OppFi Inc (OPFI) 2025 Q3 法說會逐字稿

Good morning and welcome to OppFi third quarter 2025 earnings conference call. I am pleased to introduce your host, Michael Gallentine, Head of Investor Relations.

Thank you, operator. Good morning and welcome to OppFi Third quarter 2025 earnings call.

Today our Executive Chairman and CEO Todd Schwartz; and CFO Pamela Johnson will present our financial results followed by a question-and-answer session. You can access the earnings presentation on our website at investors, OppFi.com.

During this call, OppFi may discuss certain forward-looking information. The company's filings with the SEC describe essential factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements.

Please refer to slide two of the earnings presentation and press release for our disclaimer statements covering forward-looking statements and references to information about non-GAAP financial measures which will be discussed throughout today's call. Reconciliations of those measures to GAAP measures can be found in the appendix to our earnings presentation and press release.

With that, I'd like to turn the call over to Todd.

Thanks, Mike, and good morning, everyone.

Thank you for joining us today. OppFi achieved another record quarter of revenue, profitability originations, and ending receivables. In addition, we are happy to report that we have renewed our credit agreement with Castlelake, improving operating leverage, pricing, and capacity.

Given our continued outperformance in Q3, we are raising earnings guidance for the third time this year. I will discuss growth, credit our Loan Origination Lending Application, LOLA migration and Bitty, our SMB investment on the call.

In the quarter we achieved a 12.5% growth in net originations and a 13.5% increase in revenue year over year, with almost 50% of originations coming from new customers. Auto approval rates increased to 79% year over year, and customers continue to be approved at higher rate than in prior quarters with no human interaction. We continue to see increased scale in our partnerships and direct response programs. We started testing connected TV in Q4 and believe that this could contribute to growth in 2026 and beyond.

This strong top-line growth combined with prudent expense management led out by to generate a record 41 million of adjusted net income for the quarter, representing 41% year-over-year growth. Regarding credit, Model 6 continues to perform well and better segment customers across risk segments.

Throughout the quarter we saw higher charge-offs in new loan vintages. However, by tightening higher risk segments and applying a risk-based pricing approach, we maintained strong unit economics while sustaining growth.

The team leverage AI tools, customer attributes, and repayment data to refit Model 6 into what we believe is the most reliable model to date, Model 6.1. This model 6.1 refit is designed to identify riskier borrower populations better while incrementally improving volume. The model is also designed to enhance risk pricing across segments, accounting for behavioral and seasonal volatility. In conjunction with our lending partners, we plan to roll out Model 6.1 refit in Q4 and fully implement it in Q1 2026.

With LOLA, OppFi is building the origination system of the future. This will give us a clean architecture that is designed to take advantage of rapidly developing AI tools in originations, servicing, and corporate operations. The product and tech teams have been working hard and have officially begun the testing phase of our migration. We plan to continue testing LOLA throughout the 4th quarter and migrate in Q1 2026.

Early indicators give us confidence that Lolo will help continue to improve funnel metrics, increased automated approvals, enhance efficiency and servicing and recoveries, better integrate major systems, and deliver reduced cycle times and greater throughput for our product, tech, and risk teams.

Our investment in Bitty continues to perform well. In the third quarter of 2025, Bitty generated $1.4 million in equity income for OppFi. Bitty is a great partner that we have enjoyed working with and learning from in the SMB space. The company shares OppFi business principles and corporate values and consistently uses technology to enhance operations and the customer experience. That he has identified significant additional growth opportunities and continues to capitalize on the ongoing supply demand imbalance in the small business revenue-based finance space.

Overall, OppFi Delivered another strong quarter both financially and operationally, outperforming expectations and allowing us to raise guidance for the third time this year. Looking ahead, we anticipate continued double-digit revenue and adjusted net income growth throughout the remainder of 2025 and into 2026. We believe OppFi is well on its way to executing its vision of becoming the leading tech enabled digital finance platform that partners with banks to offer essential financial products and services to everyday Americans. With that, I'll turn the call over to Pam.

Thanks, Todd, and good morning everyone.

As Todd noted, we achieved another record quarter, generating revenues of $155 million an impressive 14% increase over third quarter 2024. Model 6 has been a significant contributor to this growth, empowering OppFi to expand its reach and grow its business effectively. Its enhanced predictive power has enabled us to better manage our loan economics through risk-based pricing and allow our bank partners to underwrite larger loan amounts for creditworthy individuals, helping fuel robust growth in originations and receivables balances.

As Todd noted in the third quarter of 2025, we observed an increase in net charge offs as a percentage of revenue at 35%, up from 34% in third quarter 24. It's important to note that we believe this risk is appropriately priced into these loans. This strategy also contributed to our net revenue growth, reaching a quarterly record of 105 million, a 15% increase over third quarter 24, though the yield decreased slightly to 133% from 134% in third quarter 24.

Our scale and focus on cost discipline also played a pivotal role in our strong performance. Continued operational improvements contributed to notably lower total expenses before interest expense, which declined significantly to 30% of revenue in the third quarter, a substantial improvement compared to 33% in the same quarter last year.

As we noted previously earlier this year, we proactively paid down our corporate debt and successfully upsized one of our main credit facilities at more attractive interest rates. These strategic moves helped reduce interest expense to 6% of total revenue, down from 8% in the prior year. Additionally, in early October, we announced the signing of another $150 million credit facility with lower interest rates than the previous one, positioning us to realize even lower interest expenses as a percentage of revenue in the future.

As a direct result of increased revenue and strategic reductions in expenses, adjusted net income surged 41% to a quarterly record of $41 million marking a significant increase from $29 million last year. Concurrently, adjusted earnings per share grew to $0.46 from $0.33 last year.

On a GAAP basis, net income increased by 137% to $76 million reflecting our higher revenues, lower expenses, and a $32 million non-cash gain related to the change in the fair value of our outstanding warrants. Because our Class A common stock price decreased during the quarter, the estimated value of the warrants issued when we went public decreased, driving this non-cash income. However, as we have consistently stated, this is a non-cash item and does not impact the underlying profitability of the company.

Looking at the balance sheet, we continue to maintain a robust financial position, ending the quarter with $75 million in cash equivalents, and restricted cash alongside $321 million in total debt and $277 million in total stockholders equity. Our total funding capacity stood at a strong $600 million at quarter's end, including $204 million in unused debt capacity.

During the third quarter, OppFi strategically repurchased 710,000 shares of Class A common stock for $7.4 million.

Additionally, since the third quarter, OppFi has repurchased 317,000 shares of Class A common stock for $3.2 million as management continues to believe the share price does not reflect our underlying cash generation or our return on capital opportunity.

Given our strong operating performance driven by growth and net originations, revenues, and adjusted net income, we are pleased to provide the following updated full year guidance. We are once again increasing our guidance for total revenues, we are raising the bottom of the range to $590 million while leaving the top of the range at $605 million up from the prior guidance of $578 million to $605 million.

Adjusted net income is expected to be $137 million to $142 million up from our prior guidance of $125 million to $130 million. Based on an anticipated diluted weighted average share count of 89 million shares, adjusted earnings per share are expected to be $1.54 to $1.60 up from our prior guidance of $1.39 to $1.44 per share.

With that, I would now like to turn the call over to the operator for Q&A operator.

(Operator Instruction) David Scharf, Citizens Capital Market.

Hi good morning and thanks for taking my questions.

Maybe I'll, start off with credit since it's been so topical this reporting season, just curious, obviously you spoke to.

The strong performance, just curious, are there any early indicators or metrics such as first payment defaults or or the like? I mean, anything that gives you a sense that households that you're catering to are becoming a little more stressed than 3 months ago or pretty much the loss rates you reported speak for themselves.

Yeah, hey, David, good question, thank you, we constantly are surveying, looking at different data points not only from the data that we receive from customers' bank accounts and the macroeconomic data. I mean, the backdrop from a macroeconomic standpoint still still remains largely, unchanged.

We are hearing about, different products like auto loan delinquencies and all this, but we really focus on how it affects our customers in our bank data we're not seeing anything that would, cause alarm. However, we did see some higher early early, payment.

Stats in the quarter that caused us to tighten slightly. I will remind you though that, back in 22, without risk based pricing, not being able to price risk properly in these environments, is something that we were not able to do. Also our recovery lines, we feel really good about keeping unit economics strong with pricing and and and strong recoveries in this environment and feel like we can operate in any environment with Model 6. And it's kind of a dynamic modeling environment. It's not set it forget it anymore.

We're really of the mind that mindset that, we just, we're going to meet the customer where they are and we're going to price it properly and, have a product for them. So yeah, we may incur some higher charge-offs, coming through.

In the 4th, but let's not lose sight of, as a percentage of revenue year over year, we expect our charge-offs as a percentage of revenue to to go down year over year. So, that's just kind of how the environment is now. You gotta, you can't set it, forget it, you have to be constantly watching it and constantly updating your pricing per segments and your pricing for risk.

Got it. No, that, that's helpful. You kind of delved into maybe my follow-up with, which was maybe to get a little better context for risk-based pricing, the Model 6 is going to enable more of, you know.

I guess at a high level, should we think about More risk-based pricing as you're currently leaving yield on the table, or is it, you're leaving volume on the table that there may be consumers that are applying not accepting the loan, you know.

It's both, I think in times of volatility and economic environments, it allows us to properly price risk so that gives us that lever, but it also allows us to target with with potentially lower prices for our lowest risk customers. It allows us to better target them. And so we use it for both, we use it for credit and losses. We all start using it for targeting and growth, and it's you, it's a switch that you can toggle depending on the environment, and that's kind of why I spoke a little bit before about the dynamic nature of it. It's something that we're reading, in real time on a weekly basis and kind of assessing, especially in a, in an environment, like this where you know there's a lot of news and a lot going on. We do, we're, the Fed's meeting soon, we're waiting and seeing on that, from a union economic standpoint if we do get some relief on on interest rate, but, right now we're just in an environment like that where we're just going to continue to watch credit, but we still think we can grow in this environment, with strong unit economics.

Got it. Great. Hey, apologize. Maybe just 11 quick follow-up on credit because obviously you had mentioned auto it's been sort of dominating the headlines, a lot of company specific events out there, but auto subprime delinquencies have gone up. I'm curious, since you're capturing bank data.

Are you, do you monitor what percentage of household budgets are being attributed to auto payments since affordability is still sort of plaguing the the auto sector for both new and used.

Yeah, I mean something you know we're we're very ability to repay is very prevalent in our modeling, not specifically necessarily, auto, but it is factored into the equation of ability to repay. The customers have to have the discretionary income to make the monthly payments and so it's something that we is top of mind in our model we have not seen, in our bank data, significant reductions in income or balances or anything that would, cause alarm here, and so that's why we can, we tightened where it made a lot of sense and then also, use the model to better target lower risk customers in this environment.

But you know we're watching it just like everybody else right now. I'm not going to, not say that, credit isn't worse. It is worse than it was last year in the new segments, especially the new, but, something that we can operate in now, with our current pricing structure and and and how we operate.

Great. Thank you very much, Todd.

(Operator Instruction) Mike Grondahl, Northland Securities.

Hey thanks guys and congratulations on the origination side, could you talk a little bit about direct mail and then some of your thoughts on connected TV that you mentioned?

Yeah, thanks Mike. How you doing? .

Listen, I think, I think direct mail is a highly scalable lever for us that we're just starting, we're just in the early innings of it was, it was 4.2% of our originations, that can easily be in the double-digits if if we wanted. We're going slow and being pretty methodical and strategic. We're making sure we have the creative right, excuse me, and making sure that the modeling is right, it's something that you know it's a it's a powerful funnel, top of funnel, if you can if you can get a lot of apps that's consistent, it's something that you know we're prioritizing and focusing on.

And the connected TV, yeah, so we're the really early innings of that but but you know it's something that we think it's controllable scalable and it's also reaching a lot of our customers in a targeted fashion so we're excited about it it also allows us to get our brand out there and our creative so you know our marketing team has been working hard on that and you know we're going to be testing that throughout the quarter. But we'll we'll have more to report on that in our, Q4 earnings, but, we think it's promising and it's something that can, help us scale and continue to grow, next year.

Got it, and then you've been really disciplined on OpEx. I would call OpEx sort of, basically flattish to up a tad. How much can you grow originations in the book without having a step function list in OpEx? Like, you've kind of done this now for 2+ years if not longer, bolted on more revenue and more loans on your existing platform and and then really efficient and the throughput's been great, but how long can you continue to do that?

Yeah, good question, we feel really confident in our ability to scale I mean this is where, things get, highly incremental, at this scale, as far as originations and growth go. We don't anticipate, I mean, LOLA is that that's why I keep talking kind of about LOLA, on these calls and introduced it last quarter, we've made significant, R&D and software, development, initiatives in the company over the last year to allow us to continue to scale and then also allow us to essentially, as I said, building the lending origination system of the future, but it really allows us to, install and integrate, some of these new age AI tools that are coming.

Some of them are more developed than others and some of them are more ready to use today versus, in a year from now. But it was all about having a clean architecture on your tech stack and not have a lot of technical debt built up so that we can take advantage of some of these tools and also better, integrates our corporate system so we really don't anticipate, having to add much fixed overhead, it's more going to just be variable cost for the growth, and think that you know this can continue, and definitely into next year.

Got it. And then one last question. I think in your prepared remarks you said, double-digit revenue and adjusted net income growth for the rest of 2025, obviously implied by your guidance, but I think you also said and into 2026, is there anything you want to say about 2026? Are you sort of. Striving for double-digit top-line, anything there would be helpful.

Yeah, I mean, listen, it's something that you know it it is credit dependent. I'll caveat that my but you know I will say that we have the levers and I'm pretty confident, within our walls we have the levers to grow in double-digits, and so confident we can do that. The only thing you know that would prevent us from doing that is we're not going to chase growth. If if credit is not there it's just not something we're going to do you know us now we're very disciplined, so we won't chase growth, to take on higher losses, but we do have the levers if that's what you're asking for next year for double-digit growth absolutely.

Got it. Hey, thanks a lot.

Thank you.

(Operator Instruction) Kyle Joseph, Stephen.

Hey, good morning. Thanks so much for taking my questions. Just given everything going on with the portfolio in terms of new customer mix, the risk based pricing, just wanted to get your kind of your thoughts in terms of, yield trends we should expect going forward.

Yeah, we feel, we feel good, that our yields stable, it came down a little bit in 3 that's, it's due to, that that is typical this time of year. Q3, you're going to see, some of your lower yields as you start to see some losses kind of come into the past dues to drop out of accrual. We do, hope that, we'll see a nice rebound in Q4 and it's and it's also been stable throughout the year, but. We anticipate stability and an elevated yield, coming through the book, and that's, and that is part of the risk based pricing right? We're better pricing risks, across the segments, so we feel good about where you know where we are with that.

Got it helpful and then, moving to the balance sheet and capital, obviously you guys have done a lot of work on the balance sheet, year-to-date, and it's in a really good place and then you guys are still generating strong cash flows despite portfolio growth, but just, give us a sense for kind of your your capital allo allocation priorities, now that you have the balance sheet in a really good position.

Yeah, well, Pam, I think Pam, talked about it. We've been, but we've been buying back stock, and open windows and with, predetermined programs we'll continue to, defend our share price when we think it's, undervalued, it's something that, we were, we feel like we're not trading, hopefully the third time is the charm here, Kyle, with us, raising guidance again.

But listen, it's, that's top of mind right now is obviously defending our share price and, making sure that we're properly valued in the marketplace. Well, we're continually actively, looking, at M&A opportunities, looking at, we're using, it for growth, the menu of options is open, so we are, we're we're actively, looking at those, different, scenarios and best and highest use of our cash.

Got it and just one last one for me apologies if I missed it but just in terms of the marketing spend we we saw return to growth this year I think you mentioned that was, maybe TV in direct mail, but yeah if you could walk us through what you're seeing in terms of customer acquisition costs and and how you expect marketing expenses to. To go going forward and how that versus portfolio growth obviously they go hand in hand.

Yeah, I think I stated back in Q2, you should expect the acquisition cost to kind of creep up here as we go into growth mode here in the second half, and that's, it's consistent with, what's happened, we're probably up $20 to $30 per we feel very comfortable there, and think there's even probably some more room, especially for lower risk segment customers to be able to pay. The CPFs and feel really strong about the unit economics and the incremental growth it provides.

Great. Thanks so much for taking all my questions.

Thanks, Kyle.

(Operator Instruction) Robert Lynch, Stonegate Capital Partners.

Hey, good morning, Pam and Todd. Really appreciate you taking the questions today. Just have a few here, with net charge off as a percentage revenue, saw a slight increase in Q3, is this typical seasonality or mix and, could you get this back up to the 45% in Q4 that we saw last year, seasonality and early indications for the holiday season coming up.

Yeah, I mean, the the there is seasonality to the business, and you know you're going to see your lowest charge-offs as a percentage of revenue kind of in Q2, and Q3, and then it, elevates year over year it is slightly elevated, I, we do anticipate though for, annualized, a reduction in in as a percentage of revenue overall.

We didn't, tighten, we were very conservative in 24, even, tightening probably a little too conservative maybe in Q2, which caused, really, strong revenue as a percentage of charge off numbers. I mean we didn't, we don't need to be we we're at a level now where we feel really comfortable that the unit economics are strong, so it's going to, it's going to flatten out here and you know incrementally every quarter could be a little bit less, could be a little bit more, but we feel really good at these numbers where we're at and think that you know we can we can generate really strong returns within this band.

Okay, great, really appreciate the color there.

I got maybe two more here, but you know you highlighted stronger recoveries from operational changes. Is the second half recovery run right now above plan and you know how confident are you that this level is sustainable into 2026?

Yeah, I mean, we, we've now, achieved, a strong as a percentage of gross charge-offs, a really strong recovery right now for two years. We think it's very sustainable, it's performing at or above plan every quarter. We have a great, process team and strategy. Find it, so we feel sustainable, and at first, the 1st year when we were achieving those results, it was something that was hard to bake into the unit economics, because, we weren't sure if the stability of it was going to last, but it has, and we feel really good that, we're going to continue to achieve. The, that percentage of recovery and charge off, and it obviously helps our unit economic model, and how we price and how we target on the front end and so, it's been a great story for us.

Awesome thank you for the call there and you know I've got just one more kind of unique question here but on the recent shutdown you know what impact did it have on you know any of the data you see coming in as well as your models, with customer behavior.

More for them and yourself as well and how are you monitoring the situation and mitigating any of the effects, going forward in real time.

Yeah, I thought we were prepared for this question because, I thought I was going to get it sooner, but, no, it's something that, we're active we have a, we have a very, fair, hardship program, for customers that have been impacted by the federal government shutdown. We do have some exposure. It's something we're currently watching. It's pretty demand less at this point.

On the number of hardships, this time of year because of weather events, it is our largest hardship, program offering for this quarter because of the Q3 and the weather events that happen usually typically in in this time of year, but you know they're incrementally there are some more coming from the federal government shutdown, nothing that we've caused alarm or cause us to really change, how we operate at this point or credit from a credit perspective, but, definitely something we're watching very closely as it unfolds and we'll continue to.

Great, really appreciate it, Todd, Pam, Mike, congratulations on the quarter and I'll get back in the queue.

Thank you. We have no further questions at this time. This does conclude today's program. Thank you for your participation and you may disconnect at any time.