with Sidoti.

Welcome, Bill, and congratulations on a strong quarter as well. Just wanted to start off on the risk-based pricing that's been live for a couple of months here. Are you able to share any detail in terms of what you're seeing in terms of approval rates, average APRs or early credit performance on loans that are priced above that 36% threshold?

Yes. Thanks for the question, Brendan. We -- as you know, we launched risk-based pricing in July of this year. We feel like it's going to be a key lever for us as we go into 2027 and beyond. Right now in 2026, as we've said before, this is all about testing. We have a very robust testing agenda that started when we launched in July and that is continuing. Early results are very promising. They're frankly, what we would expect in terms of risk-based pricing, looking at elasticity from a consumer demand standpoint. It's still a bit early to see anything come through from a credit performance perspective, although we are starting to see very early month-on-book vintage views, which are good. So we're very pleased with the progress that we're making. We do have robust testing. It's informing us how we're going to think about 2027 and going forward, as we start releasing that guidance, we can provide some more information.

Understood there. And turning to your September investor presentation, it showed that roughly 60% of the portfolio carried APRs above 36%. I think it's pre-COVID back in the 2018, 2019 time frame. I guess, is that a realistic mix part of your long-term objective? Or is that -- I know the business has changed so much since then, but just curious if that might be a long-term target maybe.

Yes. I think we wanted to share historically what the business was doing when it was focused within the communities, the core of what we do really well. It wasn't necessarily saying this is the target that we're going to go after. That's going to be something that we will test our way into and we'll monitor, but it's all about risk-adjusted returns and the volatility that we would see coming through. But especially when you start talking about APR, Brendan, when you think about loan, especially loans that are smaller in nature and shorter terms, it's not necessarily the best reflection of the cost to the consumer. And so APRs can get high there. But we are focused on the lower end of that range. It's not like we're going to a triple-digit APR. That's just not in our focus or strategy.

There are no further questions at this time. I would like to hand the conference back over to Dorian for closing remarks.

Thank you again for joining today's call. We appreciate your continued interest in Oportun. Please reach out with any follow-up questions, and we look forward to speaking with you again soon.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.