OppFi Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited consolidated results; amounts below are in U.S. dollars. OppFi is a digital specialty-finance platform, primarily facilitating OppLoans installment loans through bank partners. The company reported one operating segment. SalaryTap and OppFi Card did not contribute meaningfully to results; management said it was winding down both businesses, and specifically discontinued marketing OppFi Card receivables for sale.
Financial and operating highlights
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $122.5 million | $107.9 million | $242.9 million | $208.6 million |
| Net revenue | $74.6 million | $65.2 million | $131.8 million | $115.9 million |
| Income from operations | $18.3 million | $6.4 million | $22.1 million | $4.2 million |
| Consolidated net income | $18.1 million | $9.5 million | $22.0 million | $9.2 million |
| Net income attributable to OppFi Inc. | $2.1 million | $3.5 million | $2.4 million | $4.5 million |
| GAAP basic EPS | $0.14 | $0.26 | $0.16 | $0.33 |
| Adjusted EPS (non-GAAP) | $0.19 | $0.08 | $0.24 | $0.09 |
- Q2 revenue rose 13.5% year over year and net revenue rose 14.5%. Six-month revenue and net revenue increased 16.4% and 13.7%, respectively.
- Q2 expenses were $56.2 million, down 4.3%; expenses as a share of total revenue fell to 45.9% from 54.5%. For the six-month period, expenses were $109.7 million, down 1.7%, and that ratio declined to 45.2% from 53.5%.
- Interest expense and debt issuance-cost amortization increased 42.6% in Q2 to $11.2 million and 47.5% for the six months to $22.6 million, reflecting higher financing costs.
- Q2 total net originations fell 10.8% to $200.6 million; six-month originations declined 6.5% to $360.2 million. Management attributed the decreases to tighter credit standards and lower marketing spend. Bank-partner originations represented 97.3% of Q2 and 96.4% of six-month originations.
- Ending principal receivables were $397.8 million, up 0.5% from June 30, 2022. Average yield increased to 128.8% for Q2 and 126.7% for the six months. Annualized net charge-offs as a percentage of average receivables were 46.6% and 53.9%, respectively, compared with 51.9% and 54.1% in 2022.
- Six-month operating cash flow was $138.6 million, investing cash outflow was $103.2 million, and financing cash outflow was $22.9 million. Cash and restricted cash increased $12.4 million to $62.1 million.
- At June 30, unrestricted cash was $26.8 million; senior debt, net, was $331.9 million, down from $344.7 million at year-end 2022. Undrawn debt capacity was $142.4 million. Management reported approximately $537.1 million of funding capacity, including total financing commitments and cash, and expects liquidity to meet needs for at least 12 months.
Material changes and unusual items
- Higher revenue and lower expenses lifted operating income, while higher credit-loss provisions, fair-value charges on receivables, and interest expense partly offset the improvement. Q2 credit-loss provision was $3.9 million versus $0.6 million a year earlier; the six-month provision was $3.9 million versus $1.0 million.
- The OppFi Card portfolio was reclassified from held for sale to held for investment after the decision to wind down the business. The reclassification reversed a prior $2.3 million valuation allowance and established a $2.6 million credit-loss allowance; the income statement included a $3.1 million lower-of-cost-or-market adjustment benefit. The transfer also contributed to reported provision expense.
- Consolidated net income increased, but income attributable to OppFi Inc. declined, in part because of the company’s Up-C ownership structure: noncontrolling interests received $15.9 million of Q2 income and $19.6 million for the first half. GAAP and adjusted EPS use different share-count approaches; adjusted measures are non-GAAP and exclude specified items.
- In July 2023, after quarter-end, OppFi amended and restated a revolving credit facility, increasing its stated size from $200 million to $250 million. The facility includes a new $125 million Tranche C at Term SOFR plus 7.5%, with a commitment period through July 2026 and maturity in July 2027; proceeds partly repaid Tranche A, with the remainder intended to fund receivables growth.
Outlook, risks and contingencies
- The filing provides no specific revenue, earnings, or originations guidance. Management cited tighter underwriting, lower qualified application rates, and reduced marketing spend as drivers of lower originations; stronger payment activity and fewer delinquent/non-accrual loans supported yield.
- Credit performance remains a key risk. Receivables are primarily fair-valued using internally developed discounted-cash-flow models with significant unobservable assumptions, including default rates. Management reported $22.2 million of unpaid principal on OppLoans receivables at least 90 days past due contractually, with fair value of $3.7 million.
- OppFi faces regulatory inquiries concerning lending compliance and its bank-partnership model. A California dispute concerns whether state interest-rate caps apply to loans originated by bank partners; the state commissioner sought a preliminary injunction in January 2023. The outcome is uncertain. The filing also describes a July 2023 putative stockholder action concerning the 2021 business combination; possible loss cannot yet be estimated.
- Disclosure controls were found ineffective as of June 30, 2023 because of a previously identified material weakness in IT access controls for financially relevant systems. Management described remediation steps but said the weakness is not remediated until controls operate effectively for a sufficient period and are tested.
- Management highlighted macroeconomic and credit-market uncertainty, interest-rate changes, dependence on bank partners and financing sources, and possible inability to obtain additional capital on acceptable terms as risks.
Investor facts to verify
- Track delinquency, charge-offs, credit-loss provisions, and the assumptions underlying fair-value receivables as the portfolio and economic conditions change.
- Monitor California litigation and other regulatory inquiries for potential effects on lending operations, bank partnerships, and receivables funding.
- Confirm progress in remediating the material weakness in IT access controls and whether disclosure controls are later deemed effective.
- Review the July 2023 amended credit facility’s borrowing terms, utilization, collateral requirements, and ability to support receivables growth.
- Reconcile consolidated profitability with income attributable to OppFi Inc., and assess non-GAAP adjustments and share-count assumptions underlying Adjusted EPS.