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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, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 001-39050
OPORTUN FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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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 | ☐ | 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, 2022 was 32,814,113.
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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, |
| | 2022 | | 2021 |
Assets | | | | |
Cash and cash equivalents | | $ | 109,864 | | | $ | 130,959 | |
Restricted cash | | 60,694 | | | 62,001 | |
Loans receivable at fair value | | 2,450,987 | | | 2,386,807 | |
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Interest and fees receivable, net | | 22,823 | | | 20,916 | |
Capitalized software and other intangibles, net | | 133,093 | | | 131,181 | |
Goodwill | | 104,162 | | | 104,014 | |
Right of use assets - operating | | 36,689 | | | 38,403 | |
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Other assets | | 74,239 | | | 72,344 | |
Total assets | | $ | 2,992,551 | | | $ | 2,946,625 | |
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Liabilities and stockholders' equity | | | | |
Liabilities | | | | |
Secured financing | | $ | 473,311 | | | $ | 393,889 | |
Asset-backed notes at fair value | | 1,593,435 | | | 1,651,706 | |
Acquisition financing | | 103,869 | | | 114,092 | |
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Lease liabilities | | 44,959 | | | 47,699 | |
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Other liabilities | | 127,041 | | | 135,358 | |
Total liabilities | | 2,342,615 | | | 2,342,744 | |
Stockholders' equity | | | | |
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Common stock, $0.0001 par value - 1,000,000,000 shares authorized at March 31, 2022 and December 31, 2021; 33,078,916 shares issued and 32,806,893 shares outstanding at March 31, 2022; 32,276,419 shares issued and 32,004,396 shares outstanding at December 31, 2021 | | 7 | | | 6 | |
Common stock, additional paid-in capital | | 526,729 | | | 526,338 | |
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Retained earnings | | 129,509 | | | 83,846 | |
Treasury stock at cost, 272,023 shares at March 31, 2022 and December 31, 2021 | | (6,309) | | | (6,309) | |
Total stockholders’ equity | | 649,936 | | | 603,881 | |
Total liabilities and stockholders' equity | | $ | 2,992,551 | | | $ | 2,946,625 | |
See Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)
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| | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
Revenue | | | | |
Interest income | | $ | 192,237 | | | $ | 127,191 | | | | | |
Non-interest income | | 22,483 | | | 8,122 | | | | | |
Total revenue | | 214,720 | | | 135,313 | | | | | |
Less: | | | | | | | | |
Interest expense | | 13,677 | | | 13,504 | | | | | |
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Net increase (decrease) in fair value | | 3,971 | | | (11,568) | | | | | |
Net revenue | | 205,014 | | | 110,241 | | | | | |
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Operating expenses: | | | | | | | | |
Technology and facilities | | 49,189 | | | 32,924 | | | | | |
Sales and marketing | | 34,541 | | | 23,893 | | | | | |
Personnel | | 35,926 | | | 26,827 | | | | | |
Outsourcing and professional fees | | 14,327 | | | 12,625 | | | | | |
General, administrative and other | | 13,361 | | | 9,997 | | | | | |
Total operating expenses | | 147,344 | | | 106,266 | | | | | |
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Income before taxes | | 57,670 | | | 3,975 | | | | | |
Income tax expense | | 12,007 | | | 956 | | | | | |
Net income | | $ | 45,663 | | | $ | 3,019 | | | | | |
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Net income attributable to common stockholders | | $ | 45,663 | | | $ | 3,019 | | | | | |
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Share data: | | | | | | | | |
Earnings per share: | | | | | | | | |
Basic | | $ | 1.42 | | | $ | 0.11 | | | | | |
Diluted | | $ | 1.37 | | | $ | 0.10 | | | | | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | 32,216,641 | | | 27,770,063 | | | | | |
Diluted | | 33,323,134 | | | 29,620,034 | | | | | |
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 |
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| | | | | | | | | | | | 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 Changes in Stockholders' Equity (Unaudited)
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Three Months Ended March 31, 2021 |
| | | | | | Common Stock | | | | | | | | |
| | | | | | | | | | | | Shares | | Par Value | | Additional Paid-in Capital | | | | Retained Earnings | | Treasury Stock | | Total Stockholders' Equity |
Balance – January 1, 2021 | | | | | | | | | | | | 27,679,263 | | | $ | 6 | | | $ | 436,499 | | | | | $ | 36,432 | | | $ | (6,309) | | | $ | 466,628 | |
Issuance of common stock upon exercise of stock options | | | | | | | | | | | | 33,526 | | | — | | | 307 | | | | | — | | | — | | | 307 | |
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Stock-based compensation expense | | | | | | | | | | | | — | | | — | | | 5,088 | | | | | — | | | — | | | 5,088 | |
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Vesting of restricted stock units, net | | | | | | | | | | | | 261,794 | | | — | | | (2,794) | | | | | — | | | — | | | (2,794) | |
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Net income | | | | | | | | | | | | — | | | — | | | — | | | | | 3,019 | | | — | | | 3,019 | |
Balance – March 31, 2021 | | | | | | | | | | | | 27,974,583 | | | $ | 6 | | | $ | 439,100 | | | | | $ | 39,451 | | | $ | (6,309) | | | $ | 472,248 | |
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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, |
| | 2022 |
| 2021 |
Cash flows from operating activities | | |
Net income | | $ | 45,663 | | | $ | 3,019 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 10,697 | | | 6,957 | |
Fair value adjustment, net | | (3,971) | | | 11,568 | |
Origination fees for loans receivable at fair value, net | | (4,685) | | | (1,422) | |
Gain on loan sales | | (5,715) | | | (4,434) | |
Stock-based compensation expense | | 6,773 | | | 5,088 | |
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Other, net | | 20,226 | | | 15,325 | |
Originations of loans sold and held for sale | | (48,665) | | | (33,464) | |
Proceeds from sale of loans | | 54,872 | | | 38,372 | |
Changes in other assets and other liabilities | | (36,630) | | | (22,853) | |
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Net cash provided by operating activities | | 38,565 | | | 18,156 | |
Cash flows from investing activities | | | | |
Originations of loans | | (707,108) | | | (263,148) | |
Proceeds from structured loan sale | | 245,019 | | | — | |
Repayments of loan principal | | 351,324 | | | 278,659 | |
Capitalization of system development costs | | (10,641) | | | (5,651) | |
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Other, net | | (1,090) | | | (873) | |
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Net cash provided by (used in) investing activities | | (122,496) | | | 8,987 | |
Cash flows from financing activities | | | | |
Borrowings under secured financing | | 699,000 | | | — | |
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Borrowings under asset-backed notes and acquisition financing | | — | | | 371,719 | |
Repayments of secured financing | | (620,000) | | | (181,780) | |
Repayments of asset-backed notes and acquisition financing | | (10,395) | | | (200,004) | |
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Net payments related to stock-based activities | | (7,076) | | | (2,487) | |
Net cash provided by (used in) financing activities | | 61,529 | | | (12,552) | |
Net increase (decrease) in cash and cash equivalents and restricted cash | | (22,402) | | | 14,591 | |
Cash and cash equivalents and restricted cash, beginning of period | | 192,960 | | | 168,590 | |
Cash and cash equivalents and restricted cash, end of period | | $ | 170,558 | | | $ | 183,181 | |
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Supplemental disclosure of cash flow information | | | | |
Cash and cash equivalents | | $ | 109,864 | | | $ | 140,416 | |
Restricted cash | | 60,694 | | | 42,765 | |
Total cash and cash equivalents and restricted cash | | $ | 170,558 | | | $ | 183,181 | |
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Cash paid for income taxes, net of refunds | | $ | 328 | | | $ | 240 | |
Cash paid for interest | | $ | 13,816 | | | $ | 13,625 | |
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 4,238 | | | $ | 4,292 | |
Supplemental disclosures of non-cash investing and financing activities | | | | |
Right of use assets obtained in exchange for operating lease obligations | | $ | 1,064 | | | $ | 1,093 | |
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Non-cash investments in capitalized assets | | $ | 565 | | | $ | 625 | |
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See Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
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1. | Organization and Description of Business |
Oportun is a financial technology company and digital banking platform driven by its mission to provide inclusive, affordable financial services that empower its members to build a better future. Oportun Financial Corporation (together with its subsidiaries, "Oportun" or the "Company") takes a holistic approach to serving its members and views as its purpose to responsibly meet their current capital needs, help grow its members' financial profiles, increase their financial awareness and put them on a path to a financially healthy life. With its acquisition of Hello Digit, Inc. ("Digit") on December 22, 2021, the Company can now offer access to a comprehensive suite of digital banking products, offered either directly or through partners, including lending, savings and investing powered by A.I. and tailored to each member's goals to make achieving financial health automated. The Company's credit products include personal loans, secured personal loans and credit cards. The Company's digital banking products include digital banking, automated savings, long-term investing and retirement savings. The Company is headquartered in San Carlos, California. The Company has been certified by the United States Department of the Treasury as a Community Development Financial Institution ("CDFI") since 2009.
Segments
Segments are defined as components of an enterprise for which discrete financial information is available and evaluated regularly by the chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer and the Company's Chief Financial Officer are collectively considered to be the CODM. The CODM reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company’s operations constitute a single reportable segment.
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2. | Summary of Significant Accounting Policies |
Basis of Presentation ‑ The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These statements are unaudited and reflect all normal, recurring adjustments that are, in management's opinion, necessary for the fair presentation of results. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior-period financial information has been reclassified to conform to current period presentation. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "Annual Report"), filed with the Securities and Exchange Commission ("SEC") on March 1, 2022.
Use of Estimates ‑ The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from those estimates and assumptions.
Accounting Policies - There have been no changes to the Company's significant accounting policies from those described in Part II, Item 8 - Financial Statements and Supplementary Data in the Annual Report, except for the new accounting pronouncements subsequently adopted as noted below.
Recently Adopted Accounting Standards
None.
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3. | Earnings (Loss) per Share |
Basic and diluted earnings (loss) per share are calculated as follows:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
(in thousands, except share and per share data) | | 2022 | | 2021 | | | | |
Net income | | $ | 45,663 | | | $ | 3,019 | | | | | |
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Net income (loss) attributable to common stockholders | | $ | 45,663 | | | $ | 3,019 | | | | | |
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Basic weighted-average common shares outstanding | | 32,216,641 | | | 27,770,063 | | | | | |
Weighted average effect of dilutive securities: | | | | | | | | |
Stock options | | 733,503 | | | 1,274,818 | | | | | |
Restricted stock units | | 372,990 | | | 575,153 | | | | | |
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Diluted weighted-average common shares outstanding | | 33,323,134 | | | 29,620,034 | | | | | |
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Earnings per share: | | | | | | | | |
Basic | | $ | 1.42 | | | $ | 0.11 | | | | | |
Diluted | | $ | 1.37 | | | $ | 0.10 | | | | | |
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:
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| | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
Stock options | | 2,723,777 | | | 2,822,785 | | | | | |
Restricted stock units | | 1,692,599 | | | 45,306 | | | | | |
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Total anti-dilutive common share equivalents | | 4,416,376 | | | 2,868,091 | | | | | |
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4. | Variable Interest Entities |
Variable interest entities ("VIEs") are legal entities that either have an insufficient amount of equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the holders of equity investment at risk lack the ability to direct the entity's activities that most significantly impact economic performance through voting or similar rights, or do not have the obligation to absorb the expected losses or the right to receive expected residual returns of the entity.
For all VIEs in which we are involved, we assess whether we are the primary beneficiary of the VIE on an ongoing basis. In circumstances where we have both the power to direct the activities that most significantly impact the VIEs performance and the obligation to absorb losses or the right to receive the benefits of the VIE that could be significant, we would conclude that we are the primary beneficiary of the VIE, and we consolidate the VIE. In situations where we are not deemed to be the primary beneficiary of the VIE, we do not consolidate the VIE and only recognize our interests in the VIE.
Consolidated VIEs
As part of the Company’s overall funding strategy, the Company transfers a pool of designated loans receivable to wholly owned special-purpose subsidiaries ("VIEs") to collateralize certain asset-backed financing transactions. For these VIEs where the Company has determined that it is the primary beneficiary because it has the power to direct the activities that most significantly impact the VIEs’ economic performance and the obligation to absorb the losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs the VIEs assets and related liabilities are consolidated with the results of the Company. Such power arises from the Company’s contractual right to service the loans receivable securing the VIEs’ asset-backed debt obligations. The Company has an obligation to absorb losses or the right to receive benefits that are potentially significant to the VIEs because it retains the residual interest of each asset-backed financing transaction in the form of an asset-backed certificate. Accordingly, the Company includes the VIEs’ assets, including the assets securing the financing transactions, and related liabilities in its condensed consolidated financial statements.
Each consolidated VIE issues a series of asset-backed securities that are supported by the cash flows arising from the loans receivable securing such debt. Cash inflows arising from such loans receivable are distributed monthly to the transaction’s lenders and related service providers in accordance with the transaction’s contractual priority of payments. The creditors of the VIEs above have no recourse to the general credit of the Company as the primary beneficiary of the VIEs and the liabilities of the VIEs can only be settled by the respective VIE’s assets. The Company retains the most subordinated economic interest in each financing transaction through its ownership of the respective residual interest in each VIE. The Company has no obligation to repurchase loans receivable that initially satisfied the financing transaction’s eligibility criteria but subsequently became delinquent or a defaulted loans receivable.
The following table represents the assets and liabilities of consolidated VIEs recorded on the Company’s Condensed Consolidated Balance Sheets (Unaudited):
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
(in thousands) | | 2022 | | 2021 |
Consolidated VIE assets | | | | |
Restricted cash | | $ | 33,246 | | | $ | 41,803 | |
Loans receivable at fair value | | 2,344,635 | | | 2,267,205 | |
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Interest and fee receivable | | 20,767 | | | 19,869 | |
Total VIE assets | | 2,398,648 | | | 2,328,877 | |
Consolidated VIE liabilities | | | | |
Secured financing (1) | | 477,000 | | | 398,000 | |
Asset-backed notes at fair value | | 1,593,435 | | | 1,651,706 | |
Acquisition financing (1) | | 105,605 | | | 116,000 | |
Total VIE liabilities | | $ | 2,176,040 | | | $ | 2,165,706 | |
(1) Amounts exclude deferred financing costs. See Note 9, Borrowings for additional information.
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5. | Loans Held for Sale and Loans Sold |
Structured Loan Sales - On March 31, 2022, the Company participated in a securitization whereby the Company and funds managed by Ellington Management Group both contributed collateral and were co-sponsors of the transaction, which totaled $400.0 million in issued asset-backed notes. As part of the securitization, the Company sold loans to OPTN Funding Grantor Trust 2022-1 ("Grantor Trust") through the issuance of amortizing asset-backed notes secured by a pool of its unsecured and secured personal installment loans. The Company also sold its share of the residual interest in the pool. 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 at the point they were designated as held for sale had an aggregate unpaid principal balance of approximately $227.6 million, a cumulative fair value mark of $15.9 million and unpaid interest of $1.5 million. The Company received $245.0 million of net proceeds and by selling both its notes and residual interest, the Company derecognized these loans from its Consolidated Balance Sheets.
Whole Loan Sale Program ‑ In November 2014, the Company entered into a whole loan sale agreement with an institutional investor. Pursuant to the agreement, the Company sold at least 10% of its unsecured loan originations, with an option to sell an additional 5%, subject to certain eligibility criteria and minimum and maximum volumes. The Company chose not to renew the arrangement and allowed the agreement to expire on its terms on March 4, 2022.
The originations of loans sold and held for sale during the three months ended March 31, 2022 related to our whole loan sale program was $48.7 million and the Company recorded a gain on sale of $5.7 million and servicing revenue of $4.0 million. The originations of loans sold and held for sale during the three months ended March 31, 2021 was $33.5 million and the Company recorded a gain on sale of $4.4 million and servicing revenue of $3.1 million.
On December 22, 2021, the Company completed its acquisition of all the voting interests of Hello Digit, Inc. (or "Digit"). Digit is a digital banking platform that provides automated savings, banking and investing tools. Digit members can keep and integrate their existing bank accounts into the platform, or they can make Digit their primary banking relationship by opening new accounts via Digit’s bank partner. By acquiring Digit, Oportun further expanded its A.I. and digital banking capabilities, adding to its services to provide its members a holistic offering built to address their financial needs. The total consideration the Company provided for Digit, which consisted of cash and equity, was approximately $205.3 million.
The Company recognized acquisition and integration related costs of approximately $7.3 million in the three months ended March 31, 2022 which are included in the General, administrative and other expense in the Condensed Consolidated Statements of Operations (Unaudited).
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7. | Capitalized Software, Other Intangibles and Goodwill |
Capitalized software, net consists of the following:
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
(in thousands) | | 2022 | | 2021 |
Capitalized software, net: | | | | |
System development costs | | $ | 95,800 | | | $ | 84,550 | |
Acquired developed technology | | 48,500 | | | 48,500 | |
Less: Accumulated amortization | | (52,864) | | | (45,433) | |
Total capitalized software, net | | $ | 91,436 | | | $ | 87,617 | |
Capitalized software, net
Amortization of system development costs and acquired developed technology for three months ended March 31, 2022 and 2021 was $7.4 million and $3.5 million, respectively. System development costs capitalized in the three months ended March 31, 2022 and 2021 were $11.2 million and $5.8 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) | | 2022 | | 2021 |
Intangible assets: | | | | |
Member relationships | | $ | 34,500 | | | $ | 34,500 | |
Trademarks | | 6,426 | | | 6,364 | |
Other | | 3,000 | | | 3,000 | |
Less: Accumulated amortization | | (2,269) | | | (300) | |
Total intangible assets, net | | $ | 41,657 | | | $ | 43,564 | |
Amortization of intangible assets for the three months ended March 31, 2022 was $2.0 million. There were no intangible assets subject to amortization for the three months ended March 31, 2021. Expected future amortization expense for intangible assets as of March 31, 2022 is as follows:
| | | | | | | | |
(in thousands) | | Fiscal Years |
2022 (remaining nine months) | | $ | (5,980) | |
2023 | | (7,949) | |
2024 | | (7,798) | |
2025 | | (4,929) | |
2026 | | (4,929) | |
2027 | | (4,929) | |
Thereafter | | (4,779) | |
Total | | $ | (41,293) | |
Goodwill
The Company recorded goodwill of $104.0 million arising from the acquisition of Digit on December 22, 2021. During the three months ended March 31, 2022, the Company recorded a $0.1 million adjustment to goodwill. There was no impairment for the periods presented.
Other assets consist of the following:
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
(in thousands) | | 2022 | | 2021 |
Fixed assets | | | | |
Total fixed assets | | $ | 44,955 | | | $ | 44,100 | |
Less: Accumulated depreciation | | (35,370) | | | (34,185) | |
Total fixed assets, net | | $ | 9,585 | | | $ | 9,915 | |
| | | | |
Other Assets | | | | |
| | | | |
Loans held for sale | | — | | | 491 | |
Prepaid expenses | | 26,244 | | | 25,355 | |
Deferred tax assets | | 3,565 | | | 3,923 | |
Current tax assets | | 17,235 | | | 13,330 | |
Other | | 17,610 | | | 19,330 | |
Total other assets | | $ | 74,239 | | | $ | 72,344 | |
Fixed Assets
Depreciation and amortization expense for the three months ended March 31, 2022 and 2021 was $1.3 million and $3.5 million, respectively.
The following table presents information regarding the Company's Secured Financing facilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | March 31, 2022 | | December 31, 2021 |
Variable Interest Entity | | Facility Amount | | Maturity Date (1) | | Interest Rate | | Balance | | Balance |
(in thousands) | | | | | | | | | | |
Oportun CCW Trust (1)(2) | | $ | 150,000 | | | December 1, 2023 | | Variable (1) | | $ | 59,223 | | | $ | 40,108 | |
Oportun PLW Trust | | 600,000 | | | September 1, 2024 | | LIBOR (minimum of 0.00%) + 2.17% | | 414,088 | | | 353,781 | |
Total secured financing | | $ | 750,000 | | | | | | | $ | 473,311 | | | $ | 393,889 | |
(1) The interest rate on the Secured Financing - CCW facility is LIBOR (minimum of 1.00%) plus 6.00% on the first $18.8 million of principal outstanding and LIBOR (minimum of 0.00%) plus 3.41% on the remaining outstanding principal balance.
(2) The Credit Card Warehouse has an aggregate borrowing capacity of up to $150.0 million; comprised of $75.0 million committed purchase amount and $75.0 million uncommitted purchase amount.
The following table presents information regarding asset-backed notes:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
Variable Interest Entity | | Initial note amount issued (a) | | Initial collateral balance (b) | | Current balance (a) | | Current collateral balance(b) | | Weighted average interest rate(c) | | Original revolving period |
(in thousands) | | | | | | | | | | | | |
Asset-backed notes recorded at fair value: | | | | | | | | | | | | |
Oportun Issuance Trust (Series 2021-C) | | $ | 500,000 | | | $ | 512,762 | | | $ | 472,972 | | | $ | 519,735 | | | 2.48 | % | | 3 years |
Oportun Issuance Trust (Series 2021-B) | | 500,000 | | | 512,759 | | | 475,772 | | | 520,594 | | | 2.05 | % | | 3 years |
Oportun Funding XIV, LLC (Series 2021-A) | | 375,000 | | | 383,632 | | | 364,808 | | | 390,705 | | | 1.79 | % | | 2 years |
Oportun Funding XIII, LLC (Series 2019-A) | | 279,412 | | | 294,118 | | | 279,883 | | | 299,832 | | | 3.46 | % | | 3 years |
Total asset-backed notes recorded at fair value | | $ | 1,654,412 | | | $ | 1,703,271 | | | $ | 1,593,435 | | | $ | 1,730,866 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
Variable Interest Entity | | Initial note amount issued (a) | | Initial collateral balance (b) | | Current balance (a) | | Current collateral balance(b) | | Weighted average interest rate(c) | | Original revolving period |
(in thousands) | | | | | | | | | | | | |
Asset-backed notes recorded at fair value: | | | | | | | | | | | | |
Oportun Issuance Trust (Series 2021-C) | | $ | 500,000 | | | $ | 512,762 | | | $ | 497,774 | | | $ | 525,436 | | | 2.48 | % | | 3 years |
Oportun Issuance Trust (Series 2021-B) | | 500,000 | | | 512,759 | | | 498,487 | | | 521,174 | | | 2.05 | % | | 3 years |
Oportun Funding XIV, LLC (Series 2021-A) | | 375,000 | | | 383,632 | | | 374,363 | | | 391,325 | | | 1.79 | % | | 2 years |
Oportun Funding XIII, LLC (Series 2019-A) | | 279,412 | | | 294,118 | | | 281,082 | | | 299,310 | | | 3.46 | % | | 3 years |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total asset-backed notes recorded at fair value | | $ | 1,654,412 | | | $ | 1,703,271 | | | $ | 1,651,706 | | | $ | 1,737,245 | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(a)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.
(b)Includes the unpaid principal balance of loans receivable, cash, cash equivalents and restricted cash pledged by the Company.
(c)Weighted average interest rate excludes notes retained by the Company.
The following table presents information regarding the Company's Acquisition Financing:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | March 31, 2022 | | December 31, 2021 |
Variable Interest Entity | | Original Balance | | Maturity Date | | Interest Rate | | Balance | | Balance |
(in thousands) | | | | | | | | | | |
Oportun RF, LLC | | $ | 116,000 | | | October 1, 2024 | | LIBOR (minimum of 0.00%) + 8.00% | | $ | 103,869 | | | $ | 114,092 | |
As of March 31, 2022, and December 31, 2021, the Company was in compliance with all covenants and requirements of the Secured Financing and Acquisition Financing facilities and asset-backed notes.
Other liabilities consist of the following:
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
(in thousands) | | 2022 | | 2021 |
Accounts payable | | $ | 4,253 | | | $ | 8,343 | |
Accrued compensation | | 18,824 | | | 36,417 | |
Accrued expenses | | 28,946 | | | 36,464 | |
Accrued interest | | 2,714 | | | 3,276 | |
Amount due to whole loan buyer | | 17,289 | | | 14,062 | |
Deferred tax liabilities | | 43,415 | | | 28,424 | |
Current tax liabilities and other | | 11,600 | | | 8,372 | |
Total other liabilities | | $ | 127,041 | | | $ | 135,358 | |
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, 2022 or December 31, 2021.
Common Stock - As of March 31, 2022 and December 31, 2021, 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, 2022, 33,078,916 and 32,806,893 shares were issued and outstanding, respectively, and 272,023 shares were held in treasury stock. As of December 31, 2021, 32,276,419 and 32,004,396 shares were issued and outstanding, respectively, and 272,023 shares were held in treasury stock.
| | | | | |
12. | 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) | | 2022 | | 2021 | | | | |
Technology and facilities | | $ | 1,870 | | | $ | 728 | | | | | |
Sales and marketing | | 31 | | | 32 | | | | | |
Personnel | | 4,872 | | | 4,067 | | | | | |
Total stock-based compensation (1) | | $ | 6,773 | | | $ | 4,827 | | | | | |
(1) Amounts shown are net of $0.7 million of capitalized stock-based compensation for the three months ended March 31, 2022 and net of $0.3 million of capitalized stock-based compensation for the three months ended March 31, 2021.
As of March 31, 2022, and December 31, 2021, the Company’s total unrecognized compensation cost related to unvested stock-based option awards granted to employees was $9.5 million and $6.9 million, respectively, which will be recognized over a weighted-average vesting period of approximately 2.8 years and 2.2 years, respectively. As of March 31, 2022 and December 31, 2021, the Company's total unrecognized compensation cost related to unvested restricted stock unit awards granted to employees was $72.2 million and $54.1 million, respectively, which will be recognized over a weighted average vesting period of approximately 3.1 years and 2.6 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 total income tax expense recognized in the income statement for stock-based compensation arrangements for the three months ended March 31, 2022 was $0.7 million. The total income tax expense recognized in the income statement for the stock-based compensation arrangements for the three months ended March 31, 2021 was insignificant.
Interest Income - Total interest income included in the Condensed Consolidated Statements of Operations (Unaudited) is as follows:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
(in thousands) | | 2022 | | 2021 | | | | |
Interest income | | | | | | | | |
Interest on loans | | $ | 187,387 | | | $ | 125,682 | | | | | |
Fees on loans | | 4,850 | | | 1,509 | | | | | |
Total interest income | | 192,237 | | | 127,191 | | | | | |
Non-interest Income - Total non-interest income included in the Condensed Consolidated Statements of Operations (Unaudited) is as follows:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
(in thousands) | | 2022 | | 2021 | | | | |
Non-interest income | | | | | | | | |
Gain on loan sales | | $ | 5,715 | | | $ | 4,434 | | | | | |
Servicing fees | | 3,957 | | | 3,078 | | | | | |
Other income | | 12,811 | | | 610 | | | | | |
Total non-interest income | | $ | 22,483 | | | $ | 8,122 | | | | | |
For the three months ended March 31, 2022 and 2021, the Company calculates 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 months ended March 31, 2022 and 2021, the Company recorded income tax expense of $12.0 million and $1.0 million, respectively, related to continuing operations. The Company’s reported effective tax rates were 20.8% and 24.1% for the three months ended March 31, 2022 and 2021, respectively. Our effective tax rates for the three months ended March 31, 2022 and 2021 differ from the statutory tax rates primarily due to the impacts of the R&D tax credit and a one-time exercise of stock-based awards.
| | | | | |
15. | 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
(in thousands) | | Unpaid Principal Balance | | Fair Value | | Unpaid Principal Balance | | Fair Value |
Assets | | | | | | | | |
Loans receivable | | $ | 2,353,981 | | | $ | 2,450,987 | | | $ | 2,272,864 | | | $ | 2,386,807 | |
Liabilities | | | | | | | | |
Asset-backed notes | | 1,654,412 | | | 1,593,435 | | | 1,654,412 | | | 1,651,706 | |
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Minimum | | Maximum | | Weighted Average (3) | | Minimum | | Maximum | | Weighted Average |
Remaining cumulative charge-offs (1) | | 6.14% | | 47.89% | | 10.37% | | 6.75% | | 51.86% | | 9.60% |
Remaining cumulative prepayments (1) | | — | | 41.11% | | 33.16% | | — | | 44.25% | | 32.47% |
Principal payment rate (1)(2) | | —% | | —% | | 16.55% | | —% | | —% | | 18.07% |
Average life (years) | | 0.20 | | 1.51 | | 0.85 | | 0.22 | | 1.51 | | 0.86 |
Discount rate | | 6.69 | | 8.79 | | 6.76% | | 6.90 | | 8.35 | | 6.94% |
(1) Figure disclosed as a percentage of outstanding principal balance.
(2) Remaining cumulative prepayments are estimated to calculate fair value on the unsecured and secured loan receivables and principal payment rates are estimated on the credit card receivables.
(3) Unobservable inputs were weighted by outstanding principal balance, which are grouped by risk (type of customer, original loan maturity terms).
Fair value adjustments related to financial instruments where the fair value option has been elected are recorded through earnings for the three months ended March 31, 2022 and 2021. Certain unobservable inputs may (in isolation) have either a directionally consistent or opposite impact on the fair value of the financial instrument for a given change in that input. When multiple inputs are used within the valuation techniques for loans, a change in one input in a certain direction may be offset by an opposite change from another input.
The Company developed internal models to estimate the fair value of loans receivable held for investment. To generate future expected cash flows, the models combine receivable characteristics with assumptions about borrower behavior based on the Company’s historical loan performance. These cash flows are then discounted using a required rate of return that management estimates would be used by a market participant.
The Company tested the fair value models by comparing modeled cash flows to historical loan performance to ensure that the models were complete, accurate and reasonable for the Company’s use. The Company also engaged a third party to create an independent fair value estimate for the Loans Receivable at Fair Value, which provides a set of fair value marks using the Company’s historical loan performance data and whole loan sale prices to develop independent forecasts of borrower behavior. Their model generates expected cash flows which were then aggregated and compared to the Company’s actual cash flows within an acceptable range.
The Company's internal valuation committee provides governance and oversight over the fair value pricing calculations and related financial statement disclosures. Additionally, this committee provides a challenge of the assumptions used and outputs of the model, including the appropriateness of such measures and periodically reviews the methodology and process to determine the fair value pricing. Any significant changes to the process must be approved by the committee.
The table below presents a reconciliation of loans receivable at fair value on a recurring basis using significant unobservable inputs:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
(in thousands) | | 2022 | | 2021 | | | | |
Balance – beginning of period | | $ | 2,386,807 | | | $ | 1,696,526 | | | | | |
| | | | | | | | |
Principal disbursements | | 779,719 | | | 309,009 | | | | | |
Principal payments from customers (1) | | (636,044) | | | (315,887) | | | | | |
Gross charge-offs | | (62,558) | | | (40,959) | | | | | |
Net increase (decrease) in fair value (1) | | (16,937) | | | 21,562 | | | | | |
Balance – end of period | | $ | 2,450,987 | | | $ | 1,670,251 | | | | | |
(1) The principal payment from customers shown for the three months ended March 31, 2022 includes $227.6 million of unpaid principal balance of loans sold in the 2022-1 transaction. The net increase (decrease) in fair value shown for the three months ended March 31, 2022 includes $15.9 million related to the cumulative fair value mark on the loans sold in the 2022-1 transaction. For details regarding the 2022-1 transaction, refer to Note 5, Loans Held for Sale and Loans Sold.
As of March 31, 2022, the aggregate fair value of loans that are 90 days or more past due and in non-accrual status was $3.7 million, and the aggregate unpaid principal balance for loans that are 90 days or more past due was $23.0 million. As of December 31, 2021, the aggregate fair value of loans that are 90 days or more past due and in non-accrual status was $3.5 million, and the aggregate unpaid principal balance for loans that are 90 days or more past due was $20.7 million.
Financial Instruments Disclosed But Not Carried at Fair Value
The following table presents the carrying value and estimated fair values of financial assets and liabilities disclosed but not carried at fair value and the level within the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
| | Carrying value | | Estimated fair value | | Estimated fair value |
(in thousands) | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | |
Cash and cash equivalents | | $ | 109,864 | | | $ | 109,864 | | | $ | 109,864 | | | $ | |