OppFi Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods unless noted. OppFi is a fintech platform that enables bank partners to offer consumer credit, principally through its OppLoans installment product. SalaryTap and OppFi Card remained de minimis contributors.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $124.2 million | $92.0 million | $332.8 million | $254.6 million |
| Net revenue, after fair-value change and credit-loss provision | $52.6 million | $72.9 million | $168.5 million | $201.8 million |
| Consolidated net income (loss) | $(0.7) million | $30.4 million | $8.5 million | $72.8 million |
| Net income (loss) attributable to OppFi Inc. | $(0.6) million | $14.1 million | $4.0 million | $14.1 million |
| Adjusted EBITDA (non-GAAP) | $13.2 million | $31.8 million | $43.9 million | $96.4 million |
| Adjusted net income (non-GAAP) | $0.8 million | $17.4 million | $7.8 million | $54.4 million |
- Q3 basic and diluted EPS attributable to OppFi were both $(0.04); nine-month basic and diluted EPS were $0.29 and $0.09, respectively. Adjusted EPS was $0.01 for Q3 and $0.09 for nine months, both non-GAAP.
- Net charge-offs as a percentage of average receivables rose to 66.4% for Q3 and 58.3% for nine months, from 35.8% and 31.4%. Average yield fell to 119.4% and 119.0%, from 131.3% and 129.0%.
- Cash and restricted cash totaled $50.5 million at September 30, including $14.0 million unrestricted cash. Senior debt, net, was $338.4 million; secured borrowing was $1.8 million and notes payable were $2.5 million. Total debt was reported as $342.6 million.
- For the nine months, operating cash flow was $172.3 million, investing cash outflow was $243.4 million, and financing cash inflow was $59.3 million. Cash and restricted cash declined $11.9 million. Finance receivables at fair value were $458.1 million, up from $383.9 million at year-end 2021.
Material changes versus the prior period
- Revenue grew 35.1% in Q3 and 30.7% for the nine-month period, driven by larger receivables and origination growth. Ending receivables increased 39% year over year to $407.7 million.
- Despite revenue growth, net revenue declined 27.8% in Q3 and 16.5% for nine months, primarily because of sharply higher charge-offs. OppFi reported $67.7 million of Q3 net charge-offs and $161.5 million for nine months, versus $24.9 million and $62.0 million, respectively, in 2021.
- Management attributed elevated credit losses to inflation and runoff of lower-quality loans originated before credit tightening. The company tightened credit and pulled back marketing; Q3 net originations rose 11% year over year, but declined from Q2 2022.
- Expenses fell 12.7% in Q3 but rose 11.7% for nine months. Interest expense increased 41.8% in Q3 and 40.3% for nine months, alongside higher debt utilization. The Q3 2021 comparison included a $6.4 million PPP loan forgiveness gain and a larger warrant fair-value gain; these nonrecurring and mark-to-market items affect comparisons.
- Debt increased $68.6 million from December 2021, mainly from greater revolving-credit utilization. The company amended a facility to increase capacity from $75 million to $200 million and added a $75 million Gray Rock facility.
Outlook, risks and unusual items
- No specific financial guidance is provided. Management said unrestricted cash, undrawn debt and operating cash generation should meet liquidity needs for at least 12 months from the filing date; it also cautioned that additional capital may be needed if those sources prove insufficient. Reported unused debt capacity was $168.0 million.
- Credit performance, inflation, borrower hardship, reduced interest accrual on delinquent loans, and the fair-value estimates applied to receivables are key uncertainties. The portfolio fair-value model uses significant unobservable assumptions, including a 19.57% default rate and a 25.90% discount rate at September 30, 2022.
- California litigation is material: the state regulator seeks to apply AB 539 interest-rate caps to bank-partner loans and seeks, among other remedies, to void loans and impose penalties. The court overruled OppFi’s demurrer on September 30; the outcome and potential financial effect are uncertain. The filing also describes ongoing inquiries into lending compliance and the bank-partnership model.
- OppFi adopted lease accounting in 2022, recording a $14.4 million right-of-use asset and a $16.9 million lease liability at quarter-end. On October 10, it agreed to sublease office space, expecting about $0.9 million in base rent through August 2025.
- The filing revises prior-period diluted EPS calculations: Q3 and nine-month 2021 diluted EPS were overstated by $0.77 and $0.79, respectively, in previously reported calculations. The revision was deemed immaterial to prior financial statements and did not affect net income or equity; comparative diluted EPS shown is $0.29 for both periods.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. The filing reports no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether charge-offs and delinquency trends stabilize after credit tightening, and how they affect yield and receivables fair value.
- The assumptions and sensitivity of the Level 3 receivables valuation, including expected defaults, discount rates, and prepayments.
- Developments in the California case and other regulatory inquiries, including any effect on bank partners, lending availability, or the business model.
- Availability and terms of borrowing capacity, related covenants, variable-rate exposure, and liquidity as loan growth and funding needs evolve.
- Reconciliation and definitions of non-GAAP Adjusted EBITDA, Adjusted net income, and Adjusted EPS, and the effect of OppFi’s Up-C structure on attributable earnings and dilution.