OppFi - Earnings Call - Q1 2025

Executive Summary

• Record quarter: total revenue $140.3M (+10.1% YoY) and adjusted net income $33.8M (+285% YoY); GAAP net income $20.4M, while GAAP diluted EPS was -$0.48 due to the Up‑C structure and noncontrolling interests.
• Guidance raised: FY25 adjusted net income to $106–$113M (from $95–$97M) and adjusted EPS to $1.18–$1.26 (from $1.06–$1.07); revenue guidance affirmed at $563–$594M.
• Beat vs quarterly guidance: Q1 adjusted net income of $33.8M exceeded the prior Q1 guidance of $22–$24M by >40% on stronger yield, lower net charge‑offs, and expense discipline.
• Operating drivers: average yield rose 630 bps to 136% and net charge‑offs as % of revenue fell 1,330 bps to 35%; auto‑approval rate improved to 79%.
• Capital allocation: repaid $30M corporate term loan, upsized Blue Owl revolver by $50M, and approved a $0.25 per share special dividend (~$28.1M).

What Went Well and What Went Wrong

What Went Well

• Record quarterly revenue and adjusted net income driven by dynamic pricing, Model 6 credit refinements, and operating efficiency; CEO: “record‑breaking first quarter… increasing full‑year adjusted net income guidance”.
• Credit metrics improved materially: net charge‑offs as % of revenue fell to 35% (from 48% YoY); average yield rose to 136% (+630 bps YoY).
• Cost control supported margin expansion: total expenses were 34.4% of revenue (-1,110 bps YoY); net revenue up 44% YoY; CFO highlighted lower interest expense (7% of revenue vs 9% prior year) and 79% auto approvals.

What Went Wrong

• GAAP diluted EPS remained negative (-$0.48) for OppFi Inc. due to the Up‑C structure and higher noncontrolling interest allocation, despite consolidated net income of $20.4M.
• Warrant liability revaluation (-$21.6M) weighed on GAAP results; management excludes this in adjusted figures.
• Bitty SMB exposure requires vigilance amid tariff uncertainty; management is monitoring underwriting in transportation and retail sectors.

Transcript

Operator (participant)

Please stand by, your program is about to begin. If you need assistance on today's conference, please press star zero. Good morning and welcome to OppFi's first quarter 2025 earnings conference call. All participants are in a listen-only mode. As a reminder, this conference call is being recorded. Following management's presentation, a question-and-answer session will be held. For those listening by dial-in, you will be prompted to enter the queue after the prepared remarks. I am pleased to introduce your host, Mike Gallentine, Head of Investor Relations. You may begin.

Mike Gallentine (Head of Investor Relations)

Thank you, operator. Good morning and welcome to OppFi's first quarter 2025 earnings call. Today, our Executive Chairman and CEO, Todd Schwartz, and CFO, Pam 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. Reconciliation of those measures to GAAP measures can be found in the appendix to our earnings presentation and our press release. With that, I'd like to turn the call over to Todd.

Todd Schwartz (Executive Chairman and CEO)

Thanks, Mike, and good morning, everyone. Thank you for joining us today. After a strong finish to 2024, I am proud to report that the first quarter of 2025 was a record quarter for OppFi. The business achieved record quarterly revenue, adjusted net income, and operating margin. OppFi is now beginning to unlock its full growth potential, increasing profitability and strengthening our balance sheet. Given our Q1 outperformance, we are increasing full-year 2025 adjusted net income and adjusted EPS guidance. During the quarter, the company generated a strong 16% increase in originations and a 10% increase in revenue year-over-year. Our disciplined approach to growth and dynamic pricing led to this double-digit growth, and we anticipate this year-over-year growth will continue throughout 2025. In addition, OppFi continues to explore and test exciting new direct response initiatives and expand its marketing channel partners.

As we mentioned on our Q4 2024 earnings call, we paid off our corporate debt in the first quarter of 2025. Additionally, we expanded our blue-out facility to accommodate increased capacity for future growth. In Q2, we also paid a special dividend of $21.7 million in total. We believe our strong balance sheet and cash position will allow us to continue to be opportunistic in determining how and when to deploy capital to reward shareholders and invest in high ROI initiatives and inorganic growth opportunities. Throughout the quarter, Model 6 continued to perform well. As a reminder, Model 6 was designed to more effectively identify the risks of long-term charge-offs compared to earlier versions that focused on upfront shorter-term repayment status. Additionally, it is designed to facilitate risk separation, enable seasonal segmentation, and support optimized targeting for new approvals throughout the year.

In the first quarter of 2025, OppFi's net charge-off rate improved to 35% as a percentage of revenue compared to 48% for the prior year. Our model gives us the confidence that we will be able to continue to grow and also weather different periods of economic volatility. OppFi continues to invest in product and technology initiatives to improve customer experience and originations and servicing. The auto approval rate improved to 79% in Q1 2025, up from 73% in Q1 2024, which in turn improved funnel metrics and propelled our net revenue up 44% year-over-year. OpLoans remains one of the highest-rated products in the industry, boasting an 80 NPS score and a CSAT score of over 90% throughout the quarter. Our investment in Bitty continued to perform well in the first quarter of 2025. The business continued to drive accretive profitability and cash flow to OppFi.

We continue to see significant imbalance between supply and demand for working capital among small businesses. We are excited to be part of Bitty's growth ahead. Overall, OppFi had an extremely strong quarter financially and operationally. We expect continued strong revenue momentum and profitable growth throughout the remainder of 2025 and into 2026. OppFi is well on its way to executing its vision of becoming the leading tech-enabled digital finance platform that collaborates with banks to offer financial products and services to everyday Americans. With that, I'll turn the call over to Pam.

Pam Johnson (CFO)

Thanks, Todd, and good morning, everyone. As Todd noted, we are off to a fantastic start to the year. These results build upon the improved results that OppFi has generated since 2023 and are also a result of the significant operating improvements made over that period. Notably, we expect the operating changes and investments that OppFi has made to continue generating strong results for the foreseeable future, as evidenced by our increased guidance, which I will discuss shortly. For this discussion, all results are based on the first quarter of 2025 compared to the first quarter of 2024. Driven by strong loan demand and good credit performance, total revenue increased to a record $140 million, up 10%. Net originations grew 16% to $189 million, with retained net originations increasing 11% to $169 million.

The increase resulted from growth in total net originations, partially offset by an increase in the percentage of loans retained by our bank partners. Contributing to this increase in originations was an increase in average loan size driven by Model 6, which identified areas where there could be an increase in loan sizes for current and past customers. Our strategy of seeking profitable growth led to a substantial improvement in the credit quality of the customer base, resulting in a 15% decrease in gross charge-offs to $59 million and a 25% increase in recoveries to $11 million. This drove a significant improvement in the annualized net charge-off rate as a percentage of total revenue, decreasing to 35% from 48%, as noted by Todd. It also improved annualized net charge-offs as a percentage of average receivables from 62% to 47%.

The revenue growth, coupled with the improved credit quality discussed by Todd earlier, resulted in a higher yield and an improved charge-off rate, driving a significant 44% increase in net revenue to $91 million. The net result of these positive effects was an impressive 630 basis point improvement in the average yield to a record 136%. Our focus on cost discipline also played a key role in our strong performance. Continued improvements to the automated loan approval process contributed to effective cost control. For the first quarter, 79% of loans were approved in seconds with no human intervention, up 5.2%. The higher auto approvals, along with continued operational improvements, contributed to lower total expenses before interest expense, which declined to $38 million, an 18% decrease.

As Todd indicated, during the quarter, we proactively paid down our higher interest corporate debt, which reduced interest expense to 7% of total revenue, down from 9% in the prior year. As a result of the increases in revenue and reductions in expenses, adjusted net income increased 285% to a record $34 million, up from $9 million. At the same time, adjusted earnings per share grew significantly to $0.38 from $0.10 last year. We maintained a strong balance sheet, ending the quarter with $91 million in cash, cash equivalents, and restricted cash, alongside $288 million in total debt and $238 million in total stockholders' equity. Our total funding capacity was $616 million, including $237 million in unused debt capacity. We expect our strong momentum to continue into the second quarter, driven by robust revenue growth and adjusted net income.

Given our strong start to 2025 and our operating performance driven by our growth initiatives, improved credit model, and focus on operating efficiencies, we are providing the following updated guidance. For the full year 2025, we expect total revenues of $563 million-$594 million, representing a 7%-13% increase compared to 2024. This is unchanged from our previously issued guidance. We are increasing our adjusted net income guidance to $106 million-$113 million, up from the prior guidance of $95 million-$97 million, representing a 28%-37% increase from 2024. Based on an anticipated diluted weighted average share count of 90 million, adjusted earnings per share are expected to be between $1.18 and $1.26, up from the prior guidance of $1.06-$1.07. With that, I would now like to turn the call over to the operator for Q&A. Operator.

Operator (participant)

At this time, if you would like to ask a question, please press star one now on your telephone keypad. To withdraw yourself from the queue, you may press star two. Again, please press star one now to enter the queue. One moment while we queue. We will take our first question from Scott Buck of Wainwright. Your line is open.

Scott Buck (Managing Director and Senior Technology Analyst)

Guys, thanks for taking my questions. I guess the first one is on the adjusted net income beat. I was curious, what changed from the beginning of March when you reported fourth quarter results and gave the guidance from where you ended up at the end of the month?

Todd Schwartz (Executive Chairman and CEO)

Yeah.

Scott Buck (Managing Director and Senior Technology Analyst)

Yeah. Thanks, Todd.

Todd Schwartz (Executive Chairman and CEO)

Yeah. Thanks. I think, I mean, we were able to usually in that time of year in repayment season, you see a little bit of a decline in receivables. We also do not have a readout on the repayments due to tax refunds. We have some seasonal modeling going on in the fourth quarter. There was some conservatism also with some of the choppiness in the macro. We raised it, if you remember, we raised it pretty considerably when we reported. Things just were better than expected, just better expected all around. Some of the operational efficiencies took effect from last year. The credit performed well. The repayment season came in very strong. The growth was there, which is something. Yield continued to be strong. It was just a really overall, really strong March and just a strong quarter for us.

Scott Buck (Managing Director and Senior Technology Analyst)

Great. I appreciate that added color, Todd. I'm curious, on the small business side with Bitty, are you guys seeing any hesitation or desire to wait to make these kinds of investments given kind of a higher level of macro uncertainty, or are we all systems go there as well?

Todd Schwartz (Executive Chairman and CEO)

Yeah. I mean, I think it's a good question. It's top of mind for sure in our conversations with Craig and the Bitty team. We are actively looking at the underwriting and where we think tariffs will impact businesses the most, just to give you transportation, retail, some of those sectors, and what can be done about it. The good news is Bitty, their revenue-based finance product is short duration, and it gives the ability to course correct. I think when you go out on term right now, there's a lot more risk. There's duration risk, especially with some of the uncertainty. I think Bitty's well-positioned right now to continue to grow and weather some of the choppiness from tariffs.

Scott Buck (Managing Director and Senior Technology Analyst)

Great. I'm curious, you guys did announce the special dividend at the end of March. This is clearly not the first special dividend that you guys have done in the last few years. Is there a—what's the thought process around moving towards a more regular quarterly dividend versus the occasional special?

Todd Schwartz (Executive Chairman and CEO)

Yeah. I mean, we doubled it from the prior year. We were glad to do that and show the financial strength. I mean, we also paid down debt. Obviously, the business is generating strong returns and cash flow and wanted to reward shareholders. I think we're going to preserve the flexibility so that we have capital at our discretion to kind of choose from the menu of items that are out there. We're actively looking at inorganic opportunities. We're actively looking at growth opportunities. We think there's some high ROI options out there that we're exploring and want to make sure we have the capital so that anything we do is as non-dilutive as possible to shareholders and accretive to the business.

Scott Buck (Managing Director and Senior Technology Analyst)

Great. Then last one, if I can squeeze it in, on those inorganic opportunities, could you give a little bit of color around the criteria of what you're looking for, maybe what space or what you're looking to add? It sounds like growth is kind of top of mind, but.

Todd Schwartz (Executive Chairman and CEO)

Yeah. I mean, we still think that there's more opportunities in the SMB space. There's different flavors and different credit bands that are, there's some interest. In the consumer POS space, we're doing a lot of looking there. We think that it plays really nicely with our current core offering, and there's a lot of synergies and cross-sell opportunities. Those are kind of the areas that we're focused on for now. Yeah, we're continuing to explore.

Scott Buck (Managing Director and Senior Technology Analyst)

Great. I appreciate the time, guys, and congrats on the results.

Todd Schwartz (Executive Chairman and CEO)

Thank you. Thanks for the questions.

Operator (participant)

We will take our next question from David Scharf of Citizens Capital Markets. Your line is open.

Zach David (SVP)

Hi, good morning. This is Zach Hampshire, David. Congrats on the strong first quarter. I wanted to dig in a little bit on the yield and just the credit box. The yield was a little bit above our expectations. I wanted to see if we can kind of get a little bit more insight into just how the credit box is kind of today and what the kind of potential is for credit loosening, particularly given macro trends.

Todd Schwartz (Executive Chairman and CEO)

Yeah. I mean, I think we've held pretty firm on not loosening the credit box. We've been very disciplined on our growth approach. The increase in yield you're seeing is obviously just better repayment rates in the accrual and loans that are in accrual status. You are also seeing our risk-based pricing that we deployed last year along with Model 6, which is essentially better pricing risk for new customers on the front end and flowing through. You are starting to see some increased yield coming from that.

Zach David (SVP)

Got it. Understood. One more question just to kind of pop on on the capital action side. Any kind of thought process behind potential share repurchases is kind of picking back up with that?

Todd Schwartz (Executive Chairman and CEO)

Yeah. It's something for sure. I mean, we have to—the timing of it with open windows and potentially 10B 501s, we have to make sure that we're ready to go. I think we are definitely looking at when we think the share price is disconnected from reality. I mean, I think if you just look at our business with our current earnings potential and also the improvement of the metrics on the revenue side, on the operational efficiency side, we do think that we're undervalued. We also have a lot of other attractive options out there. We are always kind of weighing what the highest and best use of capital is for the business and where we can think it could be most accretive for shareholders and for the business in general.

Zach David (SVP)

Got it. Thanks.

Operator (participant)

Our next question is coming from Dave Storms of Stonegate. Your line is open.

Dave Storms (Equity Research Analyst)

Good morning. Thank you for taking my questions. Just wanted to start with what you're seeing as far as customer patterns. Are you seeing any pull forward of their buying patterns, borrowing activities for some of these forecasted macro events or anything like that?

Todd Schwartz (Executive Chairman and CEO)

Yeah. No, I talked about SMB earlier. I mean, I think there is more direct impact there. I do not think we have any direct impact on our consumers as far as tariffs are related. We have not seen much change. We have seen a very stable customer. If you actually look at the macro metrics of inflation, was it a four-year low? I think last week it was reported. Interest rates have come down from their highs. I think prices for major things like oil and food have come down. People are employed, right? Employment numbers were good. Right now, if you take the moment in time, things are solid and stable, and we are not seeing anything. Obviously, it is something we are watching extremely closely. This is also what happened in 2022. That was more of a shock inflation.

Those learnings is really what developed Model 6, which we've then deployed last year and is designed to help smooth out some of the volatility and some of these macro things. Right now, we're seeing mostly stability in the consumer.

Dave Storms (Equity Research Analyst)

Understood. Very helpful. Thank you. Just on the cost discipline front, how many more levers do you think you have to pull here? Are there any examples you could give us?

Todd Schwartz (Executive Chairman and CEO)

I'm sorry. I missed the first part of the question. You said how many more levers on the growth?

Dave Storms (Equity Research Analyst)

Cost.

Cost discipline.

Todd Schwartz (Executive Chairman and CEO)

Oh, on the cost. Listen, I think it's something that is just ingrained in our culture. Continuous improvement, operating efficiency. We're continuously looking for ways to get more efficient. I mean, if you look at our auto approval rate year-over-year, went from 73.4% to 78.6%. And that's really, that's not just one silver bullet. That's really just the business operating more efficiently, getting more customers through without human interaction. It's something we strive to continuously incrementally improve on a quarter-by-quarter basis and then also find operating efficiencies. With the AI revolution coming, there's definitely going to be opportunities to continue to improve operational efficiencies. We want to do it the right way. We're not looking to just replace all humans. We're looking to do it to provide a better customer experience and higher customer satisfaction to our customers.

We already lead the industry with our 80 NPS and our 90% or 90% CSAT. We view it as a way to help with the origination process, make it smoother for our consumers, and then also service them better on the back end.

Dave Storms (Equity Research Analyst)

Understood. Thank you for taking my questions. Good luck in Q2.

Todd Schwartz (Executive Chairman and CEO)

Thanks.

Operator (participant)

We'll take our final question from Mike Grondahl of Northland. Your line is open.

Luke Horton (Vice President and Senior Equity Research Analyst)

Yeah. Hey, guys. This is Luke on for Mike. Congrats on the great quarter. Just wanted to touch on how 2Q has been tracking so far, kind of specifically the month of April, and how your kind of outlook on the year has changed or if at all with the sort of macro uncertainty.

Todd Schwartz (Executive Chairman and CEO)

Yeah. I mean, I think it's consistent with my comments in the transcript that we see positive momentum for growth. We think we still have a lot of levers to unlock in our marketing channels. We're continuing to target lower-risk segments effectively. We continue to think that we're going to be able to grow significantly this year. We're excited. Things are looking good.

Luke Horton (Vice President and Senior Equity Research Analyst)

Awesome. Yeah. And then last one here, just what one or two things are you kind of most excited about for the remainder of the year?

Todd Schwartz (Executive Chairman and CEO)

I think we're executing on a larger vision, right, to be the digital financial platform or the future for alternative financial service credit products. Like I said in the last earnings call, that was phase one. We're now into the throes of phase two where we're going to really unlock the earnings potential and growth of the business, but also be a multi-product platform for the future. I'm excited to execute on that vision and continue to incrementally improve our models, improve our auto approval rates for our consumers, and continue to be the leader in the space.

Luke Horton (Vice President and Senior Equity Research Analyst)

Awesome. That's it for me, guys. Thanks for taking the questions and congrats on the quarter.

Todd Schwartz (Executive Chairman and CEO)

Thank you.

Operator (participant)

This does conclude our question and answer session as well as our conference for today. You may now disconnect your lines. Everyone, have a great day.