OppFi Inc. — Q3 2021 Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021. OppFi is a financial technology platform that enables bank partners to offer consumer installment loans, payroll-deductible loans and a credit card. The July 20, 2021 business combination created an Up-C structure: OppFi Inc. owned about 12.2% of OppFi-LLC at quarter-end, with the remaining 87.8% reflected as noncontrolling interests.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $92.0m | $62.8m | $254.6m | $198.7m |
| Net revenue | $72.9m | $44.9m | $201.8m | $135.9m |
| Income from operations | $11.5m | $19.3m | $53.9m | $61.4m |
| Net income | $30.4m | $19.3m | $72.8m | $61.4m |
| Net income attributable to OppFi Inc. | $14.1m | Not applicable before combination | $14.1m | Not applicable before combination |
- Q3 basic and diluted EPS attributable to OppFi Inc. was $1.06; nine-month EPS was $1.08. These figures reflect only the public-company portion of earnings after the combination, and are not directly comparable with pre-combination periods.
- Management’s non-GAAP adjusted net income was $17.4m for Q3, down 10.9% from $19.5m, and $54.4m for the first nine months, up 59.7%. Adjusted EBITDA was $31.8m for Q3, down 1.9%, and $96.4m for nine months, up 45.1%. These measures are not GAAP and include adjustments described in the filing.
- Reported Q3 net income included $6.4m from forgiveness of the PPP loan and $13.1m from a favorable change in warrant fair value. Operating income fell despite higher revenue, as expenses increased substantially.
- Q3 total revenue rose 46.6%; on the company’s adjusted-revenue basis, which removes the effect of prior-period origination-cost amortization, growth was 25.0%. Nine-month adjusted-revenue growth was 7.8%.
- Net originations grew 25.4% to $164.5m in Q3 and 22.5% to $408.4m for nine months. Ending receivables were $293.3m, up 22.1% year over year. Bank-partner originations represented 93.4% of Q3 originations versus 65.2% a year earlier.
- Average yield was 131.3% in Q3 versus 128.3%; annualized net charge-offs as a percentage of average receivables increased to 35.8% from 24.4%. For the first nine months, the rate fell to 31.4% from 37.3%, which management attributed partly to government stimulus effects.
- Cash from operations was $120.1m for nine months, compared with $143.4m in 2020. Investing used $110.0m, principally for receivables, and financing provided $1.0m. Cash, cash equivalents and restricted cash increased $11.1m to $56.8m.
- At September 30, unrestricted cash was $27.6m, restricted cash $29.2m, and total debt approximately $225.8m: $206.0m senior debt and $19.8m secured borrowing. The company reported $225.5m of undrawn debt capacity and approximately $490m of total funding capacity including cash.
- Total assets were $440.7m and total liabilities $302.2m. Stockholders’ equity including noncontrolling interest was $138.4m; OppFi Inc.’s own stockholders’ equity was negative $23.2m.
Material changes and accounting
- Effective January 1, 2021, OppFi elected the fair value option for its principal installment-loan portfolio. Receivables are valued using internal discounted-cash-flow models with significant unobservable inputs; changes in value are recorded in earnings. At quarter-end, $334.1m of receivables were carried at fair value, classified as Level 3.
- This election changed the presentation of credit losses and origination costs: installment-loan origination costs are expensed when incurred, while fair-value changes incorporate portfolio loss estimates. Consequently, reported revenue, provisions, expenses and earnings are not directly comparable with 2020 without the company’s pro forma or adjusted presentations.
- Senior debt increased from $131.7m at year-end 2020 to $206.0m, while total debt increased 42.8% to $225.8m. The $45m BMO facility was amended to include SalaryTap receivables; after quarter-end, the Atalaya facility was amended to support OppFi Card receivables.
- The company adopted CECL for SalaryTap and OppFi Card receivables, which remain at amortized cost. Those balances were $1.3m net of a $146,000 allowance at September 30.
Outlook, risks and contingencies
- No quantitative earnings or revenue guidance is provided. Management said unrestricted cash, unused debt capacity and operating cash flows should meet liquidity needs for at least 12 months from the report date; future requirements depend on growth, receivables, working capital and capital spending.
- Management said COVID-19 and government stimulus had slowed customer demand while supporting credit performance; it expected to continue monitoring pandemic effects. It attributed Q3 credit-loss normalization to a return toward pre-pandemic conditions.
- The company faces extensive consumer-finance regulation. It disclosed agency and state inquiries concerning lending compliance, the bank-partnership model and servicing bank-originated loans; outcomes were unknown. Management stated it believed its practices complied with applicable law. It reported no material pending or threatened legal action and no material additional reasonably possible losses beyond amounts accrued.
- Other risks include changes in consumer-credit performance, competition, growth and execution, bank-partner dependence, regulatory or legal changes, COVID-19 and stimulus effects, and the ability to meet debt covenants. Credit facilities are secured, include financial and operating covenants, and may permit acceleration following default.
- The tax receivable agreement requires payment to members of 90% of specified realized tax savings; a $22.9m liability was recorded. The company also reported $24.3m of deferred tax assets, whose realization depends on future taxable income.
- The filing identifies a previously reported material weakness related to SPAC warrant accounting inherited in the business combination. Management described remediation steps including formalized controls, additional accounting personnel and consultants, and concluded disclosure controls were effective as of September 30, 2021.
Important facts for investors to verify
- How sensitive fair-value receivable valuations and earnings are to default, prepayment, discount-rate and portfolio-life assumptions.
- Whether the Q3 increase in annualized charge-offs persists as stimulus effects fade, and how credit trends affect the receivables portfolio.
- How much reported and adjusted earnings depend on nonrecurring PPP forgiveness, warrant remeasurement and business-combination adjustments.
- Availability of debt capacity, covenant headroom, refinancing needs and the effect of secured borrowing costs on liquidity and growth.
- Developments in regulatory inquiries and the bank-partnership model, along with execution and credit performance of SalaryTap and the newly launched OppFi Card.
- The continuing effects of the Up-C ownership structure, noncontrolling interests, potential earnout units and the tax receivable agreement on per-share economics.