OppFi Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. OppFi is a digital specialty-finance platform, primarily facilitating installment loans through bank partners under its OppLoans product. SalaryTap and OppFi Card contributed only immaterially to the quarter. The company uses an Up-C structure; OppFi Inc. owned approximately 13.9% of OppFi-LLC at quarter-end.
Key financial results
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $120.4 million | $100.7 million; up 19.5% |
| Net revenue | $57.2 million | $50.7 million; up 12.7% |
| Operating income (loss) | $3.7 million | $(2.2) million |
| Consolidated net income (loss) | $3.9 million | $(0.3) million |
| Net income attributable to OppFi Inc. | $0.3 million; diluted EPS $0.02 | $1.1 million; basic EPS $0.08 |
| Adjusted net income / Adjusted EBITDA* | $4.4 million / $20.1 million | $0.6 million / $11.3 million |
| Operating cash flow | $65.6 million | $44.7 million |
| Cash and restricted cash at quarter-end | $71.4 million | $49.7 million at Dec. 31, 2022 |
| Total debt at quarter-end | $331.6 million | $347.1 million at Dec. 31, 2022 |
Profitability and credit metrics: Expenses were $53.5 million, up 1.1% year over year; expenses as a share of total revenue fell to 44.4% from 52.5%. Interest expense and debt issuance cost amortization rose 52.7% to $11.4 million. Annualized average yield increased to 126.3% from 119.9%; annualized net charge-offs as a percentage of average receivables increased to 61.8% from 55.8%.
Portfolio and originations: Net originations were $159.6 million, down 1.9%; ending receivables were $370.2 million, up 9.4% from a year earlier. Bank partners represented 95.2% of net originations, versus 94.5%. Receivables carried at fair value were $417.5 million, down 8.7% from year-end.
Cash flow and liquidity: Investing activities used $28.3 million, including $155.5 million of originations/acquisitions and $129.3 million of repayments. Financing activities used $15.6 million, primarily reflecting net debt repayments. Quarter-end unrestricted cash was $32.2 million, with $143.4 million of undrawn debt capacity and $475.0 million of total financing commitments. Management stated these resources and operating cash flows should meet liquidity needs for at least 12 months from the filing date.
Material changes and management commentary
- Revenue growth reflected higher receivables throughout the quarter and stronger payment activity. Net income improved year over year, although earnings attributable to OppFi Inc. declined, in part reflecting the Up-C ownership structure and related noncontrolling interests.
- Management said tighter credit standards, lower qualified application rates, and reduced marketing spend restrained originations. New loans declined to 44.1% of net originations from 52.7%.
- Management attributed elevated charge-offs to inflation and losses on lower-quality loans originated before credit adjustments made in 2022. Higher yield was attributed to fewer delinquent non-accruing loans, less hardship-program enrollment, and a shift in loan mix.
- In May 2023, after quarter-end, OppFi decided to wind down OppFi Card. The filing states Card receivables would no longer qualify as held for sale after the decision; Card had not contributed meaningfully to Q1 results.
- Debt declined by $15.5 million from year-end, including lower revolving-line utilization and repayment of a secured borrowing and note payable. On February 16, 2023, the secured borrowing was repaid; $0.1 million was forgiven. Several facilities bear floating rates, generally at SOFR plus spreads; the $50 million term loan was priced at LIBOR plus 10% and matures in March 2025.
Risks, contingencies, and unusual items
- California regulatory litigation: OppFi is contesting the application of California interest-rate caps to loans originated by its bank partners. The Commissioner filed a preliminary-injunction motion in January 2023 seeking to restrict services related to loans above the state caps. The outcome is unknown and could affect the bank-partnership model and lending in California.
- The company disclosed inquiries from agencies and states concerning lending compliance, the bank-partnership model, and servicing bank-originated loans; outcomes remain unknown. Management said it believes its practices comply with applicable law.
- Disclosure controls were not effective as of March 31, 2023 because of a previously identified material weakness in IT general controls, including user access and segregation-of-duties controls. Management described a remediation plan but said remediation is not complete.
- Fair-value accounting is significant: OppLoans receivables are valued using internally developed discounted-cash-flow models with unobservable assumptions. Q1 fair-value changes and net charge-offs totaled $63.1 million, versus $49.5 million a year earlier; net charge-offs were $58.8 million.
- GAAP consolidated net income was $3.9 million, but only $0.3 million was attributable to OppFi Inc. Non-GAAP Adjusted EPS was $0.05, compared with GAAP diluted EPS of $0.02. Non-GAAP measures are not substitutes for GAAP results.
- No specific financial guidance for future periods was provided. Management’s forward-looking statements are subject to economic, credit-market, regulatory, bank-partner, funding, and internal-control risks.
*Non-GAAP: Adjusted net income, Adjusted EBITDA, and Adjusted EPS are company-defined measures; review the filing’s reconciliations and adjustments when comparing them with GAAP performance.
Most important facts for investors to verify
- Progress and outcome of the California case, regulatory inquiries, and any resulting effect on bank-partner lending, particularly in California.
- Charge-off and delinquency trends, credit performance of newer versus legacy vintages, and the assumptions underlying fair values of receivables.
- Remediation and independent testing of the material weakness in IT access controls and whether disclosure controls become effective.
- Liquidity and borrowing availability under the warehouse facilities, floating-rate exposure, facility covenants and maturities, and the ability to fund receivables if credit or capital markets tighten.
- Costs and financial effects of winding down OppFi Card, along with the company’s plan for the remaining portfolio and held-for-sale classification.
- Reconciliation of consolidated earnings to earnings attributable to OppFi Inc., and the treatment of the substantial noncontrolling ownership and potential dilution in per-share measures.