Business Overview and History
OppFi Inc. (OPFI) is a tech-enabled, mission-driven specialty finance platform that aims to expand credit access to everyday Americans by empowering community banks. The company's primary product, OppLoans, serves consumers who are employed, have bank accounts, and generally earn median wages. OppFi has also expanded into the small business financing market through its recent acquisition of a 35% equity stake in Bitty Advance, a credit access company offering revenue-based financing and other working capital solutions.
OppFi was founded in 2012 with the goal of providing financial services to the underserved segment of the population that lacks access to mainstream credit products. The company's flagship product, OppLoans, was launched in 2013 and has since become a leading provider of short-term installment loans, typically with an average balance of around $1,500 and a contractual term of 11 months.
The company's mission is centered on helping consumers rebuild their financial health through a highly automated, transparent, and digital experience. OppFi's focus on operational efficiencies and strong credit performance has been a key driver of its growth and success.
In July 2021, OppFi completed a business combination with FG New America Acquisition Corp., a special purpose acquisition company (SPAC), and the combined entity began trading on the New York Stock Exchange under the ticker symbol OPFI. This transaction provided OppFi with additional capital and resources to execute on its growth strategy. As part of this transition, FG New America Acquisition Corp. changed its name to OppFi Inc., and its Class A common stock and warrants began trading under the ticker symbols "OPFI" and "OPFI WS", respectively.
OppFi has faced some regulatory challenges in recent years. In 2022, the company filed a complaint seeking declaratory and injunctive relief against the California Department of Financial Protection and Innovation regarding the applicability of certain interest rate caps to loans originated by the company's bank partners. This legal matter remains ongoing, highlighting the complex regulatory environment in which OppFi operates.
Despite these challenges, OppFi has continued to demonstrate resilience and commitment to its core mission of financial inclusion. The company's recent expansion into the small business financing market through its stake in Bitty Advance represents a strategic move to diversify its product offerings and tap into adjacent markets.
Financial Performance and Metrics
For the fiscal year 2023, OppFi reported total revenue of $508.95 million, a 12.4% increase from the previous year's $452.86 million. Net income for 2023 was -$1.01 million, compared to $3.34 million in 2022. The company's operating cash flow for 2023 stood at $296.15 million, while free cash flow reached $287.15 million.
In the latest quarter (Q2 2024), OppFi's total revenue increased 3.1% year-over-year to $126.3 million. Net income for the quarter was $27.7 million, up 53.1% from the same period in the prior year. The company's annualized net charge-off rate as a percentage of total revenue improved by 370 basis points to 32.5% in Q2 2024, compared to 36.2% in the same quarter of 2023. Operating cash flow for Q2 2024 was $76.49 million, with free cash flow of $73.90 million.
The increase in revenue was primarily driven by higher average receivables balances, a higher average statutory rate for the loans in the portfolio, and stronger payment activity driving a higher yield on the balances. The significant increase in net income was due to higher total revenue, lower change in fair value and provision for credit losses on finance receivables, and disciplined expense management.
Guidance and Outlook
For the full-year 2024, OppFi is reiterating its guidance for total revenue of $510 million to $530 million, with the company currently pacing toward the midpoint of this range at $520 million. The company has also raised its earnings guidance by more than 20%, now expecting adjusted net income of $63 million to $65 million, and adjusted earnings per share of $0.73 to $0.75, compared to the previous range of $0.58 to $0.62.
For the third quarter of 2024, OppFi has introduced guidance of adjusted net income of $17 million to $19 million and adjusted earnings per share of $0.20 to $0.22. The company expects total revenue in Q4 2024 to be slightly higher than in Q3, while the annualized net charge-off rate as a percentage of total revenue is anticipated to be substantially lower in Q3 than in Q4. However, OppFi expects year-over-year improvement in this annualized net charge-off rate in both Q3 and Q4.
Product Segments and Key Performance Indicators
OppFi's primary product offering is the OppLoans platform, which provides short-term credit options for everyday Americans who lack access to mainstream financial products. The company previously offered SalaryTap, a payroll deduction secured installment loan, and the OppFi Card credit card product. However, SalaryTap did not contribute meaningfully to OppFi's results during Q2 2024, and the OppFi Card was wound down and exited in January 2024.
Key performance indicators for the OppLoans product in Q2 2024 include:
1. Total Net Originations: Increased 2.4% to $205.55 million, driven by bank partners' expansion into additional states and enhanced lead evaluation capabilities.
2. Total Retained Net Originations: Decreased 3.1% to $189.34 million, due to one of OppFi's bank partners retaining a higher percentage of loans originated in certain states.
3. Ending Receivables: Decreased 2.7% to $387.09 million, primarily driven by a bank partner retaining a higher percentage of loans originated in certain states.
4. Average Yield: Increased to 134.8%, driven by a decrease in delinquent loans that were not accruing interest and an increase in the average statutory rate.
5. Net Charge-Offs: Decreased to 32.5% of total revenue and 43.8% of average receivables, due to a higher yielding portfolio and higher recoveries.
6. Auto-Approval Rate: Increased to 75.8%, driven by the continued application of algorithmic automation projects that streamline the origination process.
Financials
OppFi's financial performance has shown improvement over the past year. The company's revenue growth, increased net income, and improved credit metrics demonstrate its ability to execute on its business strategy. The raised earnings guidance for 2024 also suggests confidence in the company's near-term prospects.
Liquidity
OppFi's liquidity position appears to be solid, with strong operating cash flow and free cash flow reported for the fiscal year 2023 and Q2 2024. The company's ability to generate positive cash flows provides it with financial flexibility to invest in growth initiatives and navigate potential challenges. As of Q2 2024, OppFi reported:
- Debt/Equity Ratio: 21.19 - Cash and Restricted Cash: $80.84 million - Available Credit Lines: $223.23 million in undrawn debt capacity under its financing facilities - Current Ratio: 18.26 - Quick Ratio: 18.26
These metrics indicate a healthy balance sheet with ample liquidity provided by cash, restricted cash, and available credit lines. The high current and quick ratios suggest strong short-term liquidity.
Risks and Challenges
One of the key risks facing OppFi is the regulatory environment, as the company's business model and lending practices are subject to scrutiny by various state and federal agencies. The company has faced inquiries from certain agencies and states regarding its lending compliance, the validity of its bank partnership model, and its ability to facilitate the servicing of bank-originated loans.
Additionally, OppFi's business is susceptible to macroeconomic conditions, such as changes in unemployment levels and interest rates, which can impact the credit performance of its loan portfolio. The company must carefully manage its credit risk and underwriting processes to maintain profitability.
Competition from other fintech lenders, traditional banks, and alternative financial products, such as buy-now-pay-later and earned wage access, also pose a risk to OppFi's market share and growth potential.
Conclusion
OppFi has established itself as a leading tech-driven specialty lender focused on expanding credit access to underserved consumers. The company's recent acquisition of a stake in Bitty Advance signifies its strategic move into the small business financing market, further diversifying its product offerings.
Despite the regulatory and competitive challenges facing the company, OppFi's strong financial performance, improved credit metrics, and raised earnings guidance suggest that the company is well-positioned to navigate the current market environment and continue its growth trajectory. The company's focus on its core OppLoans product, along with improvements in key performance indicators such as average yield and auto-approval rates, demonstrate its commitment to operational efficiency and technological advancement.
Investors should closely monitor the company's ability to execute on its strategic initiatives, manage the risks inherent in its business model, and maintain its strong liquidity position. As OppFi continues to evolve and expand its offerings, its success will likely depend on its ability to balance growth with responsible lending practices and navigate the complex regulatory landscape of the specialty finance industry.