OppFi Inc. (OPFI): Powering Banks to Expand Credit Access for Everyday Americans

Published on September 24, 2024 | Ticker: OPFI

OppFi Inc. (OPFI) is a tech-enabled, mission-driven specialty finance platform that broadens the reach of community banks to extend credit access to everyday Americans. The company's primary products are offered through its OppLoans platform, which focuses on helping credit-marginalized consumers rebuild their financial health.

OppFi's annual revenue reached $273,182,000 in 2023, with a net income of -$1,004,999. The company generated strong operating cash flow of $294,434,000 and free cash flow of $285,443,000 during the year. In the first quarter of 2024, OppFi reported total revenue of $127,343,000, a 5.8% increase from the prior-year period. Net income for the quarter was $10,131,000, up significantly from $3,930,000 in the first quarter of 2023.

Business Overview

OppFi's mission is to facilitate financial inclusion and credit access to the 63 million everyday Americans who are credit-marginalized. The company partners with banks to offer accessible lending products through its proprietary technology and top-rated customer experience. Customers on OppFi's platform benefit from a highly automated, transparent, efficient, and fully digital experience, while the banks that work with OppFi gain access to its turn-key, outsourced marketing, data science, and proprietary technology to digitally acquire, underwrite, and service these consumers.

OppFi's primary products are offered through its OppLoans platform, which serves U.S. consumers who are employed, have bank accounts, and generally earn median wages. The average installment loan facilitated by OppFi is approximately $1,500, payable in installments with an average contractual term of 11 months. Neither the company's SalaryTap nor OppFi Card products contributed meaningfully to OppFi's results during the first quarter of 2024.

Operational Initiatives and Performance

During the first quarter of 2024, OppFi experienced strong customer payment activity driven by underwriting testing and implementation, tax refund season, and improved recoveries. These factors contributed to the company's improved credit performance year-over-year, with the total first payment default rate lower by 40 basis points and the total delinquency rate decreasing by 70 basis points. Recoveries of previously charged-off loan balances also increased by 33.5% year-over-year.

OppFi and its bank partners are excited to launch a new credit model in the second quarter of 2024, which incorporates additional customer cash flow and behavior inputs designed to more accurately evaluate the risk of applicants. The company expects this model to result in future originations carrying less risk and, therefore, improved credit performance over the long term.

In terms of marketing, the total cost per funded loan was down 12% compared to the same period in 2023, and the addressable market expanded further as bank partners entered new states. OppFi also recently launched an enhanced chatbot feature powered by artificial intelligence capabilities, which is expected to improve the customer experience and increase operational efficiency.

Macroeconomic Outlook and Capital Allocation

Based on recent macroeconomic data and consumer finance surveys, OppFi believes core inflation remains sticky, and interest rates are unlikely to be reduced until the fourth quarter of 2024 or early 2025. The company believes this environment disproportionately affects the 29% of American households that are employed but income-constrained and asset-light, as sticky inflation makes it more difficult for these consumers to pay for basic needs.

While OppFi believes the upmarket tightening may present selective growth opportunities as more applicants may fall into the credit box for OppLoans, the company will remain cautious on originations given the overall macroeconomic uncertainty. Instead, OppFi is focused on profitable growth and has numerous levers to continue creating shareholder value, including improvements in credit performance and operational efficiency.

In light of the company's strong balance sheet and free cash flow generation, OppFi's Board of Directors recently declared a special dividend of $0.12 per share and authorized a new $20 million share repurchase program. The company plans to use cash to repurchase stock when it believes the share price is disconnected from its intrinsic value and unreflective of OppFi's long-term earnings potential. Additionally, OppFi remains committed to pursuing potentially accretive partnerships or acquisitions that fit with the company's mission to facilitate credit access for underbanked Americans.

Outlook

For the full year 2024, OppFi reiterated its guidance for total revenue of $510 million to $530 million. Based on the stronger-than-expected first quarter performance, the company has increased its guidance for adjusted net income to $50 million to $54 million, compared to the prior range of $46 million to $49 million. This translates to adjusted earnings per share between $0.58 and $0.62, up from the previous range of $0.53 to $0.57.

For the second quarter of 2024, OppFi expects total revenue to be relatively flat year-over-year. The company remains focused on profitable growth and believes it has numerous levers to continue creating shareholder value, including improvements in credit performance and operational efficiency.

Risks and Challenges

OppFi faces risks related to the macroeconomic environment, including the potential for continued sticky inflation and interest rate hikes, which could impact its customer base. The company also faces regulatory risks, as it has received inquiries from certain agencies and states regarding its lending compliance and the validity of its bank partnership model. However, management is confident in the company's compliance with state and federal laws and is vigorously defending all legal proceedings and regulatory matters.

Conclusion

Overall, OppFi's first quarter 2024 results demonstrate the company's ability to navigate the current macroeconomic landscape and deliver strong financial performance. With a focus on profitable growth, operational efficiency, and strategic capital allocation, OppFi appears well-positioned to continue expanding credit access for everyday Americans while creating value for its shareholders.

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