Executive Summary / Key Takeaways

• Oportun has demonstrated a significant turnaround, returning to GAAP profitability in Q4 2024 and continuing this momentum into Q1 2025, driven by improved credit performance and rigorous expense discipline.
• Proprietary AI-driven credit models, particularly the V12 engine trained on recent inflationary data, are enabling improved underwriting, leading to lower net charge-offs and delinquencies, especially in the "front book" of newer originations.
• The company has achieved substantial operating expense reductions, targeting a quarterly GAAP OpEx run rate of approximately $97.5 million for 2025, significantly enhancing efficiency and contributing to profitability.
• While prudently moderating its full-year 2025 originations growth outlook to approximately 10% due to macroeconomic uncertainty, Oportun is reiterating strong adjusted EPS guidance of $1.10 to $1.30, reflecting confidence in continued operational improvements.
• Strategic focus on growing the Secured Personal Loan (SPL) portfolio and leveraging a diversified funding strategy, alongside recent balance sheet actions like the corporate debt refinancing and credit card portfolio sale, position the company for continued progress towards long-term profitability and ROE targets.

The Turnaround Story: Leveraging Technology and Mission in a Challenging Market

Oportun Financial Corporation, founded in 2005, is a mission-driven financial services company dedicated to making financial health accessible, particularly for individuals with limited or no credit history. Certified as a Community Development Financial Institution (CDFI) since 2009, Oportun has built its business on providing responsible and affordable credit, primarily through unsecured and secured personal loans, alongside a savings product. Its multi-channel approach, spanning digital platforms, contact centers, retail locations, and Lending as a Service (LaaS) partnerships, allows the company to reach its target market effectively.

The company operates within a competitive landscape that includes traditional banks, fintechs, and other non-bank lenders serving similar segments. Rivals like LendingClub (LC), Upstart (UPST), OneMain Holdings (OMF), and Green Dot (GDOT) offer overlapping products, but Oportun differentiates itself through its specific focus on underserved communities, its CDFI status, and crucially, its proprietary technology designed to underwrite individuals often overlooked by traditional credit scoring.

At the heart of Oportun's operational capability lies its sophisticated, AI-driven credit risk models. These models leverage third-party alternative data, credit bureau data, application data, and the company's extensive historical performance data to assess creditworthiness and predict default likelihood, particularly for thin-file or no-file applicants. The latest iteration, the V12 credit model, represents a significant technological advancement. It was uniquely trained using data from the recent inflationary period, making it better equipped to identify borrowers likely to perform well in the current economic climate. This technology provides tangible benefits: it enables Oportun to underwrite individuals with no traditional credit score, offers faster processing speeds compared to some traditional lenders, and incorporates signals to identify risks like loan stacking. While competitors like Upstart also emphasize AI, Oportun's V12 model's specific training on recent macro data and its integration with the company's mission-driven focus on affordability (capping APR at 36%) and member support provides a differentiated approach to risk management and market penetration. This technological edge is foundational to Oportun's ability to manage credit risk effectively and serves as a competitive moat, allowing it to operate profitably within its chosen niche.

Oportun's journey has not been without challenges. Macroeconomic headwinds, including rising interest rates and inflation, contributed to increased charge-off rates in 2022 and 2023. In response, the company implemented significant credit tightening measures and embarked on a rigorous expense optimization program, including workforce reductions and streamlining operations. These strategic responses, informed by insights from their data and technology, have been instrumental in navigating the difficult environment and setting the stage for a notable turnaround.

Performance Reflecting Strategic Execution

The impact of Oportun's strategic adjustments became increasingly evident throughout 2024 and into the first quarter of 2025. The company returned to GAAP profitability in the fourth quarter of 2024, reporting $9 million in net income and a 10% ROE, a significant improvement from the prior year. This momentum continued into Q1 2025, with GAAP net income reaching $9.8 million, a $36 million year-over-year improvement, driving an 11% ROE.

A key driver of this improved financial health is the notable progress in credit performance. The annualized net charge-off rate in Q1 2025 was 12.2%, landing at the low end of guidance and showing a 5% decline in dollar terms year-over-year, marking the sixth consecutive quarter of dollar net charge-off improvement. Early-stage delinquencies (1-29 days past due) and 30-plus day delinquencies have also shown positive trends, with the latter declining year-over-year for the fifth consecutive quarter, reaching 4.7% in Q1 2025 and further improving to 4.5% by the end of April 2025. This improvement is directly linked to the performance of the "front book" of loans originated since the credit tightening began in July 2022. Losses on this front book are running approximately 600 basis points lower than the older "back book," which now represents only 4% of the owned portfolio and is expected to shrink to 1% by the end of 2025, further reducing its disproportionate impact on gross charge-offs. The V12 credit model is credited by management as a key factor enabling this improved credit quality.

Simultaneously, Oportun has achieved substantial reductions in its operating expense base. GAAP operating expenses in Q1 2025 were $93 million, down 15% year-over-year. This follows a 31% year-over-year reduction in Q4 2024 OpEx to $89 million. The company is targeting a quarterly GAAP operating expense run rate of approximately $97.5 million for 2025, reflecting a significantly leaner cost structure compared to prior years. This expense discipline has dramatically improved efficiency, with the adjusted OpEx ratio as a percentage of average managed principal balance falling to 13% in Q1 2024 from 16.9% in Q1 2019.

While total revenue in Q1 2025 declined 5.8% year-over-year to $236 million, primarily due to the absence of revenue from the credit card portfolio (sold in November 2024), net revenue saw a significant 34% increase to $106 million. This was driven by lower fair value marks and lower net charge-offs, partially offsetting the decline in total revenue and higher interest expense ($57.4 million in Q1 2025, up 5.4% YoY due to higher rates on debt). The sale of the credit card portfolio, while reducing headline revenue, was described as accretive to the bottom line and simplified the business.

Originations have also shown a return to growth, increasing 39% year-over-year to $469 million in Q1 2025, albeit from an unusually low baseline in the prior year. This growth is occurring within the company's conservative credit standards and is driven by increased marketing investment and a focus on high-quality segments, including returning borrowers and new members with higher free cash flow. A key strategic focus within originations is the Secured Personal Loan (SPL) product, which grew 59% year-over-year in Q1 2025 to $178 million, representing 7% of the owned portfolio. SPL offers superior unit economics, with losses approximately 500 basis points lower than unsecured loans and higher revenue per loan due to larger average sizes. The company is actively expanding SPL availability to new states.

Oportun's liquidity position appears sound, supported by strong operating cash flow generation ($101 million in Q1 2025).

As of March 31, 2025, total cash was $231 million ($79 million unrestricted). The company maintains a diversified funding strategy, including securitizations, warehouse facilities, and corporate debt. Recent financing activities, such as the $425 million ABS issuance in January 2025 (oversubscribed 7x, priced at 6.95% yield) and the $187.5 million warehouse facility closed in April 2025, demonstrate continued access to capital markets. The corporate debt refinancing completed in late 2024 replaced restrictive covenants with an adjusted EBITDA-based leverage covenant and includes manageable mandatory repayments, with the $12.5 million due by July 31, 2025, already satisfied ahead of schedule by late April 2025. The Debt/Equity ratio has improved to 7.6x as of March 31, 2025, down from a peak of 8.7x in Q3 2024.

Outlook and Path Forward

Building on the momentum from late 2024 and Q1 2025, Oportun's guidance reflects expectations for continued operational improvement and a return to profitability on a full-year GAAP basis in 2025.

For the second quarter of 2025, the company expects:

• Total Revenue: $237 million to $242 million
• Annualized Net Charge-Off Rate: 11.9% plus or minus 15 basis points (down ~40 bps YoY at midpoint)
• Adjusted EBITDA: $29 million to $34 million (growth over Q2 2024)

For the full year 2025, Oportun is reiterating its guidance:

• Total Revenue: $945 million to $970 million
• Annualized Net Charge-Off Rate: 11.5% plus or minus 50 basis points (50 bps reduction from 2024 at midpoint)
• Adjusted EBITDA: $135 million to $145 million
• Adjusted Net Income: $53 million to $63 million
• Adjusted EPS: $1.10 to $1.30 (53% to 81% growth over 2024)

This outlook is underpinned by expectations for lower net charge-off rates, ongoing expense discipline ($97.5 million quarterly OpEx target), and approximately 10% full-year originations growth (moderated from a prior 10-15% range due to macroeconomic uncertainty). Management views this growth as prudent, driven by marketing investment within a conservative credit box, rather than loosening standards.

The company's long-term aspiration remains achieving GAAP ROEs in the 20% to 28% range annually. The path to this target involves further reducing annualized net charge-offs to 9% to 11%, lowering operating expenses to 12.5% of the owned portfolio, attaining 10% to 15% annual growth in the owned loan portfolio, and returning to a 6:1 debt-to-equity leverage ratio.

Risks and Challenges

Despite the positive trajectory, Oportun faces several risks. Macroeconomic uncertainty, including potential shifts in inflation, unemployment, and interest rates, could impact borrower repayment ability and credit performance. While the V12 model is designed to operate in this environment, unexpected economic deterioration remains a key risk. The competitive landscape is intense, with larger players possessing greater resources and smaller fintechs potentially innovating faster. Oportun's reliance on its Pathward (CASH) bank partnership for a substantial portion of originations exposes it to risks if that relationship were to be disrupted or terminated. The evolving regulatory environment, particularly regarding AI in lending, bank partnerships ("true lender" concerns), and consumer protection (CFPB scrutiny, data privacy laws), could impose new compliance burdens or restrict business practices. Funding access, while currently strong, could be impacted by disruptions in capital markets or breaches of debt covenants. Operational risks, including fraud, cybersecurity threats, and reliance on third-party vendors, also persist. Furthermore, stockholder activism could create distractions and uncertainty.

Conclusion

Oportun has demonstrated a compelling turnaround story, successfully navigating recent macroeconomic challenges through disciplined execution of its strategic priorities. The return to GAAP profitability, coupled with tangible improvements in credit performance driven by its proprietary technology and rigorous expense management, provides a solid foundation. While the company has prudently adjusted its near-term growth outlook in light of macroeconomic uncertainty, the reiterated full-year adjusted EPS guidance signals confidence in continued operational leverage and profitability expansion. The strategic focus on high-quality originations, particularly the growth of the Secured Personal Loan portfolio, and a fortified balance sheet through recent financing activities position Oportun for further progress. The path to its long-term ROE targets is clear, relying on sustained credit quality, expense efficiency, and portfolio growth. For investors, Oportun represents a company that has weathered a storm and emerged with a clearer path to profitability, leveraging its unique mission and technological capabilities in a specialized market segment, though continued vigilance regarding macro conditions and regulatory dynamics is warranted.