Findell Capital's Brian Finn on Oportun $OPRT

You're about to listen to the yet another value podcast with your host me, Andrew Walker. Today's episode, it is

Andrew Walker. Today's episode, it is episode number I think it's 320. I can't

believe we're already up to 320. I have

Brian Finn back on from Finnell Capital.

Brian's been on I believe this is his fourth time. He hasn't been on in a

fourth time. He hasn't been on in a couple years. He is look, he owns about

couple years. He is look, he owns about 10% of Opportune Financial. The ticker

there is OPRT. He's running a proxy fight. We came on to discuss why he's

fight. We came on to discuss why he's running a proxy fight. What's the

upside? He sees an opportunity and all of that. Obviously, he is very

of that. Obviously, he is very incentivized because he owns about 10% of the company. So, you should keep that disclosure in mind. You should do your own work. See our disclaimer, our full

own work. See our disclaimer, our full disclaimer at the end of the episode.

But look, I I think it's a really interesting thing. We talk corporate

interesting thing. We talk corporate governance. We talk opportune improving

governance. We talk opportune improving uh what the upside is, improving operations, all sorts of things. So,

hopefully you enjoy this episode. We're

going to get to the episode episode 320.

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All right. Hello and welcome to the yet another value podcast. I'm your host Andrew Walker with me today. I'm happy

to have it's either for the third or fourth time, but it's been a long time.

Brian Finn from Finnell Capital. Brian,

how's it going? Good. Thank you for having us on, Andrew. It is super excited to have you back on. Uh before

we get started, quick disclaimer.

Nothing on this podcast is investing advice. There's a full disclaimer at the

advice. There's a full disclaimer at the end of the episode. You can listen to that. But I'll also add Brian is we're

that. But I'll also add Brian is we're talking about Opportune Financial. The

ticker is OPRT. Uh Brian owns about 10% of the company and is running a proxy campaign there. So you should keep all

campaign there. So you should keep all of that in mind. Extra risk factors, extra disclosure, extra reason to do your own work. Think for yourself.

Nobody's trying to form a group or anything here. But uh all that out the

anything here. But uh all that out the way, Brian, I'd love to toss it over to you. We did two podcasts, uh way back in

you. We did two podcasts, uh way back in the day on Opportune. I I'd love to just for listeners who haven't been listening to me for four years quickly talk to you about what is Opportune, why are they so

interesting, and then we can kind of maybe dive into the proxy fight. Sure.

So, Opportune is a lending company. They

make uh small unsecured loans to uh underbanked people and they've had a target demographic of of uh Hispanics.

So they've got kiosks and stores and you know a lot of their materials are are in uh in Spanish. So they kind of meet these people where they are in their communities. and they've got an

communities. and they've got an incredible lending franchise uh that has really gotten messed up and

and destroyed by a management team and a a board that um you know is controlled by legacy board members none of whom have any lending experience who thought to try to turn this very

simple and and gem of a lending business into a fintech empire. So, you know, starting in uh you know, when they went public, they started to try to add all

of these these other verticals and they layered on all these costs and you saw a very simple business get um become very convoluted from a cost perspective and

from a focus perspective. And so, you know, I think we began our conversations two years ago. We've been involved in the company for uh you know, since March of 23. And when we first talked, you

of 23. And when we first talked, you know, we talked about putting out a public letter, um, which we did, uh, calling for this company to to massively reduce their their opex and to refocus

on the core business. And so we've been involved in the saga. The stock has has worked. It's gone from, uh, three to to

worked. It's gone from, uh, three to to seven. uh and we were able to get some

seven. uh and we were able to get some representation on the board last year, but we find ourselves involved in a further proxy battle as we we try to

make some very obvious improvements to the the governance here and to prevent the CEO Raul from from kind of having a an imperial control over over the the

board and the company given his uh his long history of making lots of strategic and operational mistakes or making decisions that we believe are

strategically and operationally. Um, I'm

laughing because you and I were recording this on June 12th and this morning the lead independent director who is retiring published a letter and it it had a lot in it but the whole

thing was this board is super focused.

We're committed. We've created great value. We've made great decisions. And I

value. We've made great decisions. And I

kind of want to be like, uh, you've been on the board since, you know, the beginning of time, since the mid20s when this was formed, and the stock is down 50% over that time, and there have been massive write offs, huge losses. And I

I'm not trying to lay it at any one person's feet. But, you know, it's hard

person's feet. But, you know, it's hard to say, oh, all these people are so committed when or like this is perfect.

There's no need for improvement here when every when when you've got this track record, if that makes sense. No, I

mean, it's incredible. you know, you've got these six legacy board members uh have all, you know, their their tenure

TSR is all, you know, like negative 75% for Jinny Lee and Sandra Smith, negative 60% for Joan Barefoot, Neil Williams, Lewis Marantes,

and Raul. And then the guys that we

and Raul. And then the guys that we brought on, Rich Tim Boore, Scott Parker, they have a positive TSR of, you know, Scott Parker is up 190% since he

joined the board. Rich Timbor is up 150%.

So it's clear that, you know, independent directors who have lending experience can drive a different outcome for this company. And the fact that this board is defending their track record is

is is incredible. I mean, they should have at least some humility to recognize that the company got way offkilter

and that it was really only brought sort of back to the the the the focus of what it should have been focused on, which is the core lending business after we began pushing them to and and kind of

embarrassing them a bit through our public letters and our intreaties. And

you know, we're not experts in in consumer lending and have never pretended to be, but we recognize there are people who are experts in the space and and that's why we made a big effort

to get some of them on the board. And

you know, frankly, there are just lots of obvious things that can be done even, you know, from an outsider perspective from someone like ourselves who don't necessarily have the lending experience, but but can see just how overall the

cost structure had gotten here. Um, you

know, I was just going over, uh, you know, and trying to formulate a response to to what these guys put out. Um, you

know, they claimed that that they had started making this pivot in early 2022 and that they had started down the pathway of of making cost cuts before we

got involved in 23.

And it's just it's it's a complete uh you know false retelling of of history here because if you look at if you look

at their conference calls you know in in November of 2022 Raul says uh quote so we feel that the organization

is right sized today. So we actually think that our posture on expenses is very sustainable. He says this when a

very sustainable. He says this when a company is operating with a $600 million OPEX which was quadruple what it was in 2016.

If you look at their loan volume from 2016 to 2023 their loan volume was actually lower in 2023 than it was in 2016 and their opex

had gone up several times. So it's just very clear from an outsider perspective that that these guys had massively bloated the cost structure here and you

know they're uh their their you know them getting religion on cost in early 23 you know was was very marginal. Um,

in early 23, these guys made an effort to cut expenses by 38 million on a 60 $600 million cost structure, which was dimminimous and and not at all what was

required to to rightsize uh the expenses here, which is why, you know, we pushed for a much much more aggressive cost reduction that uh that

March and, you know, they pushed back on it. They they didn't react all that

it. They they didn't react all that quickly. Um, and that's why the company,

quickly. Um, and that's why the company, you know, they did eventually start taking out costs, but it just took them a while and they had to massively dilute shareholders here. And it's just been

shareholders here. And it's just been like pulling teeth getting these guys to do the right thing on the expense side and to do the right thing on the governance side and to do the right thing on the

operation side in general. And it really wasn't until our directors came on the board in early 24 that we started to see a lot of these operating metrics

normalize and be kind of more in line with some of their competitors. And when

Scott Parker got on the board, uh you saw opex per loan get cut in half um in part to his efforts uh of identifying kind of the right cost structure that

they needed. And what did they do? What

they needed. And what did they do? What

did this board do? Well, they they they rather than negotiate with us and come to some sort of settlement to improve the governance here, they shrunk the board and kicked off Scott, who very

much, you know, was planning on on uh you know, running for for election in the the upcoming term. And this is but another example of this this company

with this uh bloated board of legacy director entrenching themselves. Let me

just jump in there, Brian. So, I I've got so many questions. I want to talk about the business, everything. But

look, I I have been a semi- student of corporate governance recently. And one

thing I thought they did was interesting was kick kick Scott Parker off, right?

And if you look like they file, one of the nice things about an activist fight is the company files a proxy that has their background of everything that they've interacted. And if you read

they've interacted. And if you read their background, uh, two things kind of jumped out to me when I was prepping for this podcast, and I'm by no means an expert in this, but they say, "Hey, Dindell Capital asked us, 10 board

members is too many." They asked us to shrink the board. And then a couple days later, Scott Parker, the guy you put on, who is the o, to my knowledge, I I could be wrong, pretty much the only director on here who the stock is positive under

his directorship. Uh, he meets with you

his directorship. Uh, he meets with you and discusses everything. And then a month later as this activist fight kind of gets ready, they shrink the board from 10 to eight and say we're giving Vindell what they want from 10 to eight.

And by the way, the director that uh Brian put on is one of the ones who's resigning as we shrink from 10 to 8. So

when I read that course, it was a little weird to me and I was kind of wondering, hey, this director who's had a positive experience, did he resign because he didn't want to be on the board? Like

what was the background there? I'd love

to just quickly address that.

He did not resign. Uh from everything that we can tell um no I mean he he was very much looking forward to running for uh for election. I mean he'd be on the

board for for a year. Uh and this was going to be his first opportunity to to run for election among and and be voted by by shareholders and have an opportunity to have shareholders vote on

his tenure.

Uh but this was a this was a defensive measure by this board. I mean, you have a board that uh you know, it's currently 10 people, six of whom are legacy members and four of whom are new

independent members, two of whom that we brought on and two of whom were brought on um through like a search firm in early 24. So, you've got four people

early 24. So, you've got four people there that are going to, you know, basically act in the interest of shareholders and six people who are going to act in the interest of entrenching themselves and management.

We believe this. Um, and at least their actions have shown so far that that's what they've been been doing. So, you

know, until until the board dynamics change, until you have an even number of legacy and independent directors, the legacy directors can dictate things. And

Neil Williams had told us that he was planning on stepping down. So, that

takes the board from from 10 to 9. We

asked for them to reduce the board by a further person, by one of the other legacy directors, uh, none of whom will have lending experience.

you know, who've overseen massive shareholder destruction. We've spoken to

shareholder destruction. We've spoken to some of these these uh directors, like we've spoken to Jenny Lee several times on calls, and she is just completely clueless about this business. Appears to

us to be completely clueless about this business. Uh she's just a deer in

business. Uh she's just a deer in headlights.

Uh you know, so she really has no business being on this board at all. And

she and the other directors, you know, they've been on the board for in some case over a decade. They have over subsequent votes uh you know they've not received a lot of shareholder support.

Jenny Lee would have not been reelected to this board had we not had a cooperation agreement with the company.

Joanne Barefoot and Sander Smith uh in the case of Joan Barefoot she lost uh she had more withhold votes for her than four votes which under normal corporate governance rules would would deny her a

board seat but you know under opportunes governance rules at the time she was allowed to keep her board seat. In

Sander Smith, it was basically tied between withhold and four votes. So, you

have a board of legacy directors who, from what I can tell, appear to all be retired. None of whom have any lending

retired. None of whom have any lending experience. This is a nice gig for them

experience. This is a nice gig for them to have. They're going to do everything

to have. They're going to do everything they can to uh to stay on this board, and that's what their actions have shown so far. So, you know, getting rid of a

so far. So, you know, getting rid of a very competent board member like Scott who has real lending experience, who's been the CFO of three publicly traded companies, including OMF, which is the

best-in-class competitor in this space.

You know, it that's a survival tactic for them um to shrink the board and and get rid of a very competent guy like that. It does nothing to help

that. It does nothing to help shareholders. Uh it does nothing to help

shareholders. Uh it does nothing to help keep management accountable. And they

did this at a time when uh the company, you know, does not have a permanent CFO.

And this is a guy who's been the CFO of three publicly traded companies. So, I I think and we've gotten lots of feedback from other shareholders that this was a very egregious action that they took.

Um, and you know, we hope that shareholders appreciate that and vote um to uh to to to put Warren on the board

uh you know, and so that this board can have, you know, can show these legacy directors that this is not this is not a free gig for them. that they actually have to abide by their fiduciary

responsibilities and this can't just be a company that's imperily controlled by Raul and a bunch of legacy directors that he is friends with and who he has long histories with.

Um, so that's the purpose of this if I can jump like you know it reminds me of do you know the hot dog meme where it's the guy in the hot dog suit and he's like we're all trying to find the guy who did did this and if you've seen the

video it's cuz there's a hot dog truck that's drove driven through a uh store. But like insane. Yeah. This a lot

store. But like insane. Yeah. This a lot of this reminds me of like like just the push back on you reminds me of we're all trying to find the guy who did this.

Like look, this company in the late 2010s, it really focused on growth.

Expenses got out of hand. Uh like, yeah, you know, things made a mistake, but we're really turning around now. It's

like, hey, legacy board members, CEO, like you're all trying to find the guy who did this. you were in charge when all of these mistakes that you're kind of criticized and insane are in the past happened. And you know, I I want to talk

happened. And you know, I I want to talk about the financing. Like you were in charge when the company got so over its skis that last year they have to dilute shareholders at 10% of the equity with

penny warrants in order to get a 15% term loan. Like you were in charge. That

term loan. Like you were in charge. That

falls at your feet. And it's kind of crazy to me that they I'm not saying that anyone any 10% shareholder should be given 100% of the board, but it's kind of crazy to me that they they're

out here saying, "Hey, there's no change needed. This board's so engaged, so

needed. This board's so engaged, so sharp, so on top of things. Our largest

shareholder like just wants to replace."

It's crazy. The the other thing, if I can continue my rant, you keep mentioning the legacy directors, and I won't call anyone out by name, but my favorite thing to do is go look at the beneficial ownership table in a proxy,

and you see all these directors who've been along for 10 years, and you know, they're getting paid 55,000 a year in cash, 100,000 a year in stock options, and you look at their beneficial ownership, and their actual stock

ownership is, you know, maybe 2x what they're getting paid in cash. like hey

if if you had just let all those options best and held on to the stock like you've never come out of your pocket on this you're 75 you 7570 you don't have any other public directorships like this is your retirement pension to you you're

not here to create your value you're here to go to one board meeting a month and to collect a paycheck so I've rambled a lot I want to talk about opportunes business in a second but I'll just turn anything I rambled on you want

to comment on please go ahead no I think I think you know as an outsider who's just kind of reading the prox And I don't know if you're shoulder or not, but like, you know, you hit the nail on the head. I mean, this is all

very very obvious stuff to to somebody who's just looking at this from the outside in of what's going on here. You

know, just as it was obvious to us two years ago when we got engaged and what was happening. Um, so this isn't rocket

was happening. Um, so this isn't rocket science. I think shareholders,

science. I think shareholders, you know, every shareholder and stakeholder that we've talked to gets it. uh gets what's happening here, gets

it. uh gets what's happening here, gets that these are people, you know, trying to protect their self-interest. And

look, they're going to use, you know, they've got lots of resources. They they

can spend a lot of money on on a proxy advisor. They can spend a lot of money

advisor. They can spend a lot of money on lawyers and they can they can, you know, create write letters and create documents that that make it seem like, oh, we're really doing our fiduciary

duty here. But the track record speaks

duty here. But the track record speaks for itself and their own behavior speaks for itself and the facts are are just blatantly, you know, you know, clear

here of how the business was, you know, under their stewardship and how it's changed, you know, with our in treaties and how it's changed even further with having some board members here who have lending experience. And, you know, we

lending experience. And, you know, we didn't want to be in a proxy fight.

Like, proxy fights are not fun. It's

it's a it's a big suck on time. It's a

big suck on energy and you know it's a stressful thing to have to do to have to uh you know engage with a company like this. Um and when we went to them we

this. Um and when we went to them we went to them with a very simple request you know we basically said hey look you guys you have a board it's a huge board

it's 10 people on a you know small micro cap you know not quite micro cap but a small cap company. You need to at the very least have some board members who

have lending experience in positions of board leadership either as the lead director or as head of certain committees etc. because you've got a bunch of clueless, you know, and I apologize for saying this, but like

woodchucks that are like little woodchucks, uh, these these board members who, uh, you know, don't have any experience in lending, don't even have particularly impressive resumes,

um, from from our perspective.

Like, I guess I apologize for using that pjorative. Maybe I won't call them wood

pjorative. Maybe I won't call them wood chucks, but these are people with not a lot of of experience. And you know, we we uh we just went to them and asked,

"Hey, look, can you guys put some people with lending experience in positions of power and they wouldn't do that. You

know, they flat out refused." And then it was like, "Hey, why don't you guys reduce the board from 10 to 8?" And what did they do? you know, well, they had one guy already retiring, a Neil, and they they kicked off the guy with the most amount of lending experience and

the most amount, you know, who had been the CFO of three publicly traded companies, which is just an enormous, you know, um, you know,

uh, selling off me. Yeah. Crazy. You have

your largest shareholder, you put a director on the board, the company, maybe one d one director isn't responsible for everything, but the company finally like starts kind of getting its feet under it. the stock's

working, the things are turning around, and then you you kick him off the board.

It's crazy to me. But let me let me switch tracks. I I wanted to have you on

switch tracks. I I wanted to have you on because I I've been into this corporate governance kick, too, and I wanted to support somebody who uh you know, I think owns a lot of the company and is kind of fighting the good fight here, but you said it earlier, like you're

doing this at a higher level than me, but engaging a with a company, it takes time, it takes energy, it's frustrating, you're running a proxy, it's costly. Uh

most of my listeners are here for they want to hear smart value investors talk about stock ideas. So I want to ask you opportunity like you run Vindel Files of 13F people can go look at it. you run

with it's not a handful of companies it's two handfuls of companies that you own right I I want to ask opportunity you know as we're sitting here today talking it why is this an opportunity

right why is this an opportunity worth investing in or even worth this why is this an opportunity worth you taking out all this time and energy to kind of change the board because I think a lot of people are going to look at and say

hey you've got a subprime lender they're trading for a little bit under book value once you account for these penny warrant dilutions and stuff like what's the point? What's the alpha? Why are we

the point? What's the alpha? Why are we really fighting here? What are we playing for? No, that's a good question.

playing for? No, that's a good question.

Um, you know, and and and the answer is because there's there's enormous upside um if this company's operated optimally.

We think uh you know in general the companies can perform better regardless because some of the macro tailwinds um you know their their interest costs are coming down their net charge offs are

coming down like they've you know through the help of Scott and Rich they've been able to kind of bend the curve there on the net charge off side.

Um but let me just take a step back and try to explain this business from a a unit economic perspective.

And this is how we tried to, you know, when we started initially engaging with these guys, we really tried to have them focus on the unit economics, you know, forget about because they were using all these crazy metrics. They were using like adjusted EBA. And I was like, no,

look, you have a lending business. You

got to think about it like a lending business. And for a small consumer

business. And for a small consumer lending company, you really have you have four line items. You've got the interest rate you're charging, sort of, you know, your financing fee, your your

your interest income. you've got uh the the

interest income. you've got uh the the money that it costs to run the business, you know, the opex uh ratio,

the money that it costs to borrow to to give the loans, and then your net charge offs. So, the first amount, you know, if

offs. So, the first amount, you know, if you deduct the other three amounts needs to be, you know, uh some positive number, and that's your

ROA. Fingers crossed. I've seen a lot of

ROA. Fingers crossed. I've seen a lot of companies that haven't managed to pull that off. Right. So,

that off. Right. So,

what was interesting about our engagement here is, you know, when we first started to try to address the company this way, you know, the lead director, Neil Williams, really, he had no idea what the OPEX ratio was. Uh, he

had no idea what some of these metrics were. You think the lead director would

were. You think the lead director would really have all of this kind of firmly understood and memorized, but they they were trying to become a fintech company.

They were trying to think about things in from a totally different perspective.

They were trying to argue about, you know, them being a big adjusted Eva grower. And it's like, no, you got to

grower. And it's like, no, you got to focus on ROA and the ROA of this business, um, if run correctly could be 8 to 10%.

And if you take that and apply it to a roughly $3 billion loan book, their loan book's a little bit lower than that at the moment, but, you know, $3 billion is kind of where they were a year or two

ago, so we'll just use $3 billion.

And you apply 10% to $3 billion. That's

$300 million worth of pre-tax income.

And this is a company right now with, you know, a fully diluted market cap, you know, a little bit above that. Let

let me pause you there. So that that is in your approximate balance 8 to 10%.

It's you were mentioning you said it's pre-tax ROA, right? And when I read that, two things jumped out to me. Um 8

to 10% ROA on even even if it's pre-tax is high for a lending business. I mean,

it's really high. I I'm not super aware, especially this company can securitize.

I'm not super aware of companies that are securitizing and doing like 8 to 10% ROAs on lending businesses. I'm I'm sure they're out there, but it's very high.

And as a spot check on that, one main, which reports return on assets. Now,

theirs are taxed, but uh not pre-tax, but you know, when I look at one main, I think they report ROA so far in 20 in 2024, it was like 2%.

uh it's generally tren trended around 3%. It's an after tax number. They did

3%. It's an after tax number. They did

hit 6% in 2021, but I look at that and I say, okay, adjusted for taxes, you're kind of talking in the high threes to low fours. So, what is it about

low fours. So, what is it about Opportune that can let them do 8 to 10% pre-tax ROA because it just seems very high to me. Yeah. So, um,

they have this like this very interesting niche and this moat where they're appealing to a group that, um, you know, they've got a ton of data on underbanked Hispanics. And this is a

underbanked Hispanics. And this is a pretty unique demographic, um, in that, you know, they often don't have, uh, you know, they're they have a different language,

uh, and they're they're not familiar with kind of normal credit institutions.

And as a cohort, they actually overperform. They tend to do much better

overperform. They tend to do much better um you know, when it comes to to to paying back loans than other cohorts that are similarly kind of in a more

distressed situation.

I don't know if that's due to cultural factors or what, but but they tend to uh just generally, you know, not want to carry a lot of debt and um when they get a loan, they tend to pay it back. So,

they're in this like incredible niche where they they've really got the perfect consumer um to appeal to and they have uh you know, they meet the

consumer where they are and they've got this this uh this growing demographic, etc., etc. So, I could I could spend a lot of time kind of waxing about why

it's it's a great, you know, group and uh you know, great customer base.

they're able to charge a thousand basis points more than OMF.

So, you know, I think OMF is like mid20s. These guys can charge uh you

mid20s. These guys can charge uh you know, in the mid-30s. And one of the things that we're arguing for is that they should uh get rid of their interest rate cap and go a little bit higher than

36%.

Because if you look at this group, uh their alternative to uh to to to using Opportune is to go to a payday lender.

And what opportune represents is a way for these people to establish a credit score um at a pretty reasonable rate relative to the alternative options. And you can do this a couple of times and then you

can end up you know getting a credit card or you know being part of the the the more traditionally banked universe of customers.

So it's a great customer base. They can

charge them a much higher interest rate uh than OMF can. The issue here has been their opex ratio. OMF is at like a 7%

opex ratio and Opportune has been as high as 20. They need to reduce that and the net charge offs got too high. You

know, this is a business that could do net charge offs of, you know, 8 to 10%.

Um, and they've gotten, you know, as high as 12, 13, 14%. So

where we think there's an opportunity here um and how we get to that that 8 to 10% number

uh is you know you start out with pull up the chart here.

So you remove the interest rate cap and you're able to charge an an extra 250 basis points in in APR.

um that gets you to if I can just on the interest rate cap a I think it's so I think it speaks really highly to your due diligence spotting that and thinking through it. I don't think there's any

through it. I don't think there's any person who listens to an investing podcast who's going to argue against like look interest rate caps it sounds nice we're not going to charge our people more than 36%. It's the it's the same with rent controls and stuff like

it creates all sorts of tack on issues especially here as you said you go to a payday lender and you can get a 100% interest rate or these guys are capping themselves at 36. If there's nothing in between that's a huge issue right

because there's loans you could profitably make and that people will take at 50%. And you're rejecting them.

It's like you're impacting your ability to profit grow. It's just so silly. And

I love that you were pointing this out pointing this out because it's uh it's a silly policy in my opinion. I I don't know why a bank I mean maybe a JP Morgan would have it because they're worried regulators are going to come shut them down and impact their entire franchise

but a small cap company to just self-impose a 36 look I'm no expert in consumer lending but it was silly to me and I thought it just spoke really well to your due

diligence to point this out and point out uh how crazy it was. Yeah. In

opportunities on materials, they have um they they lay out the cost to borrow $1,500 and what the you know through the different channels. So, an online only

different channels. So, an online only payday lender, it costs you $3,500 to to borrow $1,500.

Installment lending uh or rent or uh yeah, installment lending is $1,000.

Opportunity is at $500. Yep. So, it's

like, you know, you're talking about going from 500 to maybe, you know, 530 or 540 or 550.

and that opens up a whole other spectrum of borrowers here. Um, and you know, you're getting more margin. So, it's a win for the customers and it's a win for

you. Uh, you know, I'm not saying that

you. Uh, you know, I'm not saying that all of their loans need to go above 36%.

You don't hit them with 40%, but you shouldn't be turning down people who you could profitably lend to at 42% just because you've got a self-imposed cap.

Uh, I I want to talk financing real quick. And I I want to talk that in two

quick. And I I want to talk that in two ways. First, I'd love to talk

ways. First, I'd love to talk securization. I mean, the company just

securization. I mean, the company just did a big securization. Uh this is June 5th. They do a 440 million securization,

5th. They do a 440 million securization, 5.67% annual yield. Like really great secondization so far this year. I'd love

to talk about what the securization market is telling you about their loans, their business, all that sort of stuff.

And then I have uh kind of a harder question on the October financing.

Yeah, I mean the it's it's heartening to see that there's that their uh you know their cost of financing has come down here and I think that was a real risk um you know in the darker days a year and a

half ago was that you know what if what if the financing markets freeze up for them um given the sort of situation that they were in and you know I think through having the experience of Rich

and and Scott on the board and Carlos as well uh that they've been able to to to you know get better deals with these uh you know these different lending

facilities and and the cost of financing has come down a lot. I mean that's 200 basis points over their prior financing and you apply that out over a again a $3

billion loan book. That's that's a fair amount of of uh margin there. And this

was a 500 million deal. So you know 500 million uh 2% spread that's 10 million interest rate saved. It's financing a sixth of their book 10 million on this is a 250 300 million mark company like

that that is a big huge and that's why you know I think our point here is I I think the business is going to work

regardless uh going forward you know due to the changes that we've advocated for due to the presence of some people now that have lending experience um our our concern though is is the

long-term existential risk of having the legacy board members, you know, essentially uh give Raul sort of imperial powers and, you know, they've

shown no ability to provide oversight to him and Raul obviously kind of left to his own devices, can't seem to help himself and and make lots of um what considered strategic and

operational decisions. And if you had

operational decisions. And if you had better oversight um or you had better management, you could drive this business to that 8 to 10% ROA target. You know, they don't

have to get to 8 to 10% for this to be a massive home run of a stock. You know,

that's that's kind of a you what we outlined in our presentation is that's that's a conceivable target here from a you know, you know, boosting

boosting the APR by 2 and a half%. you

know, a slight reduction in the cost of funds, uh, you know, getting the OPEX ratio further reduced from where it is today.

Um, and if you can if you can get anywhere close to that, you know, you're looking at a business that's just throwing off a ton of cash.

Let me let me ask so on the one hand, I see the ABS financings are getting better and better. They they've as got accessization market. I'd love to talk

accessization market. I'd love to talk about the financing in October. So this

is the financing from for people who are listening October 29th, 2024. They do a big financing with uh I believe it's Newberger and one and Castle Lake uh big

term loan at a 15% interest rate and alongside that they have to give the lenders basically 10% of the company in penny warrants in order to get this term loan. So like I kind of see on one hand

loan. So like I kind of see on one hand I see a company, you know, full access to the ABS markets, interest rates improving, all that sort of stuff. On

the other hand, I see a company that, hey, last October had to do one of the more distressed financing I've seen. You

know, hugely dilutive. I think it speaks poorly to a lot. Uh, you know, if I was voting for the board of directors, just that financing alone would be like, "Hey, you you really got over your skis.

You've got a lot of explaining." But I I'd love to speak about like what you what happened with that October financing scheme that led to it and why you don't think, you know, if I said, "Hey, this business needs to pay 15% plus 10% of the company in penny

warrants," you'd say, "Oh, this is a business that's in true distress. it's

not a great business. So, I'd love to talk about what happened there and why you don't think it's kind of reflective of the business as is.

I guess to start um I'm just pulling up a slide here. Uh to to start, you know, these guys uh you know, they had to do a financing

in in uh Q1 of of of 23 of 23. Um and they they you know they kind of did a good

job of sort of disguising it. This was

to Newberger and that also involved uh warrants and delution and they needed to to basically kind of take out that financing through a new

financing. I do think that you know it

financing. I do think that you know it was a great deal for Newberger and Castle Lake and you know the the the loan is being quickly paid down and the

company's in a much much better position today. Uh so you know it's terrible that

today. Uh so you know it's terrible that they had that that you know you have a management team that that's had to do these these these types of financing deals. Uh you know it's great obviously

deals. Uh you know it's great obviously for the the creditors. Um but you know it just kind of shows the degree to which the the company had been uh you know the legacy board and the the

management team had mismanaged this thing to the point where it needed this type of capital to to keep the business going. But I think the good news is

going. But I think the good news is that, you know, that that term loan should hopefully be paid off here um or refinanced at a much lower rate, you

know, um over the next couple of quarters. And then the company's able to

quarters. And then the company's able to produce a ton of a ton of cash going forward as they get, you know, to that mid to high uh single digit ROA. One

thing I I like almost wanted to throw my computer out the window. I'm looking at the slide right now. It It's slide five of the October deck. And they say, "Hey, great news on this financing. Uh, our

current home loan was 17%. And we're

going to be paying about 15% on this term loan, right?" And I almost wanted to throw my computer out the window.

It's like, "Hey, you had to dilute yourself by 10% with penny warrants." I

think the stock was I I can't remember what it was at the time, but you're giving away millions and millions of dollars to the lender with this uh with this loan, and you're just pretending

that cost doesn't exist. And like when I've seen people in my mind that's a company that they think their stock is funny money, you know, they they don't care about the shareholders. They don't

care about shareholder returns. They

gave away 10% of the company. Whatever.

We got a 15% interest rate. We gave away free money there. You've

Yeah. I mean, look, I I just think it kind of speaks to the positioning and the motivation of of these legacy board members and of Raul, you know, which is, hey, we you know, this is a nice gravy train. we're just going to keep riding

train. we're just going to keep riding it. Yes, that's what we believe their

it. Yes, that's what we believe their position has been. Um, and not let's try to drive this to the highest possible, you know, ROA. Uh again, it's getting

there, you know, because of of some of these changes that we've made. But

there's just such an enormous upside here if if uh we believe there's such enormous upside if if uh you know, if you if you really increase the oversight

and if you had more capable, competent people kind of driving the direction from above. Let me let me switch. Uh, so

from above. Let me let me switch. Uh, so

as you guys talk, I again, you if anybody's looking at this, you need to look at the book value and adjust for the penny warrants that they issued. So

I I think book value is around $8 per share right now. Let me lay out an upside case. $8 per share, $1.50 in

upside case. $8 per share, $1.50 in earnings over the next 12 months. I

think the gap earnings might be a little bit lower, but let's just let's say a $150. So that gets you to about a 950

$150. So that gets you to about a 950 stock price. One main or sorry 950 book

stock price. One main or sorry 950 book value. One main trades for about two

value. One main trades for about two times book. You've laid out reasons why

times book. You've laid out reasons why you think the return on assets here might be higher than one main. But would

I be crazy if I said, "Hey, the upside Brian's kind of playing for in a well put together opportune is 950 in book 12 months out trading for approaching 10 two times book. You're talking about a

$19 stock price versus seven today.

Would that be a fair way of framing it?

Or do you think there's other ways that either result in a value higher or lower?" No, we believe that's that's

lower?" No, we believe that's that's that's that's pretty accurate. I mean,

there's a bunch of different ways you can kind of slice this. Um, but we we certainly think that it should be trading above above book value and the fact that it's not just kind of speaks to the lack of confidence that folks

have in this board and in in Raul. And

if you had, you know, again, better oversight um driving the company here and you didn't have a bunch of legacy board directors controlling the show, you know, we think there'd be a lot more

shareholder interest. Uh when you look

shareholder interest. Uh when you look at uh when you look at just read their Q1 results and they say hey our ROE was 11% our adjusted ROE was 21%. A big

piece of that breakdown is the advertising the ABS, which I'm not sure how real or not that is, but either one.

When I was like, oh, you've got a double digit ROE, like let's call it teens on a run rate basis, and it's trading below book like one of those two don't belong together, you know? So, yeah, it just

speaks it speaks to people's, you know, kind of credul um or incredility.

I agreed. Uh I think we've covered most of my questions. Again, I I wanted to talk about the business a little bit, but I I I just think you're, you know, I I've become increasingly disillusioned with this and I I really happy even though we don't have a position, really

happy to help you kind of lay out the case and drum up some support here.

Anything else we should be talking about on Opportune? No, look, I mean, I didn't

on Opportune? No, look, I mean, I didn't I didn't mention Warren at all. Um, you

know Warren's Warren, just for people listening, this is the director who Brian's nominating to kind of replace the CEO on the board.

Exactly. Yeah. So, so, so Warren, you know, uh, has an incredible amount of experience in consumer lending. Um, you

know, super senior guy, you know, again, exist totally independent from Fendel, just as as Scott and Rich have existed independent from us. You know, these are all people. It's like, I've never met

all people. It's like, I've never met any of these people. These are just people that have great resumes that have a lot of experience in the space. And

it's kind of like, look, you know, these are my high level thoughts, but you know the business way better than I do. You

know, just go in there and serve shareholders. uh do the right thing by

shareholders. uh do the right thing by shareholders. You know, you don't have

shareholders. You know, you don't have any personal loyalties to anybody on this board or to the management team.

You don't have any, you know, uh sort of loyalties to decisions that were made in the past, you know, so you're not wedded to to some cost structure or

some view of how how things uh should work. You know, you're going to approach

work. You know, you're going to approach this from like a first principles basis.

You know, we know this is a great lending business. We know this. They

lending business. We know this. They

have a great moat. they've got a great niche, they serve a great cause, you know, go in there and and and do right by shareholders. And that's been, you

by shareholders. And that's been, you know, again, if if if I if the board members came in there and and they and you know, they had entirely different

views from mine, you know, seeing it from the inside, then I would defer to them because I I'm not sitting on the board. Um I'm not privy to a lot of the

board. Um I'm not privy to a lot of the the information that they have. But I

think it's so important for boards to be composed of people that have experience in the industry. And it's crazy that that Opportune has no one on the legacy board who had any experience in lending.

And like that's your business. So you

got to have people that know lending.

Lending is a very different type of business than tech, you know, or retail or accounting, which is where all the legacy board members come from, or nonprofit.

Uh, you know, funding businesses are valued differently. They have different

valued differently. They have different risks etc. So, you got to have people with lending experience, um, you know, in positions of power on the board, especially in a

situation like Opportune where you had a CEO that just went so far off the reservation for a number of years.

You've hit the nail on the head. Like,

you've got people who have no non- lending experience and opportune got in trouble. What's the scariest thing for

trouble. What's the scariest thing for an investor? A fast growing lending

an investor? A fast growing lending business. And you had a lot of people

business. And you had a lot of people without lending experience. In my

opinion, that's where you get into you have an empire builder. People without

lending experience grow, grow, grow, grow, grow. Oh gosh, 3 years from now,

grow, grow. Oh gosh, 3 years from now, the chickens come home to roost because that's what that's when it the lending business that's growing quickly. That's

when it comes home to roost. In three

years, when the growth just starts to slow. So, I I think you identified all

slow. So, I I think you identified all the issues there.

Yeah, I appreciate it. And I I apologize for uh you know, I don't mean to use pjoratives on this on this podcast. I

don't think I don't think I don't uh you know the the the legacy directors are all you know I'm sure they're all perfectly nice kind people you know have nothing against them personally but I I

do take issue with their uh their attempts to entrench themselves and you know the lack of uh uh care that they've shown towards

towards their their own duties and to towards shareholders and it's it's the incentive system man they they don't own any stock uh probably me with CEO bought any stock. I mean, uh, you know, I think

any stock. I mean, uh, you know, I think Neil won a little bit to to make a point, but throughout the history of this, none of these board members have been buying stock. It's I mean, I see it

all the time in the biotech world. It's

a pension for them. It's a pension. And

yeah, they don't want to like drive to the ground. They'd rather be successful,

the ground. They'd rather be successful, but if they burp in the boardroom, they're going to get catalout. So,

they're just not going to burp and they're going to collect their pension.

And, you know, shareholders be damned.

Uh Brian Finn, look, I should also note Vindell has published several several letters. If you're in oppoortune, if

letters. If you're in oppoortune, if you're interested in learning more, if you're interested, I I won't say it on the podcast, but they've published several letters. Uh the Fendel email is

several letters. Uh the Fendel email is on the bottom of the lenders, you should reach out to them if you want to talk about it or if you've got questions, if you're considering going one way or the other, you should reach out and discuss it because, you know, this is a staggered board. The director you choose

staggered board. The director you choose now is going to be serving for the next three years. So, uh, you should weigh

three years. So, uh, you should weigh your vote very, very carefully. And

Brian, you only run a handful of stocks, but, uh, we've got an embarrassing amount of overlap. I'm not going to mention any cuz then we'd have to disclose long or short. But, uh, I know if you've got 12, I know eight of them

very well and three of them pretty well.

So, we're going to have to have you back on uh, again with a much shorter gap between appearances than the last time.

Perfect. Thank you guys. A quick

disclaimer, nothing on this podcast should be considered investment advice.

Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work

this podcast. Please do your own work and consult a financial adviser. Thanks.