Oportun Financial - Q4 2025

Transcript

Operator (participant)

Greetings, welcome to the Oportun Financial fourth quarter 2023 earnings call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Dorian Hare of Investor Relations. Please go ahead.

Dorian Hare (SVP of Investor Relations)

Thanks. Hello, everyone. With me to discuss Oportun's fourth quarter 2023 results are Raul Vazquez, Chief Executive Officer, and Paul Appleton, our Interim Chief Financial Officer, Treasurer, and Head of Capital Markets. 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 origination growth, planned products and services, business strategy, expense savings measures, and plans and objectives of management for 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-K filing for the year ended December 31st, 2023. We undertake no obligation to update these statements as a result of new information or future events other than as required by law. 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 in the investor relations section of our website. Non-GAAP financial measures are presented in addition to, and not as 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 fourth quarter 2023 financial supplement, and the appendix section of the fourth quarter 2023 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 Raul.

Raul Vazquez (CEO)

Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. Our fourth quarter results were strong. We met or exceeded all of our guidance metrics, reflecting continued operational discipline and strong execution across the business. The four key headlines from the quarter are sustained GAAP profitability, solid credit performance, ongoing expense discipline, and a reduced cost of capital. Let's start with profitability. We generated $25 million of GAAP net income in 2023, including $3.4 million in the fourth quarter. This capped a year of significantly enhanced profitability for Oportun, with full-year GAAP net income improving by $104 million and adjusted EPS growing 89%. These results were driven by growth in originations, improved credit performance, balance sheet optimization, and disciplined expense management.

Turning to credit performance, our annualized net charge-off rate was 12.3% in Q4 at the better end of the guidance range we provided. On the expense side, Q4 operating expenses of $84 million came in below the $92 million expectation set last quarter and marked our lowest quarterly spend as a public company. Driven by disciplined expense management, full-year 2023 GAAP operating expenses totaled $362 million, a $49 million or 12% reduction from 2022. Finally, our balance sheet optimization initiatives are lowering our cost of capital and positioning us for stronger long-term returns. Driven by corporate debt repayments as well as actions related to our ABS notes and warehouse facilities, Q4 interest expense, excluding $5.5 million of debt extinguishment costs, was $52 million. That was $4.1 million lower than Q3.

We also completed a $485 million ABS transaction earlier this month, marking our fourth consecutive issuance with a sub 6% funding cost and a AAA rating on the senior notes. Paul will further detail our balance sheet optimization initiatives and how they factor into our 2024 expectations. With our Q4 and full year 2023 highlights covered, I'll now review how we're executing against our three strategic priorities: improving credit outcomes, strengthening business economics, and identifying high-quality originations. Starting with credit outcomes. As we discussed in our second quarter call, the first half of the year included a higher mix of new members than expected, so we shifted originations towards returning members. That adjustment was effective. 74% of second-half originations came from returning members, up from 64% in the first half.

To further strengthen our risk management approach, we also introduced new early default models focused on new and returning members and added five new data sources into our underwriting process. In 2024, a key focus will be upgrading our decisioning infrastructure capabilities to accelerate model training and deployment, thereby enabling us to respond even faster to evolving credit conditions. Turning to business economics. We continue to make strong progress on efficiency and operating leverage. During full year 2023, our risk-adjusted net interest margin ratio improved 55 basis points year-over-year to 15.8%. As a reminder, that metric includes portfolio yield, net charge-offs, cost of capital, and loan-related fair value impacts. Our full year 2023 adjusted OpEx ratio improved 109 basis points year-over-year to 12.7% of our own portfolio.

Together, these improvements drove strong operating leverage, lifting adjusted ROE by almost 1,000 basis points to 17.5%. I'm also pleased to share that we are advancing a new initiative designed to enhance our unit economics and progress towards 20%-28% annual GAAP ROEs while expanding access to responsible credit. In partnership with potential new bank sponsors and warehouse providers, we are exploring the reintroduction of risk-based pricing above 36% APRs for select higher-risk segments on shorter-term loans. This creates a meaningful opportunity to extend our mission of financial inclusion by responsibly serving customers that we would otherwise not serve, while better aligning pricing and term length with risk in order to improve portfolio returns. At the same time, we are selectively testing modestly lower APRs for certain higher-quality returning members to maximize lifetime value where competitive dynamics warranted.

We are assuming only modest incremental profitability in the second half of 2024 as we roll this initiative out in a disciplined and measured manner. If executed successfully, we believe this initiative can drive higher earnings power in 2025 and beyond. On identifying high-quality originations, we grew originations by 10% during full year 2023 while maintaining a conservative credit posture. We exceeded our prior expectation for high single digits % growth by focusing on members with higher free cash flow and on channels that deliver the strongest results. In full year 2023, loan application growth more than doubled the rate of originations growth. Customer acquisition costs declined 6% to an average of $117, a testament to our strong loan demand, disciplined underwriting, and improved cost efficiency.

Expanding our secured personal loans portfolio secured by members' autos remains a key pillar of our responsible growth strategy. SPL originations increased 51% in full year 2023. As a result, our secured portfolio grew 39% year-over-year to $226 million. These secured loans now represent 8% of our own portfolio, up from 6% at year-end 2022. Importantly, secured personal loan losses were more than 600 basis points lower than unsecured personal loans during the year. To continue our strong SPL growth momentum into 2024, we've recently initiated new direct mail campaigns targeted specifically at potential SPL customers who own their vehicles. By executing against our three strategic imperatives, improving credit outcomes, strengthening business economics, and identifying high-quality originations, we've driven meaningful operational and profit improvement in 2022 and 2023.

We're confident this disciplined framework will continue to support our momentum in 2024. With that, I'd like to now preview our initial 2024 outlook. While our member base remains resilient, inflation above Federal Reserve targets, declining wage growth, uneven job creation, and policy uncertainty continue to create a cautious environment for low to moderate-income consumers. Our outlook prudently assumes these conditions persist throughout 2024 alongside our currently tight credit posture. We remain well-positioned to adjust quickly as conditions evolve.

The guidance for full year 2024 that Paul will soon detail for you is underpinned by mid-single-digit originations growth, a 1%-2% decline in average daily principal balance, revenue growth ranging from flat to a 2% decline, a net charge-off rate range with a midpoint reflecting slight year-over-year improvement, a reduction in interest expense of at least 10%, and substantially flat operating expenses. We expect these drivers to result in full year 2024 adjusted EPS growth of 16% at the midpoint of our full-year guidance. We also expect higher profitability in the second half than the first as originations ramp under our normal seasonal pattern and loss rates improve. I will turn it over to Paul for additional details on our financial and credit performance, as well as our guidance.

Paul Appleton (Interim CFO, Treasurer, and Head of Capital Markets)

Thanks, Raul. Good afternoon, everyone. Turning to slide five, we delivered a strong fourth quarter relative to guidance. Identifying high quality originations enabled us to exceed the top end of our quarterly total revenue guidance by $1.7 million or 1%. Combined with disciplined expense management, this drove strong adjusted EBITDA of $42 million, exceeding the top of our guidance range by $5.5 million or 15%. For full year 2023, we delivered adjusted EPS of $1.36 towards the high end of the $1.30-$1.40 expectation and achieved GAAP profitability of $25 million consistent with our full year GAAP profitability commitment. Turning now to slide six. We recorded our fifth consecutive quarter of GAAP profitability with net income of $3.4 million and diluted EPS of $0.07.

We also generated adjusted net income of $13 million and adjusted EPS of $0.27. While maintaining credit discipline, fourth quarter originations of $495 million were down 5% year-over-year, primarily due to credit tightening actions. This was modestly better than our prior expectation for a high single-digit decline. Total revenue of $248 million declined by $3.2 million or 1% year-over-year. This decline was attributable to the absence of $3.8 million of credit card revenue in the prior year quarter. As a reminder, we completed the sale of our credit card portfolio in November of last year, a transaction that has been accretive on a cash basis. Net decrease in fair value was $99 million this quarter, due primarily to $86 million in net charge-offs.

Also included in the decrease in Q4 fair value were $17 million of derivative-related impacts in line with our expectations associated with the acquisition of an Oportun service loan portfolio and the wind down of a related risk-sharing agreement. The majority, $13 million, was non-cash. As we discussed on our prior earnings call, these loans were previously held by our bank sponsor, Pathward. We continue to expect a profitability benefit from the acquisition, driven by lower funding costs associated with owning the portfolio versus the prior arrangement with Pathward. We also expect derivative-related fair value impacts to be muted in the first quarter and following the wind down to no longer affect fair value in future quarters. Partially offsetting the impact of the wind down, sustained lower ABS funding costs drove a favorable $4.9 million mark-to-market adjustment on our loan portfolio.

Reported fourth quarter interest expense was $58 million, down $16 million year-over-year. After adjusting for debt repayment-related charges of $17 million in the prior year quarter and $5.5 million in Q4 2023, interest expense declined $4.6 million or 8% year-over-year. This improvement reflects the balance sheet optimization initiatives Raul referenced earlier, which I'll detail momentarily. Net revenue was $90 million, down 3% year-over-year as the impact of lower total revenue and a higher net decrease in fair value offset lower interest expense. Operating expenses were $84 million, down $5.6 million or 6% year-over-year, better than our $92 million expectation and reflecting continued cost discipline.

Our adjusted OpEx ratio reached a record low of 11.6%, marking the first time we've outperformed our 12.5% unit economics target. Importantly, as we work toward meeting our unit economics targets on a GAAP basis, our GAAP OpEx ratio improved to 12%, down from 13.1% in the prior-year quarter and also outperformed our target. Adjusted EBITDA, which excludes the impact of fair value mark-to-market adjustments on our loan portfolio and notes, was $42 million in the fourth quarter. This reflected a year-over-year increase of one and a half million dollars as lower operating expenses and interest expense more than offset higher net charge-offs and lower total revenue.

Adjusted net income, which excludes the debt repayment-related charges discussed earlier, was $13 million, down $8.6 million year-over-year, primarily due to the wind down of the Pathward risk-sharing agreement I discussed earlier. Adjusted EPS similarly declined year-over-year from $0.49 to $0.27. Importantly, GAAP net income before taxes was $6.6 million, up $2.7 million or 68% year-over-year as lower operating expenses more than offset lower net revenue. GAAP net income was $3.4 million and would have been higher absent repayment-related charges and the tax headwinds this quarter.

The $5.3 million year-over-year decline in GAAP net income was largely attributable to the tax comparison. As this quarter reflected $3.2 million of tax expense versus a $4.8 million benefit in Q4 2022 due to discrete items and R&D credit timing. Diluted EPS of $0.07 declined by $0.13 year-over-year. Next, I'd like to provide some additional color on our credit performance in Q4. As shown on slide seven, our Q4 net charge-off rate increased as anticipated, coming in at 12.3% and at the low end of the annualized guidance we provided. As expected, the higher loss pre-July 2022 back books continued to roll off, shrinking to less than 1% of our own portfolio at year-end. Our 30+ delinquency rate was 4.9%, up a modest 13 basis points year-over-year.

As a forward-looking indicator, this supports our expectation that 1Q 2024 will represent the peak quarterly net charge-off rate for the year, with moderation beginning in the second quarter. Turning now to capital and liquidity. As shown on slide nine, we continue to strengthen our debt capital structure by reducing higher cost corporate debt, lowering our overall cost of capital and enhancing liquidity. First, I'm pleased with the progress we made deleveraging, ending Q4 2023 at 7.2x debt-to-equity. That's down from 7.9x a year ago and from the 3Q 2022 peak of 8.7x. During 2023, shareholders equity increased by $36 million or 10%, with consistent GAAP profitability supporting continued deleveraging.

Reducing our high cost corporate debt, which carries a 15% interest rate, remains our second highest capital priority after originating high quality loans and reinvesting in the business. Since the $235 million corporate debt facility was put in place in November 2022, we've reduced the outstanding balance by $70 million or 30%, including thirty-seven and a half million dollars or 16% in Q4. These repayments lowered our annualized run rate expense by ten and a half million dollars, generating meaningful and sustainable savings. During Q4, we increased total committed warehouse capacity from $954 million to $1.14 billion. We also extended the weighted average remaining term of our combined warehouse facilities from 17 months to 25 months and reduced the aggregate weighted average margin by 43 basis points.

We achieved this by closing a new $247 million three-year revolving term committed warehouse facility and improving the terms of our existing facilities. Following the fourth quarter and earlier this month, as Raul mentioned, we completed a $485 million ABS transaction at a 5.32% weighted average yield. In the last nine months, we have now raised $1.9 billion in the ABS market at sub 6% yields, demonstrating sustained access to capital on favorable terms. In addition to reducing high cost corporate debt by $70 million during 2023, we increased our unrestricted cash balance by $46 million or 76%. As of December 31st, total cash was $199 million, of which $106 million was unrestricted and $93 million was restricted.

Turning now to our guidance, as shown on slide 12, our outlook for the first quarter is total revenue of $225 million-$230 million, annualized net charge-off rate of 12.65% ±15 basis points, and adjusted EBITDA of $25 million-$30 million. At the midpoint, our Q1 revenue guidance implies an $8 million year-over-year decline, reflecting seasonally lower demand during tax season and our continued tight credit posture. Our Q1 annualized net charge-off rate midpoint guidance of 12.65% reflects the impact of first half 2023 originations, which included a high percentage of new members prior to the tightening actions we implemented in the second half.

We expect first quarter 2024 delinquencies to decrease to 4.4%-4.5%, which would be 20-30 basis points lower than 1Q 2023 and 40-50 basis points lower sequentially than 4Q 2023. That anticipated improvement in delinquencies give us confidence that charge-offs will decrease beginning in the second quarter. Importantly, our implied net charge-offs guidance for the remaining three quarters of 2024 is approximately 11.65%, which is 100 basis points lower than the first quarter guidance midpoint, reflecting the impact of our tightened underwriting and improved mix. At the midpoint, our Q1 adjusted EBITDA guidance implies a year-over-year decline of approximately $6 million, less than the expected revenue decline of $8 million, driven by lower operating and interest expense.

Our initial full year 2024 guidance includes total revenue of $935 million-$955 million, annualized net charge-off rate of 11.9% ±50 basis points, adjusted EBITDA of $150 million-$165 million, and adjusted EPS of $1.50-$1.65. We expect to lower interest expense by more than 10% in 2024, which supports our adjusted EPS guidance. We are confident in this expectation because the benefits of the balance sheet optimization initiatives completed in 2023 will flow through to our 2024 financials. Midpoint growth of 16% in adjusted EPS and 6% in adjusted EBITDA, even amid macro uncertainty for low-to-moderate-income consumers, reflects the resilience of both our members and our business model.

Before I turn it back to Raul, let me briefly review our unit economics progress for full year 2023. Although our long-term targets are GAAP targets, I'll reference adjusted metrics because they remove non-recurring items and better reflect our future run rate. As shown on slide 11, we made meaningful progress during the year. Full year 2023 adjusted ROE was 17.5%, nearly a 10 percentage point increase year-over-year, driven primarily by cost reductions and improved credit performance. We expect to build on this progress in 2024. Our North Star remains delivering GAAP ROEs of 20%-28% annually. We plan to achieve this by reducing annualized net charge-offs to 9%-11%, lowering operating expenses to 12.5% of our own portfolio, and attaining 10%-15% annual growth in our owned loan portfolio.

We also intend to make substantial progress towards returning to our target 6-to-1 debt-to-equity leverage ratio this year by reducing our debt outstanding and continuing to grow profitability. With that, Raul, back over to you.

Raul Vazquez (CEO)

To close, I'd like to emphasize three key points. First, we're pleased with our 2023 results. On a full year basis, we improved GAAP net income by $104 million and grew adjusted EPS by 89%. Second, we expect full year profitability to improve across all metrics in 2024. Although the additional credit tightening implemented in the second half of last year is expected to temper revenue growth in 2024, we still project 10%-21% adjusted EPS growth per our guidance, improved ROE, and higher GAAP profitability year-over-year. Third, we see a compelling long-term opportunity ahead for Oportun. The progress we've made over the past year in reducing leverage, lowering our cost of capital, and strengthening our liquidity enables us to focus squarely on operational execution and profitable, sustainable growth.

For 2024, we are assuming only modest incremental profit from the risk-based pricing initiatives discussed earlier as we roll them out prudently. However, if executed successfully, a return to risk-based pricing could enhance earnings growth beginning in 2025 and drive additional progress towards our 20%-28% GAAP ROE objective over time. This will be my final earnings call as CEO of Oportun. I will step down as Chief Executive Officer and from the board by April 3rd or earlier if the board appoints a successor. Following that, I will serve as an advisor through July 3rd to support a smooth transition. I will continue meeting with investors this quarter and have worked closely with the board and management team to ensure an orderly and seamless leadership transition.

It has been a privilege to lead Oportun for nearly 14 years and to work alongside such a talented, committed, and mission-driven team. I am deeply grateful to our employees, members, partners, and shareholders for the trust and support they have shown me throughout this journey. I am confident that Oportun is well-positioned for its next chapter with a strong foundation, a clear strategy, and a team fully capable of continuing to deliver for our members and shareholders. With that, operator, let's open up the line for questions.

Operator (participant)

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. The first question comes from the line of Kyle Joseph with Stephens. Please proceed.

Raul Vazquez (CEO)

Hi, Kyle.

Operator (participant)

Sorry, your line is live.

Raul Vazquez (CEO)

Kyle, you may have us on mute. We can't hear you. Operator, could we go to the next question, please?

Operator (participant)

Yes. The next question will come from the line of David Scharf with Citizens JMP. Please proceed.

Zach Milam (Equity Research Associate)

Hey, guys. This is Zach on for David. Congrats on the strong fourth quarter performance. Wanted to dig in a little bit on the macro side and see if we can get any more color. Also just kind of if you can kind of talk about any of the signs we might see, you know, that might lead to some loosening. Thank you.

Raul Vazquez (CEO)

Sure. Sure, Zach. So, when we think about the macro, right, we think that the consumer, first of all, is showing a tremendous amount of resilience. That has us, you know, optimistic as we go into the year. From a macro perspective, we certainly know that tax refunds are expected to be bigger this year. So far, our delinquency performance at the beginning of the year makes us feel good about what the path for loss is gonna continue to be. We think that's constructive. On the flip side, right, Q4 GDP growth was a bit lower than expected. Wage growth for the lowest quartile in the country is the lowest, right? They do have the lowest wage growth right now.

When we think about fuel, because we know fuel prices are something that our customer base is pretty sensitive to, although they are lower year-over-year, in the last month alone, we've seen fuel prices on average in the state of California go up $0.40 a gallon. You know, that is one of the things that we're gonna continue to watch carefully. I think on the macro side, Zach, there is some puts and takes, and as a consequence, right, we continue to have a conservative credit box until we see things improve. To your point, in terms of improvement, we'd like to see stronger job growth across the economy. We'd like to see continued GDP growth. We'd like to see a strong finish to the tax season.

Obviously we wanna see the trajectory that we expect for losses to develop. Those are the sorts of things that would require, I'm sorry, that we would be required to see to open up.

Zach Milam (Equity Research Associate)

Got it. Thank you. Thank you.

Raul Vazquez (CEO)

Thank you, Zach.

Operator (participant)

The next question comes from the line of Brendan McCarthy with Sidoti. Please proceed.

Brendan McCarthy (Equity Research Analyst)

Great. Good afternoon, Raul. Good afternoon, Paul. Appreciate you taking my questions here.

Raul Vazquez (CEO)

Hi, Brendan.

Brendan McCarthy (Equity Research Analyst)

Just wanted to start off on the net charge-off rate. Obviously looks like a temporary step up in the first quarter, and then you mentioned it'll step down in the second quarter and thereafter. Just curious as to what data points you're seeing regarding, you know, first payment defaults or the new origination vintages that really give you that confidence that it'll step down like that?

Raul Vazquez (CEO)

Yeah. The biggest signal in terms of the losses going down is really what we're seeing in delinquencies. Right now, based on what we're seeing in delinquencies and 30-plus delinquencies specifically, but early delinquencies also look good, Brendan. On the 30-plus side, we think we're going to end up at 4.4%-4.5% for Q1. That would be 20-30 basis points lower than last year and 40-50 basis points lower quarter-over-quarter. We think that this elevated loss rate for Q1 is really just a product of the higher mix of new customers that we had at the beginning of the year, right? We've been signaling this bubble. We talked about it in our last two earnings calls. The trajectory of losses is what we expect.

If anything, Q4 was on the low end of the guidance that we provided. We've got a lot of confidence when we look at delinquencies, going back to your question, looking at the path for delinquencies for Q1, that we will see losses start to come down in Q2, and then certainly in Q3 and Q4. You did see that the implied loss rate for Q2 to Q4 is 11.65%. Again, the confidence really comes from what we're seeing in delinquencies so far this year.

Brendan McCarthy (Equity Research Analyst)

Great. I appreciate the detail there, Raul. Another question here on operating expenses. Think you guided to flat OpEx for 2024 relative to 2023. I'm curious if you can differentiate the Q4 run rate, which would be a little bit lower if you, if you took that and annualized it for 2024. Just wondering what, you know, increases are kind of baked into that from the Q4 run rate.

Raul Vazquez (CEO)

Yeah. From an OpEx perspective, when we look at 2024, there's really two things going on. Number one, I'm really proud of the discipline that the team showed throughout all of 2023 and certainly in Q4. That discipline continues this year. We're gonna continue to look for opportunities to reduce OpEx. We're gonna continue to stay pretty lean from a headcount perspective. That part's gonna continue, and that's the first part of the OpEx story. The reason that OpEx looks flat is really the second dimension, which is there are going to be some incremental investments, relative to 2023, and we think these are investments that investors are gonna be excited about. Number one, we're going to be investing in this return to risk-based pricing, right? Specifically pricing over 36%.

As a reminder for people that may be newer to the Oportun story, the bulk of our history, we had pricing over 36%, right? The bulk of my time, even as CEO these last 14 years, we were pricing a part of the portfolio over 36%. This is not new to us. This is something we know how to do. It's the same chief credit officer. In many ways, this is returning to the pricing that we had before. This is going to require engaging a new bank partner. It's going to require some new development and just some new investment. Again, we're excited about the impact that that's going to have. Though modest this year, we think it will lead to a bigger impact in 2025 and the years beyond that.

That's one investment. Number two, secured personal lending continues to be our major focus from a growth perspective. We shared that originations this last year were 51% year-over-year growth in originations for SPL, right? This year we've said we're gonna have kind of mid-single-digit growth in the business. That means growth both in UPL, but more importantly, disproportionate growth rates in SPL. We continue to invest in that part of the business, Brendan. Number three, you know, I just answered Zach's question in terms of what we would need to see to open up the credit box. We are going to see growth in the portfolio this year. In particular, growth in originations, in particular Q2 through Q4. That will not be through opening the credit box, it will be through investing in marketing. That's another investment that you're seeing.

The net-net of the savings we expect to find plus those 3 investments means relatively flat OpEx for the year.

Brendan McCarthy (Equity Research Analyst)

Understood. I appreciate the color there. I think that's a key takeaway, your plan to, you know, go above that 36% cap. Can you give us a sense of how this might increase your addressable market? Is that plan included in your expectation for mid-single digit growth in originations for the year?

Raul Vazquez (CEO)

It is not included in our view for this year. For this year, we're going to take a very methodical, very prudent approach to rolling this out. Again, we know how to do this. This is not new to us. Certainly, right, this is a different environment than a few years ago when we stopped doing this. We think it is prudent to roll this out in a thoughtful way. Certainly as we get into 2025 and future years, we think there's two big benefits here, Brendan. One is certainly over time, to your point, it should open up some additional market for us. Our ability to price appropriately for that slightly higher risk, right, is going to improve our unit economics and is going to improve the overall profitability of the business. We're excited about that.

What we also used to do, this is contemplated in our plans, is we would price the best part of our portfolio slightly below 36%. If someone came back as a returning borrower, they would get the benefit of good performance by having lower pricing. We think not only does that maximize lifetime value because it allows us to go ahead and retain those individuals, but by marketing price points below 36%, it also changes the through-the-door population and the applicant quality that we see, so that way you see an overall benefit from a credit quality perspective. We think that part of the business, the pricing below the 36% is also accretive to the business. That's why we're so excited.

Although the benefits would be muted this year, we're very excited about this initiative, and I've got a ton of confidence in this leadership team's ability to execute the plan well, both this year and in future years.

Brendan McCarthy (Equity Research Analyst)

That's great. I appreciate the color there, Raul. That's all from me.

Raul Vazquez (CEO)

Thank you for the follow-up question, Brendan.

Operator (participant)

The next question comes from the line of Hal Goetsch with B. Riley Securities. Please proceed.

Hal Goetsch (Senior Managing Director and Head of FinTech and Financial)

Hey, Raul. Just wanted to thank you for your service to the company and to investors. Thank you very much. I think you had a tremendous run there from startup to a public company. Congratulations. You're gonna be missed. My question is, can you go into a little more detail on the expense reduction? You know, it seems like it was particularly good. You know, what did you see there that allowed you to do that this quarter? The follow-up question is, you know, what are the goals for maybe corporate debt reduction in 2024? Thanks.

Raul Vazquez (CEO)

Yeah. Let me start, Hal, by saying thank you for the very kind words. You know, shareholders are in great hands with this leadership team. Like I said, I've got a ton of confidence in them, but I appreciate your kind words. On the OpEx side, I'm gonna focus on the full year, right? Because

Hal Goetsch (Senior Managing Director and Head of FinTech and Financial)

Yeah.

Raul Vazquez (CEO)

The story really from a full year perspective was very compelling, right? OpEx was down $49 million or 12% on a year-over-year basis. Really what we saw were contributions almost across all areas, Hal. From a tech and facilities perspective, that's the largest part of our OpEx. That was down $24 million year-over-year or 14%. That's really efficiencies in our technology spend. It's really cutting, right, the size of that group so that that way also some of the charges that come over time with that also decrease. A lot of good work there. I know the tech team is gonna continue to look for opportunities, right? Both to get leaner as we continue to use AI, and that would be leaner through attrition just to be clear.

Also opportunities to try to figure out if we can lessen the number of contracts or just reduce the expense associated with some of the multi-year contracts that are coming up next year. On the personnel side, right, we've certainly gotten much leaner, as people know, over the years and reduced the size of head count. Personnel for the year was down about $7 million or 8%. G&A was down $19 million or 36%. Outsourcing was also down about $2 million. Really a ton of discipline and focus across all parts of the business. As I was answering the question in terms of OpEx earlier, right, those reductions still gave us an opportunity to self-fund some improvement or some increase in sales and marketing.

Sales and marketing for the year was up $4 million or 5%, right? The bulk of that investment was in the areas that we've talked about throughout the year, both direct mail and a really healthy customer referral program that we're very pleased with. That's really what the picture looked like for 2025, and we'll seek to do something similar in 2024. Right. It's obviously harder to continue to reduce some of those numbers at the same magnitude, but we'll continue to look for reductions across the areas I just mentioned, and then some modest investment in marketing.

Hal Goetsch (Senior Managing Director and Head of FinTech and Financial)

Perfect.

Raul Vazquez (CEO)

Remind me, I'm sorry, the second part of your, of your question?

Hal Goetsch (Senior Managing Director and Head of FinTech and Financial)

Oh, yeah. What would you have a goal for debt reduction this year after a tremendous, you know, last, you know, year and a half or so?

Raul Vazquez (CEO)

On the debt reduction side, from a capital allocation strategy perspective, our priorities are still, number one, fund profitable growth, number two, pay down the debt. In particular, the 15% interest rate corporate facility. We made a lot of progress last year. We did $70 million in payments last year, including thirty-seven and a half million. That does impact GAAP profitability because there are some repayment charges, so our GAAP net income would have been even higher if not for the $5.5 million or so of debt repayment charges in the quarter. We do have additional payments contemplated in the plan by quarter. We'll certainly talk more about those every time that we have an earnings call held. We'll give you an update on how much did we pay down, but the plan does include that.

In fact, GAAP net income would be even higher this year, if not for some of those debt repayment charges that we have to recognize. Yes, you'll continue to see us pay down that debt as aggressively as possible.

Hal Goetsch (Senior Managing Director and Head of FinTech and Financial)

Yeah. Thank you.

Raul Vazquez (CEO)

Thank you, Hal.

Operator (participant)

As a reminder, if you would like to ask a question, please press star one on your telephone keypad.

Raul Vazquez (CEO)

There appear to be no further questions. We wanna thank you once again for joining today's call. We appreciate your continued interest in Oportun. The team looks forward to speaking with you again soon. Thank you, everyone.

Operator (participant)

This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.