OppFi Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated financial statements; dollar amounts below are in millions unless stated otherwise. OppFi operates a fintech platform that enables bank partners to offer consumer credit, principally OppLoans installment loans. SalaryTap and OppFi Card were not significant contributors.
Financial results and position
| Metric | Q1 2022 | Prior period / balance |
|---|---|---|
| Total revenue | $100.7 | $84.3 in Q1 2021; up 19.5% |
| Net revenue | $50.7 | $61.9 in Q1 2021; down 18.0% |
| Operating income (loss) | $(2.2) | $24.4 in Q1 2021 |
| Consolidated net income (loss) | $(0.3) | $24.4 in Q1 2021 |
| Net income attributable to OppFi Inc. | $1.1; diluted EPS $0.08 | Prior-period EPS not presented as income then belonged to OppFi-LLC |
| Adjusted net income (non-GAAP) | $0.6 | $19.3 in Q1 2021; down 96.6% |
| Adjusted EBITDA (non-GAAP) | $11.3 | $32.4 in Q1 2021; down 65.1% |
| Operating cash flow | $44.7 | $45.4 in Q1 2021 |
| Cash and restricted cash | $59.9 | $62.4 at December 31, 2021; unrestricted cash was $27.0 |
| Total debt | $280.9 | $274.0 at December 31, 2021 |
| Total assets / equity | $512.5 / $156.6 | $502.1 / $157.9 at December 31, 2021 |
Revenue growth reflected higher receivables and originations. Net revenue fell as the fair-value change in finance receivables increased to a $49.5 million reduction, including $47.2 million of net charge-offs and a $2.4 million negative fair-value adjustment. The reported $0.5 million tax provision included a $0.5 million discrete prior-period stock-compensation item; management said the effective tax rate excluding that item would have been 3.2%.
Operating cash flow was more than offset by $52.2 million of investing outflows, principally net lending activity and technology/equipment purchases. Financing activities provided $5.1 million, and cash and restricted cash declined $2.4 million. Borrowings comprised $213.0 million drawn on revolving facilities, $48.7 million net term debt, and $19.2 million of secured borrowings. The company reported $132.0 million of undrawn debt capacity and stated that available liquidity should meet needs for at least 12 months from the report date.
Material changes and operating metrics
- Net originations rose 63.1% to $162.8 million; ending receivables increased 38.0% year over year to $338.5 million. Bank partners accounted for 94.5% of net originations, compared with 76.1% a year earlier.
- Credit performance weakened: annualized net charge-offs as a percentage of average receivables rose to 55.8% from 30.1%; average yield declined to 119.9% from 129.8%, which the company attributed to higher delinquency and more loans on non-accrual.
- Total expenses increased 41.1% to $52.9 million, driven by marketing, headcount, public-company insurance, technology investment, and higher interest expense. Interest expense and debt issuance cost amortization rose to $7.4 million from $4.5 million.
- Cash-funded loan growth contributed to lower unused debt capacity. Senior debt increased to $261.7 million from $251.6 million at year-end, while secured borrowings declined to $19.2 million from $22.4 million.
- OppFi adopted lease accounting on January 1, 2022, recognizing a $15.1 million right-of-use asset and $17.6 million lease liability at quarter-end; the adoption did not materially affect the income statement or cash flows.
Outlook, risks, and unusual items
- No numerical full-year earnings or revenue guidance is provided. Management expects savings during the remainder of 2022 from headcount and vendor cost reductions implemented late in Q1, and stated that liquidity is adequate for at least 12 months.
- California regulatory litigation is a significant uncertainty. OppFi sought a declaration that California’s AB 539 interest-rate caps do not apply to its bank-partner program; on April 8, 2022, the state filed a cross-complaint seeking, among other relief, to void certain loans and impose penalties. The company intends to contest the claims. California borrowers represented about 12% of the portfolio at March 31, 2022.
- The company disclosed ongoing agency and state inquiries into lending compliance, the bank-partnership model, and servicing of bank-originated loans; outcomes were unknown. It also settled a District of Columbia matter, distributing $1.5 million in consumer refunds during Q1.
- Key business risks include credit normalization and loss assumptions, dependence on bank partners and financing sources, regulatory changes and enforcement, and economic and consumer-credit conditions. Management’s fair-value estimates for receivables use significant unobservable assumptions, including default and discount rates.
- Other notable items: the company repurchased 282,334 Class A shares for approximately $1.0 million under a $20.0 million authorization. A $2.4 million noncash gain from the decline in warrant liabilities partly offset operating losses. A post-quarter total return swap arrangement provides credit protection related to a $75 million revolving facility and includes servicing responsibilities.
Important facts for investors to verify
- Track charge-offs, delinquencies, non-accrual balances, average yield, and the assumptions behind fair-value marks as credit conditions normalize.
- Monitor the California case and other regulatory inquiries, including any effect on bank partners, lending activity, or portfolio value.
- Confirm access to committed facilities, covenant compliance, borrowing costs, and the effect of floating-rate debt and the LIBOR transition.
- Reconcile consolidated GAAP results with OppFi-attributable earnings and non-GAAP adjusted measures; assess the impact of the Up-C structure and noncontrolling interests.
- Evaluate whether originations and expense savings translate into sustainable net revenue and cash generation, given the Q1 increase in marketing and credit costs.