Business context and reporting period
OppFi Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2023. The company operates a technology-enabled lending platform, primarily facilitating OppLoans installment loans through bank partners. SalaryTap and OppFi Card did not contribute meaningfully to results; OppFi decided to wind down OppFi Card in May 2023. OppFi uses an Up-C structure, and consolidated income includes amounts attributable to noncontrolling owners.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $133.2 | $124.2 | $376.0 | $332.8 |
| Net revenue | $75.7 | $52.6 | $207.4 | $168.5 |
| Income from operations | $15.6 | $(1.0) | $37.6 | $3.3 |
| Consolidated net income (loss) | $15.5 | $(0.7) | $37.5 | $8.5 |
| Net income attributable to OppFi Inc. | $2.2 | $(0.6) | $4.6 | $4.0 |
| GAAP diluted EPS attributable to OppFi Inc. | $0.13 | $(0.04) | $0.29 | $0.09 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $213.6 | $172.3 |
- Q3 net revenue was 56.8% of total revenue, versus 42.4% a year earlier; operating margin was 11.7%, versus a loss from operations in Q3 2022. For the nine-month period, net revenue was 55.2% of revenue and operating margin was 10.0%.
- Q3 total net originations rose 7.6% to $195.7 million; nine-month originations fell 2.0% to $555.9 million. Ending unpaid principal receivables were $415.9 million, up 3.3% year over year.
- Average yield increased to 128.5% for Q3 and 127.3% for the nine months. Annualized net charge-offs as a percentage of average receivables declined to 54.5% and 54.1%, respectively, from 65.9% and 58.6%.
- At September 30, cash was $31.1 million and restricted cash $34.9 million. Total assets were $600.6 million; total liabilities $410.8 million; stockholders’ equity $189.8 million. Senior debt, net was $342.2 million and notes payable $2.2 million; total debt was approximately $344.3 million.
- Undrawn debt capacity was $180.7 million; the company reported approximately $591.0 million of total funding capacity, including commitments and balance-sheet cash. Operating cash flow was $213.6 million, investing cash outflow $180.0 million, and financing cash outflow $17.2 million for the nine months.
Material changes versus the prior comparable period
- Q3 revenue grew 7.2%, while net revenue increased 43.8%, reflecting higher average receivables and yield and lower fair-value losses and credit provision. Consolidated net income improved by $16.2 million from the prior-year quarter’s loss.
- For the first nine months, revenue rose 13.0% and net revenue rose 23.1%. Operating income increased to $37.6 million from $3.3 million. OppFi-attributable net income increased only 15.1%, to $4.6 million, in part because the prior-year period included a larger warrant fair-value gain.
- Q3 expenses increased 12.1%, including a 32.8% rise in interest expense. Nine-month expenses increased 2.8%; interest expense rose 42.0%, partly offset by lower marketing costs.
- Bank partners accounted for 97.9% of Q3 and 96.9% of nine-month originations, up from 94.2% and 94.6%. Management attributed lower nine-month originations and a reduced share of new loans to tighter credit standards.
- Cash and restricted cash increased $16.4 million from year-end 2022, while total debt declined $2.7 million. July amendments expanded the OppFi SPE V revolving facility to $250 million, comprising $125 million each for Tranches B and C.
Outlook, commentary, risks and unusual items
- No specific earnings or revenue guidance is provided. Management stated that unrestricted cash, undrawn debt and operating cash flow should meet liquidity needs for at least 12 months from the filing date, while noting that future capital needs depend on business conditions and financing access.
- Management linked improved credit performance to tighter underwriting introduced in 2022 and said higher yield reflected fewer delinquent non-accrual loans, lower hardship-program enrollment and portfolio mix. These results remain sensitive to borrower performance and economic conditions.
- OppFi Card receivables were reclassified from held for sale to held for investment after the wind-down decision. The filing reports a $3.0 million benefit from this reclassification in the nine-month results, alongside a $4.0 million OppFi Card credit-loss provision. SalaryTap and OppFi Card receivables are being run down.
- California regulatory litigation concerns application of state interest-rate caps to bank-partner loans. The court denied the Commissioner’s preliminary-injunction motion on October 30, 2023; the underlying case remains ongoing. Other regulatory inquiries and legal matters are also pending, and outcomes may be uncertain.
- Disclosure controls were deemed ineffective because of a previously identified material weakness in IT access and segregation-of-duties controls. Management is implementing remediation and says compensating controls are operating, but the weakness is not yet considered remediated.
- Other stated risks include rising borrowing costs, dependence on bank partners and financing sources, state and federal lending regulation, credit losses, and uncertainty in fair-value estimates. The filing identifies no material change to previously disclosed risk factors.
Important facts for investors to verify
- How much of reported earnings and cash generation is repeatable, given fair-value accounting for OppLoans, charge-offs, and the OppFi Card reclassification benefit?
- Whether the improvement in annualized net charge-offs and portfolio yield persists as newer loans season, and how tighter underwriting affects originations and growth.
- Availability, pricing, covenants and maturity terms of revolving debt, including exposure to variable rates and the term loan’s synthetic LIBOR provision.
- Developments in the California case and other regulatory inquiries, including any effect on bank-partner lending, loan servicing or funding.
- Progress in remediating the material weakness and whether controls are later tested and found effective.
- Potential dilution and governance implications of the Up-C structure, retained OppFi Units, warrants and equity awards; GAAP EPS attributable to OppFi is not equivalent to earnings for all economic owners.