Executive Summary / Key Takeaways

• OppFi delivered record Q3 2025 results driven by Model 6's risk segmentation and operational improvements, with revenue up 13.5% and auto-approval rates reaching 79%, yet the company maintains disciplined credit standards, explicitly refusing to chase growth if credit quality deteriorates.

• The bank partnership model provides a regulatory moat against usury caps and compliance risks, enabling 133% annualized yields while competitors face direct regulatory exposure, but this same structure constrains balance sheet flexibility and limits scale relative to larger direct lenders.

• Credit performance shows manageable stress, with net charge-offs at 35.1% of revenue in Q3, as management acknowledges new loan vintages perform worse than prior years, though risk-based pricing and tighter segmentation offset these headwinds to preserve unit economics.

• Valuation appears attractive on cash flow metrics, trading at 2.55x operating cash flow and 2.69x free cash flow with a 48.95% ROE, but the 158x P/E multiple reflects structural complexity and regulatory overhang from the ongoing California AB 539 litigation.

• The investment thesis hinges on three variables: successful rollout of Model 6.1 in Q4 2025, maintenance of credit discipline amid macro uncertainty, and resolution of regulatory challenges that could either validate or undermine the partnership model's long-term viability.

Setting the Scene

OppFi Inc. was founded in 2012 as a tech-enabled digital finance platform with a singular mission: partner with banks to provide installment loans to the 48 million everyday Americans underserved by traditional financing. This partnership structure sits at the heart of every strategic decision, creating a business that looks fundamentally different from direct lenders. While competitors like Enova and LendingClub hold loans on their balance sheets, OppFi acts as a service provider, earning fees for marketing, underwriting, and servicing while banks originate the actual loans and hold the credit risk.

The subprime lending industry operates in a permanent state of regulatory scrutiny, with state usury laws and federal compliance requirements creating a complex patchwork of rules. OppFi's model, which relies on bank partnerships and the "valid when made" doctrine , positions it to charge annualized yields of 133% while maintaining compliance through bank origination. This approach generated $155.1 million in Q3 2025 revenue, a 13.5% increase year-over-year, but it also attracted legal challenges, most notably the March 2022 complaint against the California Department of Financial Protection and Innovation regarding the applicability of AB 539's rate caps.

The competitive landscape reveals OppFi's niche positioning. Against Upstart's AI-driven automation (91% of loans fully automated) and LendingClub's deposit-funded model ($10B+ deposits), OppFi's 79% auto-approval rate and partnership-dependent funding appear modest in scale. Yet this smaller scale—$481 million in ending receivables versus competitors' multi-billion-dollar portfolios—translates into superior margins, with operating margins reaching 51.29% and ROE hitting 48.95%. The trade-off is clear: OppFi sacrifices growth velocity for regulatory protection and profitability, a strategic choice that defines its risk-reward profile.

Technology, Products, and Strategic Differentiation

Model 6, OppFi's machine learning underwriting engine launched in 2024, represents the core technological advantage. The model improves identification of long-term charge-off risks, facilitates risk separation, enables seasonal segmentation, and optimizes targeting for new approvals. In practice, this translated to auto-approval rates increasing to 79.1% in Q3 2025 from 76.8% in the prior year, while simultaneously allowing the company to tighten higher-risk segments and apply risk-based pricing. The "so what" is profound: OppFi can approve more customers without human intervention while maintaining credit quality, directly boosting operational leverage and reducing cost per origination.

The upcoming Model 6.1 refit, planned for rollout in Q4 2025 and full implementation in Q1 2026, aims to better identify riskier borrower populations while incrementally improving volume and enhancing risk pricing across segments. This matters because it addresses management's explicit concern that credit in new segments is worse than prior years. If Model 6.1 successfully segments behavioral and seasonal volatility, OppFi can sustain its 12.5% origination growth without compromising unit economics, preserving the 35.1% net charge-off ratio that competitors struggle to match.

LOLA (Loan Origination Lending Application), the new origination system announced in Q2 2025, targets a step-function improvement in processing times and operational efficiency. Designed to leverage AI tools and integrate major systems, LOLA's migration planned for Q1 2026 could reduce cycle times and increase throughput beyond what Model 6 alone achieves. The strategic implication is a potential further reduction in expenses as a percentage of revenue, which already fell to 30% in Q3 2025 from 33% in the prior year, amplifying margin expansion.

Beyond the core OppLoans product, the 35% equity investment in Bitty Holdings provides a foothold in small business financing. Bitty generated $1.365 million in equity income in Q3 2025, up 117.7% year-over-year, capitalizing on the supply-demand imbalance in revenue-based financing. This diversification matters because it exposes OppFi to the faster-growing SMB segment without taking direct balance sheet risk, complementing the consumer lending business while maintaining the partnership model's risk-light structure.

Financial Performance & Segment Dynamics

Q3 2025's $155.1 million in total revenue and $104.6 million in net revenue represent record performance, but the composition reveals the strategy's mechanics. Net originations of $246.1 million grew 12.5%, with almost 50% coming from new customers, demonstrating market expansion. Ending receivables of $481 million increased 16.3%, driven by retained originations and term extension initiatives. The average yield of 133.2% remained stable, showing pricing power in a rising-rate environment, while net charge-offs at 35.1% of revenue reflect manageable credit stress.

Operating leverage appears clearly in the expense trajectory. Total expenses before interest declined to 30% of revenue in Q3 2025 from 33% in the prior year, a 300-basis-point improvement that flowed directly to the 51.29% operating margin. This efficiency gain stems from algorithmic automation and higher auto-approval rates, reducing manual underwriting costs. The "so what" for investors is structural: each incremental dollar of revenue generates higher marginal profit, creating a scalable business model that competitors with higher fixed costs cannot easily replicate.

The balance sheet reflects the partnership model's capital efficiency. With $45.4 million in unrestricted cash and $204.2 million in unused debt capacity as of September 30, 2025, OppFi maintains 39% undrawn capacity across its $525 million financing commitments. This liquidity position, combined with $323.81 million in annual operating cash flow, funds growth without diluting equity. The March 2025 corporate debt extinguishment and February 2025 Blue Owl facility extension demonstrate proactive balance sheet management, reducing interest expense to 6% of revenue from 8% in the prior year.

Segment performance validates the strategic focus. OppLoans generated 100% of revenue and all operating income, while Bitty contributed $1.365 million in equity income. The exited OppFi Card product, which cost $2.9 million in 2024 exit expenses, was fully terminated by May 2025, removing a drag on profitability. This matters because it concentrates resources on the core installment business, where OppFi holds competitive advantages, rather than diluting focus on less profitable product lines.

Outlook, Management Guidance, and Execution Risk

Management raised 2025 guidance to $590-605 million in revenue and $137-142 million in adjusted net income, implying confidence in sustained double-digit growth into 2026. The key assumptions underlying this outlook include stable macroeconomic conditions, effective Model 6.1 deployment, and continued operational efficiency gains from LOLA. CFO Pamela Johnson noted that a more stable interest rate environment should reduce seasonality, with Q1 and Q4 contributing more than in prior years, creating a more predictable earnings trajectory.

The guidance's fragility appears in management's explicit caveats. CEO Todd Schwartz stated, "The only thing that would prevent us from doing that [double-digit growth in 2026] is we're not going to chase growth if credit is not there, it's just not something we're going to do." This discipline protects long-term unit economics but caps upside if competitors aggressively capture market share during credit expansion cycles. The admission that "credit in new segments is worse than it was last year" signals that Model 6.1's success is not guaranteed; if the model fails to adequately price new risks, OppFi must choose between slower growth or margin compression.

Execution risks cluster around technology deployment and competitive response. Model 6.1's Q4 2025 rollout and Q1 2026 full implementation must deliver on promises to identify riskier borrowers while improving volume. Any delay or underperformance would undermine the 2026 growth outlook. Similarly, LOLA's migration in Q1 2026 must achieve the targeted processing time reductions; failure would leave OppFi at a competitive disadvantage to Upstart's 91% automation rate and LendingClub's integrated banking platform.

Risks and Asymmetries

The California AB 539 complaint represents the most material regulatory risk. Filed in March 2022 and still pending with a Motion for Summary Judgment submitted in September 2025, this case challenges the core partnership model's validity. If the court rules that OppFi must comply with California's rate caps, the company would face a binary outcome: either exit the California market, representing a significant revenue portion, or accept compressed yields that could make the business unprofitable. The "so what" is existential: a negative ruling would invalidate the regulatory moat that underpins OppFi's 133% yields and partnership strategy.

Credit quality deterioration poses a cyclical risk that management acknowledges but may underestimate. While Schwartz claims macro conditions remain "solid and stable" with inflation at four-year lows, the company's own data shows new vintages performing worse. If unemployment rises or consumer balance sheets weaken, net charge-offs could exceed the 35.1% level, particularly since OppFi lacks the diversification of ENVA's SMB lending or LC's deposit base. The asymmetry is negative: credit losses rise faster than yields in downturns, compressing margins precisely when growth becomes most difficult.

Scale disadvantage creates competitive vulnerability. With $481 million in receivables versus ENVA's multi-billion portfolio and LendingClub's $2.62 billion in quarterly originations, OppFi's customer acquisition costs are structurally higher. This matters because it limits pricing flexibility; competitors can absorb higher marketing spend or lower rates to gain share, while OppFi must maintain yields to cover its fixed costs. The 12.5% origination growth lags the 35% YoY growth in overall subprime unsecured lending, suggesting OppFi is losing relative market share despite absolute gains.

Valuation Context

Trading at $11.11 per share, OppFi's valuation presents a study in contrasts between accounting complexity and cash generation. The 158.43 P/E ratio appears extreme but reflects the corporate structure's tax inefficiencies rather than economic reality. More meaningful metrics tell a different story: the stock trades at 2.55x operating cash flow and 2.69x free cash flow, with a 48.95% ROE that exceeds all direct competitors. This disconnect arises because net income includes non-cash items like warrant liability adjustments and OppFi-LLC ownership changes, while cash flow captures the true economic profit of the partnership model.

Balance sheet strength supports the valuation. With $45.4 million in cash, $204.2 million in unused debt capacity, and a net debt-to-equity ratio of 1.20, OppFi maintains financial flexibility to fund growth or return capital. The $40 million share repurchase authorization, with $29 million remaining as of September 2025, signals management's belief that the stock trades below intrinsic value. The recent $150 million Castlelake credit facility renewal at improved terms further reduces funding costs, with interest expense already down to 6% of revenue.

Peer comparisons highlight OppFi's niche premium. Upstart (UPST) trades at 5.01x sales with 71% revenue growth but just 11.35% operating margins and 3.23% net margins, reflecting its platform model's lower profitability. LendingClub (LC) trades at 2.42x sales with 16.37% operating margins, while ENVA (ENVA) trades at 1.33x sales with 29.38% operating margins but faces direct credit risk. OppFi's 1.69x price-to-sales ratio appears reasonable given its 51.29% operating margin and 48.95% ROE, suggesting the market values its regulatory protection and profitability while discounting its smaller scale.

Conclusion

OppFi stands at an inflection point where technology investments in Model 6 and LOLA are driving operational efficiency and margin expansion, yet the partnership model that enables regulatory compliance simultaneously constrains growth velocity. The Q3 2025 record performance—13.5% revenue growth, 79% auto-approval rates, and 51% operating margins—demonstrates that disciplined credit management and automation can generate superior returns in subprime lending. However, management's explicit refusal to chase growth if credit quality falters caps upside, while the California AB 539 litigation threatens the foundational regulatory moat.

The investment thesis ultimately depends on three variables: Model 6.1's ability to price risk accurately in worsening credit vintages, resolution of regulatory challenges without undermining the partnership model, and OppFi's capacity to compete against larger, more diversified rivals. If these resolve favorably, the 2.55x operating cash flow multiple and 48.95% ROE suggest meaningful upside. If not, the scale disadvantage and regulatory overhang could pressure both growth and profitability. For investors, this is not a "set and forget" holding but a situation requiring active monitoring of credit trends, legal developments, and competitive dynamics.