Q4 2023 OppFi Inc Earnings Call
[music].
Good afternoon, and welcome to our fourth quarter and full year 2023 earnings conference call.
Operator: Welcome to OppFi. Thank you for your time. Thank you. Thank you.
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It is now my pleasure to introduce your host Sean smugglers head of Investor Relations you may begin.
Shaun Smolarz: and Vista Relations. Thank you, Operator. Good afternoon.
Thank you operator, good afternoon on today's call are Todd Schwartz, Chief Executive Officer, and Executive Chairman and Pam Johnson, Chief Financial Officer, our fourth quarter and full year 2023 earnings press release and supplemental presentation can be found.
Shaun Smolarz: On today's call are Todd Schwartz, Chief Executive Officer and Executive Chairman, and Pam Johnson, Chief Financial Officer. Our fourth quarter and full year 2023 earnings press release and supplemental presentation can be found at investors.oppsi.com. During this call, OppFi will discuss certain forward-looking information. These forward-looking statements are based on assumptions and assessments made by OppFi's management in light of their experience and assessment of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate.
And investors dot oxide dotcom.
During this call upside, we'll discuss certain forward looking information. These forward looking statements are based on assumptions and assessments made by authorized management in light of their experience and assessment of historical trends current conditions expected future developments and other factors they believe.
To be appropriate.
Shaun Smolarz: Any forward-looking statements made during this call are made as of today, and OppFi undertakes no duty to update or revise any such statement, whether as a result of new information, future events, or otherwise. Important factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements are described in the company's filings with the United States Securities and Exchange Commission, including the sections entitled Risk Factors. In today's Remarks by Management, the company will discuss certain non-GAAP financial metrics. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in the earnings press release issued earlier this afternoon. This call is being webcast live and will be available for replay on our website. I would now like to turn the call over to Todd. Thanks, Shaun. And good afternoon, everyone.
Any forward looking statements made during this call are made as of today and I'll play undertakes no duty to update or revise any such statements whether as a result of new information future events or otherwise.
Important factors that could cause actual results developments and business decisions to differ materially from forward. Looking statements are described in the company's filings with the United States Securities and Exchange Commission, including the sections entitled Risk factors.
In today's remarks by management the company will discuss certain non-GAAP financial metrics. A reconciliation of these non-GAAP financial measures. The most comparable GAAP measures can be found in the earnings press release issued earlier. This afternoon. This call is being webcast live and will be avail.
Well for replay on our website I would now like to turn the call over to Todd.
Thanks, Sean and good afternoon, everyone. We're excited to begin 2024 and leverage our strong 2023 to continue achieving profitable growth 2023 marked our ninth consecutive year of net income with annual records for total revenue in ending receivables we.
Todd G. Schwartz: We're excited to begin 2024 and leverage our strong 2023 to continue achieving profitable growth. 2023 marked our ninth consecutive year of net income with annual records for total revenue and ending receivables. We achieved what we said we would do.
Cheese, what we said, we would do and credit.
Todd G. Schwartz: And credit improvements and operating efficiencies led us to raise full-year earnings guidance three times. In addition, our solid fourth quarter enabled us to exceed our final full-year earnings guidance for 2023. In 2024, we plan to maintain our strategy to be disciplined with underwriting, emphasizing profitability over portfolio growth, while simultaneously aiming for further operating efficiency throughout the company. Pam will review our fourth-quarter results in detail, as well as introduce guidance for Q1 and full year 2024. Before she does, I will cover four primary topics.
<unk> and operating efficiencies led us to raise full year earnings guidance three times.
In addition, our solid fourth quarter enabled us to exceed our final full year earnings guidance for 2023, and 'twenty 'twenty four we plan to maintain our strategy to be discipline with underwriting emphasizing profitability over portfolio growth, while simultaneously aiming for further operating efficiency.
Throughout the company.
Pam will review, our fourth quarter results in detail as well as introduce guidance for Q1 and full year 2024 before she does I will cover four primary topics.
Todd G. Schwartz: 1. The highlights from our Q4 and full year 2023 financial performance. 2. Progress in our strategic business areas during Q4 2023. 3.
One of the highlights from our Q4 and full year 2023 financial performance to progress and our strategic business areas. During Q4 2023, three commentary on our macroeconomic outlook for 'twenty four and for our discussion of our 2024 priority.
Todd G. Schwartz: Commentary on our macroeconomic outlook for 2024. And 4. Our discussion of our 2024 priorities. Fourth quarter results were driven by revenue growth, credit performance improvements, and expense leverage. Specifically, the key highlights for fourth quarter 2023 compared to the prior year are strong 10.7% total revenue growth to $132.9 million, and Discipline 3.3% net originations growth to $191.9 million.
Yes.
Fourth quarter results were driven by revenue growth credit performance improvements and expense leverage specifically the key highlights for fourth quarter of 2023 compared to the prior year, our strong 10, 7% total revenue growth to $132 9 million.
Disciplined three 3% net originations grow to $191 9 million the annualized net charge off rate as a percentage of total revenue improved by 12.9 percentage points to 46, 4% and prudent expense management total expenses excluding.
Todd G. Schwartz: The annualized net charge-off rate as a percentage of total revenue improved by 12.9 percentage points to 46.4%, and prudent expense management with total expenses excluding interest expense as a percentage of total revenue down 5.6 percentage points to 33.8%. This led to solid recoveries and profitability, net income of $1.9 million, up from a loss of $5.2 million, and adjusted net income of $8.9 million, up from a loss of $2.8 million. Our financial highlights for full year 2023, compared to the prior year, are record total revenue of $508.9 million, a 12.4% increase from the previous year, and a $1.3% increase from the previous year, record-ending receivables of $416.5 million, a 3.6% increase. The net charge-off rate as a percentage of total revenue declined to 43.5%, an 8.1% point improvement, and disciplined expense management with total As a result, profitability improved sharply with net income of $39.5 million compared to $3.3 million and adjusted net income of $43.3 million from $5 million. Adjusted net income margin was 8.5%, 50 basis points higher than implied by the midpoint of our guidance.
<unk> interest expense as a percentage of total revenue down five six percentage points to 33, 8%. This led to solid rebounds in profitability.
Net income of $1 9 million.
Up from a loss of $5 2 million and adjusted net income of $8 9 million up from a loss of $2 8 million.
Our financial highlights for full year 2023, compared to the prior year. Our record total revenue of $508 9 million or 12, 4% increase record ending receivables of $416 5 million or three 6% increase in net charge off rate as a percentage of total.
<unk> revenue declined to 43, 5% and eight 1% point improvement and disciplined expense management with total expenses, excluding interest expense as a percentage of total revenue by six two percentage points to 35, 4% as a result.
Profitability improved sharply with net income of $39 5 million compared to $3 3 million and adjusted net income of $43 3 million from $5 million. Adjusted net income margin was eight 5% 50 basis points higher than implied by the midpoint of our guidance.
Todd G. Schwartz: We achieved these results despite interest expense increasing by 11.6 million, or 33% year-over-year, in a macroeconomic environment marked by sticky inflation that hurts the financial health of our customers. Our strategy to balance growth and risk while maintaining expense discipline contributed meaningfully to this transformational year for OppFi. Now, I'll discuss our progress during the fourth quarter with our strategic business areas. Credit performance continues to improve year over year, as expected. In addition to improvement in the annualized net charge-off rate as a percentage of total revenue, as already mentioned, earlier stage delinquency trends also improved compared to the same period last year. The total first payment default rate decreased by 40 basis points, and the total delinquency rate declined by 90 basis points.
We achieved these results despite interest expense, increasing by $11 6 million or 33% year over year and a macroeconomic environment marked by sticky inflation that hurt the financial health of our customers our strategy, the balanced growth and risk while maintaining expense discipline.
Tribute meaningfully to this transformational year for outside.
Now I'll discuss our progress during the fourth quarter with our strategic business areas credit performance continues to improve year over year as expected. In addition to improving and the annualized net charge off rate as a percentage of total revenue already mentioned.
Earlier stage delinquency trends also improved compared to the same period last year. The total first payment default rate decreased by 40 basis points and the total delinquency rate declined by 90 basis points.
Todd G. Schwartz: We also realized solid expansion and yield of 8.4 percentage points to 126.8% compared to 118.4% in the year-ago period. We are pleased that credit modeling enhancements and adjustments made throughout 2023 appear to have had the intended effect, and our portfolio mix continued to shift to the lowest-risk segment. Our values-based recovery strategy also ended 2023 strongly with a 40.8% increase year-over-year in the fourth quarter for recoveries of previously charged-off loan balances. Additionally, our marketing team remained focused on cost-effective initiatives to generate higher quality origination volume. As a result, the marketing cost per funded loan was down 6.3% year-over-year in the fourth quarter.
We also realized solid expansion in yield of eight four percentage points to 126, 8% compared to 118, 4% in the year ago period. We are pleased that credit modeling enhancements and adjustments made throughout 2023 appear to have had the intended effect in our portfolio.
Mix continued to shift to the lowest risk segments. Our values based recovery strategy also ended 2023 strongly with a 48% increase year over year in the fourth quarter for recoveries of previously charged off loan balances our marketing team remains focused on cost effective initiatives to generate higher quality originations.
As a result of marketing cost per funded loan was down six 3% year over year in the fourth quarter in.
Todd G. Schwartz: In addition, the platform also expanded geographically with bank partners entering new states. We also realized operating cost leverage year-over-year with a focus on making each department more efficient. In addition, we continued our work on corporate development opportunities by evaluating potential partnerships and acquisitions as a means to create further shareholder value. As a result of this work, we've refined our criteria for what we would view as an attractive opportunity. Now, I'll briefly discuss how we think about the macroeconomic environment. We expect the economy in 2024 to be similar to how it was in 2023, with sticky inflation and interest rates higher than historic norms. As we have communicated during the past couple of years, persistent above-normal inflation hurts customers more than recessions do because they have more difficulty budgeting for everyday expenses, especially when living paycheck to paycheck with limited to no savings. To further illustrate this point, a recent Wall Street Journal article said it's been 30 years since food comprised this much of Americans' income.
In addition, the platform also expanded geographically with bank partners entering New States. We also realized operating cost leverage year over year with a focus on making each department more efficient.
Further we continued our work on corporate development opportunities by evaluating potential partnerships and acquisitions as a means to create further shareholder value as a result of this work we've refined our criteria for what we would view as an attractive opportunity.
Now I'll briefly discuss how we're thinking about the macroeconomic environment.
We expect the economy in 2024 to be similar to how it was in 2023 with sticky inflation and interest rates higher than historic norms. As we have communicated during the past couple of years persistent above normal inflation hurts customers more than recessions do because they have more difficulty budgeting for everyday expenses, especially.
When living paycheck to paycheck with limited to no savings to further illustrate this point a recent wall Street Journal article said its been a 30 years since food comprised this much of Americans incomes.
Todd G. Schwartz: Nonetheless, we note that employment trends appear relatively strong for customers. In summary, we think current macroeconomic conditions both help and hurt customers, and therefore, the net effect for OppFi is uncertain. While we are cautious due to these macroeconomic headwinds and our elevated interest expense, we believe that we are well-positioned to operate in this type of environment. We intend to pursue the same strategy and discipline in 2024. We expect to continue focusing on profitability over growth, and we plan to achieve this by maintaining prudent risk tolerances, emphasizing disciplined growth, and scaling operating expenses efficiently. In conjunction with the banks that partner with us, a new credit model is expected to be launched in Q2 that will incorporate an updated dynamic risk model intended to drive lower risk origination volume and reduce credit losses.
Nonetheless, we note that employment trends appear relatively strong for customers in summary, we think current macroeconomic conditions, both health and her customers and therefore, the net effect for all five is uncertain. While we are cautious due to these macroeconomic headwinds and our elevated interest expense.
And we believe that we're well positioned to operate in this type of environment, we intend to pursue the same strategy and discipline in 2024, we expect to continue focusing on profitability over growth and we plan to achieve this by maintaining prudent risk tolerances, emphasizing disciplined growth and scaling operating expenses efficiently.
In conjunction with the bench that partner with US our new credit model is expected to be launched in Q2 that will incorporate an updated dynamic risk model intended to drive lower risk origination volume and reduced credit losses. We also anticipate further geographic expansion as bank partners entered new store.
Todd G. Schwartz: We also anticipate further geographic expansion as bank partners enter new states. In addition, we're planning for marketing to focus on top-of-funnel optimization with new analytic insights. Similar to last year, we are also focused on reviewing every function to manage expenses and achieve operating efficiencies, including vendor spending and process improvement. Moreover, we will be patient with corporate development to find the right fit for accretive partnerships or acquisitions.
In addition, we're planning for marketing to focus on top of funnel optimization with new analytic insights Sim.
Similar to last year. We are also focused on reviewing every function to manage expenses and achieve operating efficiencies, including vendor spending and process improvements. Moreover, we will be patient with corporate development to find the right fit for accretive partnerships or acquisitions.
Pamela D. Johnson: In summary, before turning the call over to Pam, I will reiterate my confidence in our long-term strategy. We ended 2023 with a strong balance sheet, including unrestricted cash of $31.8 million, which nearly doubled year over year. This provides us with the optionality to deploy cash to create additional shareholder value. Our confidence in the business will be demonstrated by our participation in investor events during 2024 to communicate our story with a more targeted approach. Thanks, Todd. And good afternoon, everyone.
In summary, before turning the call over to Pam I will reiterate my confidence in our long term strategy. We ended 2023 with a strong balance sheet, including unrestricted cash of $31 8 million, which nearly doubled year over year. This provides us the optionality to deploy cash to create additional shareholder value our confidence in the business will be demonstrated.
Australia by our participation in investor events during 2024 to communicate our story with a more targeted approach.
Thanks, Todd and good afternoon, everyone I'll begin by echoing Todd's comments that we're very excited to have achieved our ninth consecutive year of net income in 2023 with record annual total revenue of $508 9 million record ending receivables of $416 5 million and a substantial rebound in profitability with net income.
Pamela D. Johnson: I'll begin by echoing Todd's comments that we are very excited to have achieved our ninth consecutive year of net income in 2023 with record annual total revenue of $508.9 million, record ending receivables of $416.5 million, and a substantial rebound in profitability with net income of $39.5 million and adjusted net income of $43.3 million. Now, I'll detail our fourth quarter 2023 results. For the fourth quarter, year over year, total revenue increased 10.7% to $132.9 million, with a 3.3% increase in net originations to $191.9 million and an 840 basis point improvement in yield to 126.8%. From a mixed perspective, 57% of originations were to existing customers, and 43% were to new customers. This is partially due to risk management, with originations to existing customers generally being less risky than those to new ones. On an absolute basis, new customer originations for the quarter decreased by 4.2% year over year, while existing customer originations increased by 9.7%.
<unk> of $39 5 million and adjusted net income of $43 3 million.
Now I'll detail, our fourth quarter 2020 through results for the fourth quarter year over year total revenue increased 10, 7% to $132 9 million with a three 3% increase in net originations to $191 9 million and an 840 basis point improvement in yields to 126, 8%.
From a mixed perspective, 57% of originations were to existing customers and 43% were to new customers. This was partially due to risk management with the originations to existing customers generally being less risky than those to new ones.
On an absolute basis, new customer originations for the quarter decreased by four 2% year over year, while existing customer originations increased by nine 7%.
Pamela D. Johnson: The annualized net charge-off rate as a percentage of average receivables improved by 11.4 percentage points to 58.8% for the fourth quarter of 2023, compared to 70.2% for the prior year quarter. However, as a percentage of total revenue, the annualized net charge offering decreased by 12.9 percentage points to 46.4% compared to 59.3% last year. Total expenses, excluding interest expense, were $44.5 million, or 33.8% of total revenue, compared to $47.3 million, or 39.4% of revenue for the same period in 2022. Adjusted EBITDA totaled $25.8 million, more than double the $9.9 million in the prior year quarter. Interest expense totaled $12.1 million, or 9.1% of total revenue, compared to $10.7 million, or 8.9% of total revenue, in the same period a year ago. The year-over-year increase was due to higher interest rates on our credit facilities. Adjusted net income was $8.9 million compared to an adjusted net loss of $2.8 million for the comparable period last year. This was stronger than implied by our full-year guidance due to the lower net charge-off rate as a percentage of total revenue. Adjusted earnings per share was $0.10 per share.
The annualized net charge off rate as a percentage of average receivables improved by 11 four percentage points to 58, 8% for the fourth quarter of 2023 compared to 72% for the prior year quarter as a percentage of total revenue the annualized net charge off rate decreased by $12 nine percentage points to.
<unk> 46, 4% compared to 59, 3% last year total expenses, excluding interest expense were $44 5 million or 33, 8% of total revenue compared to $47 3 million or 39, 4% of revenue for the same period in 2022.
Adjusted EBITDA totaled $25 8 million more than double the $9 9 million in the prior year quarter.
Interest expense totaled $12 1 million or nine 1% of total revenue compared to $10 7 million or eight 9% of total revenue in the same period a year ago. The year over year increase was due to higher interest rates on our credit facilities.
Adjusted net income was $8 9 million compared to an adjusted net loss of $2 8 million for the comparable period last year. This was stronger than implied by your full year guidance due to the lower net charge off rate as a percentage of total revenue.
Adjusted earnings per share was <unk> 10 per share during the three months ended December 31, 2023 at Phi had $85 7 million weighted average diluted shares outstanding for the calculation of adjusted earnings per share our balance sheet remains healthy with cash cash equivalents and restricted cash of $73 nine.
Pamela D. Johnson: During the three months ended December 31, 2023, OppFi had 85.7 million weighted average diluted shares outstanding for the calculation of adjusted earnings per share. Our balance sheet remains healthy with cash, cash equivalents, and restricted cash of $73.9 million, total debt of $334.1 million, and total stockholders' equity of $194 million as of year end. In addition, we had $598.9 million in total receivable funding capacity at the end of 2023, including undrawn debt of $192.3 million. Turning now to our outlook. For the first quarter, we expect 5 cents in adjusted earnings per share based on 86 million diluted weighted average shares.
Million total debt of $334 1 million and total stockholders' equity of $194 million as of year end. In addition, we had $598 9 million in total receivable funding capacity at the end of 2023, including Undrawn debt of $192 3 million.
Turning now to our outlook for the first quarter, we expect five and adjusted earnings per share based on 86 million diluted weighted average shares quarter to date, we have manage the business more tightly from a growth perspective, we anticipate the annualized net charge off rate as a percentage of total revenue will increase year over year in the first quarter.
Pamela D. Johnson: Quarter to date, we have managed the business more tightly from a growth perspective. We anticipate the annualized net charge-off rate as a percentage of total revenue will increase year-over-year in the first quarter. The first quarter last year benefited from aggressive tightening to credit models during mid-2022, and therefore, the first quarter this year is more normal from a net charge-off rate perspective. However, our business also has seasonality, which causes fluctuations quarter-over-quarter. The portfolio typically contracts in the first quarter, driven by tax refunds. As a result, the first quarter is generally the highest quarter for net charge-offs and the smallest quarter for profitability.
The first quarter last year benefited from aggressive tightening credit models during mid 2022, and therefore, the first quarter. This year, it's more normal from a net charge off rate perspective, our business also has seasonality, which causes fluctuations quarter over quarter. The portfolio typically contracts in the first quarter driven by tax refunds as a result, the first quarter.
It is generally the highest quarter for net charge offs and smallest quarter for profitability.
We anticipate accelerated profitability in the second and third quarters.
For the full year 2024 guidance for total revenue is 510 million to $530 million. We expect adjusted net income of 46 million to 49 million, implying approximately 10% growth at the midpoint.
Pamela D. Johnson: We anticipate accelerated profitability in the second and third quarters. For the full year 2024, guidance for total revenue is $510 million to $530 million. We expect adjusted net income of $46 million to $49 million, implying approximately 10% growth at the midpoint. Based on an anticipated diluted weighted average share count of 86.5 million, adjusted earnings per share would be between 53 cents and 57 cents.
Based on an anticipated diluted weighted average share count of $86 5 million adjusted earnings per share would be between 53 and 57.
With that I would now like to turn the call over to the operator for Q&A operator.
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Operator: With that, I would now like to turn the call over to the operator for Q&A. Operator? Thanks. We will now be conducting a question and answer, and I'd like to ask a question, telephone. Confirmation, but, Thank you for watching. We'll see you next time. Bye. Bye. Bye. Bye.
The first question, we have is from Mike Grondahl of Northland Securities. Please go ahead.
Yeah, Hey, guys. Thank you.
I don't know Pam.
Could you kind of clarify or add some more color to your statement.
I think you just said that.
You ratcheted that growth even more in the first quarter.
Pamela D. Johnson: David Grondahl, David Schwartz, Pamela Johnson, Shaun Smolarz, William Buster, Todd Schwartz, Yeah, hey guys, thank you. I don't know, Pam. Could you kind of clarify or add some more color to your statement? I think you just said that. You ratcheted back growth even more in the first quarter so far, just trying to understand kind of your growth outlook and how you're feeling about the macro. It sounds like Todd said to the 24, you know, a lot about emphasizing profitability over growth. So just a little bit more color here.
So far just trying to understand kind of your growth outlook.
How are you feeling about the macro.
It sounded like Todd said to that 24 O b.
You know a lot about emphasizing profitability over growth. So just a little bit more color there would be helpful.
Sure Mike Thanks, Good question.
It comes again from the macroeconomic environment, we're seeing we're not.
We have certainly tightened the credit box to to manage to that environment, we're not seeing necessarily a lot of improvement in the customer repayment rates and things like that so we did you know we're still keeping.
Pamela D. Johnson: It comes again from the macroeconomic environment we're seeing. We have certainly tightened the credit box to manage that environment. We're not necessarily seeing a lot of improvement in the customer experience, repayment rates, and things like that.
Todd G. Schwartz: So we did, you know, we're still keeping everything fairly close as far as growth is concerned and being very cautious about it. Again, that emphasis on profitability over growth is one of our tenants for this next year for sure. Todd, would you like to add any more to that?
Everything is fairly close as far as growth and being very cautious about it again that emphasis of profitability over growth is one of our tenants for this next year for sure Todd would you like to add any more to that yeah. I'll just chime in I think I had mentioned it on the last call.
Todd G. Schwartz: Yeah, I'll just chime in. I think I had mentioned it on the last call. We have dynamic modeling in place now, Mike. So what that means is we know the vintages; there's seasonality to vintages throughout the year. You go into the fourth quarter, some of the lowest lost vintages of the year. I think that's what Pam was referring to on the call. If you look at the repayment rates on February and March vintages, it's tax refund season. And typically, those are some of the lowest quality vintages of the year.
We have we have dynamic modeling in place now, but Mike. So what that means is is we know the vintage is there seasonality to vintages throughout the year you go into the fourth quarter. Some of the lowest lost you know vintages of the year I think I think that that's what was she was Pam was referring to.
On the call was if you look at the repayment rates on a on February March vintages, it's tax refund season and.
Lead those are some of the lowest quality vintages of the year. So I think that's what she was referring to.
Todd G. Schwartz: So I think that's what she was referring to when she said this. I wanna clarify, but we have more of a dynamic modeling now as we've worked on testing and rebuilding the model. And we deploy it throughout the year based on some seasonality in the market. You got it.
When she says I want to clarify, but you know we have more of a dynamic modeling now as we worked on testing and rebuilding the model and we deploy it throughout the year based on some seasonality in the marketplace.
Todd G. Schwartz: End of. You know, we're outside. What would we... or you need to see when you start, that would help you push for growth? Like, what needs to change? What would you need?
Got it.
You know were outside.
What would we.
Or you need to see.
When you start.
That would help you push for growth a little bit like what needs to change what would you need to see.
Todd G. Schwartz: Well, you know, right now, we're enjoying the benefit of lower acquisition costs. We're being very efficient in our funnel. So we're happy to see that right. But But I would need to see sustained loss curves that mimic, you know, 2019, or even close to it, right? We're not there yet. You know, we're seeing, obviously, as you go lower in the segment, segment one being our lowest risk customer, you're seeing less degradation from 19. And then you would in segment three. However, we have not seen that sustained.
Well you know right now we're enjoying the benefit of lower acquisition cost for being very efficient on our funnel. So we're happy to see that right, but I would I would need to see sustained loss curves that mimic two.
2019, or even close to it right, where we're not there yet.
We're seeing.
Obviously as you go lower in the segment's second one being our lowest risk customer are you seeing less degradation from 19, then than you would in a segment. Three however, we have not seen that sustained and you know, we've we've kept our product and our price and our commitment to credit access.
Todd G. Schwartz: And, you know, we've kept our product and our price and our commitment to credit access the same. So we're not, you know, we're not raising prices on customers; we're not passing through. So, you know, we have to operate within the confines of our business right now, but that's not to say we might not employ some testing around pricing in the future. But I think I think that's really what I, you know, what we would need to see to really turn growth on. Now, that being said, Mike, you know, in the fourth quarter, we had very effective swap in, swap outs with some segments and stuff. And so we are finding ways to grow. We also, you know, I mentioned in the call geography expansion; our bank partners have chosen to expand on jet. So there are other ways to grow, right? It doesn't just mean expanding the credit box. Got it. I mean, taking that one step further. I mean, is this sort of a 50 to 60 cent? adjusted EPS business until you grow? Like, do you have other level levers to drive the adjusted EPS?
The same so we're not we're not raising prices on customers, we're not passing through so we have to operate within the confines of our business right now and that's not to say we might not employ some testing around pricing in the future, but I think I think that that's really what I, what we would need to see to really turn grow that.
Now that being said Mike.
In the fourth quarter, we had very effective swap and swap outs with some segments and stuff and so we are finding ways to grow. We also you know I mentioned in the call geography expansion of our bank partners have chosen to expand on jet. So there are other ways to grow right. It doesn't just mean expanding the credit box.
Okay.
Got it I mean, taking that one step further.
I mean is this sort of the 50 to 60 cents.
Adjusted EPS business until you grow like do you have other level levers to drive adjusted EPS other than growth.
Todd G. Schwartz: APS, other than growth. I mean, absolutely. You know, we're seeing, just to be clear, Mike, we brought our fair market value down 200 basis points year over year. We've seen other companies have been raising theirs in this environment, which, you know, that's not in line with our we're very conservative. And, you know, that was a significant hit to our P&L. But we're doing that because we're in this for the long term. This is to really align and be conservative and then, you know, come out when the growth's there and be ready for it. But there are several levers that we can pull on.
I mean, absolutely.
We're seeing.
Just to be clear.
We brought our fair market value was brought down 200 basis points year over year, we've seen other companies had been raising there is in this environment, which.
In line with our we're very conservative and you know that was a significant hit to our to our P&L, but we're doing that because we're in this for the long term this is to really align.
Conservative and then come out when the growth there and be ready for it.
But there are several levers.
That we can we can pull on the operational efficiencies. We're just getting started there I mean, there's there's tremendous efficiencies that we're finding we're also really focused on the customer funnel. We found some really interesting stuff, we're working on them the funnel side too.
Todd G. Schwartz: Operational efficiencies, we're just getting started there. I mean, there's tremendous efficiency that we're finding. We're also really focused on the customer funnel. We found some really interesting stuff we're working on on the funnel side to look at address bottlenecks and then also increase throughput. So, you know, feel really good that we have the levers to drive growth, despite, you know, record high interest rates for our business, for the life of our business, and then also some unfavorability at fair market value. OK. Hi, good afternoon.
Address bottlenecks and then also more throughput so.
I feel really good that we have the levers.
To drive growth despite record high interest rates for our business for the life of our business and then also some unfavourably at fair market value.
Got it okay.
The next question, we have response Zachary Auster of JMP Securities. Please go ahead.
Unnamed Questioner: Thank you for taking my question. So, kind of digging into the growth piece a little bit for next year. We're trying to figure out if it's really what the drivers are within it, you know, it's kind of more driven by lower average yields or lower volume, or any of those types of factors.
Hi, good afternoon, and thank you for taking my question, so kind of digging into the growth piece, a little bit for next year.
We're trying to figure out if it's really what the drivers are within it it's kind of more driven by lower average yields or lower volume or.
Any of those types of factors.
I'm sorry could you just repeat the question I missed the first part I apologize.
Unnamed Questioner: So we're just trying to get a better sense of what the drivers are for the 2024 revenue guidance. You know, is it lower yields? Is it, you know, just tighter, lower volume, tighter credit box?
Yes, hi, So I was just trying to get a better sense of what the drivers are for the 2020 for revenue guidance at the lower yields is it tighter lower volumes higher credit box.
Pamela D. Johnson: Yeah, I mean, I mean, currently, the yield, no, we forecast the yield to stay strong. We're at its current levels. It really, really has to do with us not seeing the credit there.
Yes Kara.
The yields no we forecast the yield to stay strong.
We're at its current levels.
It's really really has to do with us not seeing the credit there were also not going to chase growth by paying more necessarily we haven't been quite.
Pamela D. Johnson: We're also not going to chase growth by paying more, necessarily. We have been at this for quite some time and seen that when you do that, you end up just getting a lot more high-risk customers into the funnel and end up paying more for less. So, I think it really has to do with what we're seeing in the macroeconomic outlook. Now, things can change, and we're prepared, right?
Quite some time and seen that when you do that you end up just getting a lot more high risk customers into the funnel and end up paying more for for last so I think it really has to do with what we're seeing on the macroeconomic outlook now things can change and we're prepared right and we also have we mentioned.
Todd G. Schwartz: And we also have, you know, we mentioned our most powerful model yet is launching in the second quarter where we really, really think that the swap-in, swap-outs, and some of the other attributes of the model are going to be very powerful when we put them all together. All the testing we've been doing over the last year and a half is going to allow for more growth. So, but right now, what we're seeing is, you know, largely similar to last year, albeit we still have some levers that, you know, we're working on. And like I said, some funnel efficiencies to propel growth and some geography expansion as well from the bank partners that we can service in more. So, but yeah, we're, that's kind of how we're looking. Got it, that makes sense.
Our most powerful model yet is watching you know in the second quarter, where we really really think that on the swap and swap outs and on some of the other attributes of the model are going to be very powerful that we put it all together all the testing we've been doing over the last year year and a half is going to allow for more growth. So but right now what we're seeing is.
Largely similar to last year, albeit we still have some levers that you know we're working on and like I said, some pheno funnel efficiencies to propel growth and some geography expansion as well from the bank partners that we can service in more states. So.
But yes, we are.
That's kind of how we're looking at it.
Got it that makes sense and then just one more follow up question.
So just on the.
Charge off rate typically we were kind of wondering if you can.
More color on the dynamics of this at the year end.
Unnamed Questioner: And then just one more follow-up question. So just on the charge-off break specifically, we were kind of wondering if we could get more color on the dynamic of it through the year and the kind of, yeah, the way that it plays out throughout the year, the charge-off rate as a percentage of revenue. Yeah. Yeah, I think we've made a lot of gains. One thing that we mentioned on the call is year-over-year significant improvement. We expect that to stay significantly the same, if not incremental improvement there. We're going to always be looking for ways to improve that. But yeah, as your revenue growth slows, obviously, it impacts some of those numbers and as a percentage of receivables as well. But we think it's going to be largely similar in that aspect. Got it. Thank you very much.
Yes, the way that plays out throughout the year.
The charge off rate as a percentage of revenue.
Yes.
Yes, I mean, I think I think we've made a lot of gains.
One thing.
That we mentioned on the call.
Year over year significant improvement.
We expect that to say stay significantly the same if not incremental improvement there we're going to always be looking for ways to.
To improve that.
But yes.
As your <unk>.
Revenue growth slows, obviously impacts some of those numbers and as a percentage of receivables as well but.
We think we think it's going to be largely similar for on that aspect.
Got it thank you very much.
Unnamed Questioner: Good evening, just wanted to start; you mentioned updated acquisition criteria; I was hoping to dive into that a little bit more and just get a general sense of what you're seeing in the M&A. Yeah, on the acquisition criteria, are you referring to the top of the font, like the criteria? I just want to get more specific on the question to make sure I answer correctly.
The next question. We have is from day storms of Stonegate. Please go ahead.
Good evening.
Wanted to start you mentioned updated acquisition criteria I was hoping you could dive into that a little bit more than just a general sense of what youre seeing in the M&A market.
Yeah, and then on the acquisition criteria, you're referring to.
Hum like top of funnel like are the criteria I just wanted to get more specific on the question to make sure I answer it correctly.
Todd G. Schwartz: My understanding was that when you were talking about uses of cash as you look towards external growth, you were updating your criteria there? Oh, sorry, you're talking about M&A. I'm sorry; I was focused on originations on the one side.
My understanding was that when you were talking about uses of cash.
As you look for towards external growth, you're updating your criteria there.
Oh, sorry are you talking about on M&A I'm sorry.
Just on <unk>.
On the originations on the one side well I.
Todd G. Schwartz: I think, yeah. I mean, I think we're learning a ton on the M&A side. You know, we've really, really started to hone in on two or three verticals that we think are really interesting and very complementary to the OppFi brand. You know, our vision around being a tech-enabled platform that provides best-in-class alternative digital, alternative financial service products where we see supply, demand, and balance, where the banks are not and the large financial institutions are not, fits that bill. It's really us just, you know, finding a situation that works for us, that's highly accretive for our shareholders and for the business, and for our brand, right? It all has to align.
I think yeah, I mean, I think we're learning a ton on the M&A side.
We've really really started to hone in on two or three verticals that we think are really interesting and very complementary to the up five brand.
Our vision around.
Being being a tech enabled platform that provides best in class alter.
Alternative.
Digital alternative financial service products.
We've received supply demand imbalance, where the banks are not in the large financial institutions are not fit that bill.
It's really us just finding a situation that works for us that is highly accretive for our shareholders and for the business and for our brand right. It all has to align so we're being patient. This is not something that we are just going to do haphazardly, we're going to be very thoughtful about it.
Todd G. Schwartz: So we're being patient. This is not something that we are just going to do haphazardly. We're going to be very thoughtful about it. You know, we're pulling on, you know, a lot of my, in my second life before I came back as CEO, I was in private equity, doing a lot of transactional stuff. So I'm pulling on a lot of that experience and a lot of our team's experience to make sure that we're going to get it right.
We're pulling on.
A lot of my and my second life before I came back as CEO is in private equity doing is doing a lot of transactional stuff. So pulling on a lot of that experience and a lot of our teams experience.
To make sure that we're going to get it right. So.
Unnamed Questioner: So yeah, we're starting to get more confidence. The market is starting to get more rational. We're starting to see, you know, more opportunities that potentially could make sense, but nothing to report now. But, you know, we're hard at work, and we're starting to, you know, we're looking around.
So yes, we're starting to get more confidence the market is starting to get more rational we're starting to see.
More opportunities that potentially can make sense, but nothing to report now, but we're hard at work and we're starting to we're looking around.
Understood. That's very helpful. Thank you and then just one more on the auto approval rate took a nice step up year over year continues to grow how do you think about the ceiling on this right.
Todd G. Schwartz: On the auto approval rate, it took a nice step up year over year. How do you think about the ceiling on this rate and you know kind of the hurdles that you see over the next 12 months to continue growing that way? Yeah, I mean, I think we've made a large scale improvement. I think, you know, it's sitting, you know, somewhere in the neighborhood of 72%. So really, really happy with the tech and product and the ability to increase that year over year. Incrementally every year, that's a goal, right, to continue to increase that. I think one of the things that are so talked about is on the artificial intelligence front on the servicing side. There's a great opportunity, right, during the in the funnel, to be using some of these AI tools to better help people through the process and get them, you know, auto-approved so that we have all the documentation and make sure that the customer, you So, you know, we're looking at all options there and pulling on our tech and product to continue to incrementally build on that, but obviously, that we watch and track very closely. Thanks for taking my questions and congrats on the year. Good luck!
What are the hurdles that you see over the next 12 months to continue growing that rate.
Okay.
Yeah, I think we've made the large scale improvement I think.
It's sitting.
Somewhere in the neighborhood of I think we're at 72%. So you can really really happy with tech and product and the ability to increase that year over year incrementally every year. That's our goal is to continue to increase that I think one of the things.
So talked about is is on the artificial intelligence front on the servicing side. There is great opportunity right during the in the funnel to be using some of these AI tools to better to better.
So really help people through the process and get them out auto approved so that we have all the documentation.
And making sure that the customer.
We have all the information to be able to process in an automated fashion and prevent having to go to more manual style underwriting. So we're looking at all options there and pulling on our tech and product teams to continue to incrementally build on that but obviously, it's something that we watch and track very closely.
Understood. Thanks for taking my questions and congrats on the year.
Thank you.
Ladies and gentlemen, just a reminder, if you would like to ask a question Youre welcome to push Star then one.
Next question, we have is from Ross Davidson of capital. Please go ahead.
Hi, Thanks for taking the question guys.
Unnamed Questioner: You're welcome. I think the question is, just circling back on guidance. The other question I had was... You've launched in some more states, and it sounds like, given that, and I understand, you know, the outlook in 2024 is still cloudy and sounds like, you know, I think you said it was even similar to 2023. Wouldn't the states, or why wouldn't the states that you've entered provide some uplifts? more than sort of what's implied by the revenue? You know, am I missing something there?
Just certainly back on guidance.
Just another question I had was.
You've launched some more states it sounds like.
Given that and I understand the outlook in 2024 is still cloudy and it sounds like I think you said, even similar to 2023.
Wouldn't the dates or why wouldn't the states that you're you've entered provide some uplift more than sort of what's implied by the revenue.
Am I missing something there yeah.
Todd G. Schwartz: Yeah, I mean, I think when you're launching new geographies, those are all new, new originations, pretty much, you know, and I think we're being very cautious because new originations, as you know, are the riskiest and provide the highest charge-offs. So, we're being very careful. And by the way, there are some differences. You go into a state for the first time.
Yeah, I mean, I think when you're launching new geographies those are all new new originations pretty much.
And I think we're being very cautious because new originations as you know are the riskiest.
And provide the highest charge offs.
So we're being very careful and by the way. There is some there is some difference as you go into a state for the first time.
Todd G. Schwartz: We've been doing this a long time, but no two states are alike. So, we're just being, you know, pretty cautious now. That's not to say that things, you know, can work out and we'll get some favorable upside, but I think right now, the way we're doing it is very strategic and very thoughtful because, you know, obviously, we're very sensitive to charge-off rates. And, you know, we don't want to be originating stuff on behalf of the bank partners that's going to, you know, potentially have delinquency issues,
Doing this a long time, but no two states are alike.
So we're just being pretty cautious now that's not to say that things can work out and we'll get some favorable upside, but I think right now the way. We are is very is very strategic and very thoughtful because obviously were very.
Sensitive to charge off rates.
And we don't want to be originating stuff on behalf of the bank partners, that's going to potentially have delinquency issues right. We don't want to get ahead of ourselves. So we're just going at a pace that we feel very comfortable with and we've done this quite a few times with great success, but I think.
Unnamed Questioner: We don't want to get ahead of ourselves. So, we're just going at a pace that we feel very comfortable with. And we've done this quite a few times with great success, but I think, you know, it could benefit significantly in 2025. But, you know, this year we're forecasting it to be, you know, some growth, but obviously being very cautious because of the credit on that. Yeah, that makes sense. That's helpful. Thanks, Todd. And then the only other question I had was just about charge-offs. Pam, did I hear you right?
Could benefit us significantly in 2025.
But this year, we're forecasting it to be some growth, but obviously being very cautious because of the credit on the new stuff.
Yeah.
Yes that makes sense. That's helpful. Thanks, Todd and then the only other question I had was just on charge offs and did I hear you right. You said Q1 current quarter will be up from a year ago, and I guess I just wanted to make sure I understood that you referenced the 2022 tightening but didn't you still have bad I'm, sorry, more challenging 2020.
Unnamed Questioner: You said Q1, the current quarter, will be up from a year ago. And I guess I just wanted to make sure I understood that you referenced the 2022 tightening, but didn't you still have more challenging 2022 vintages in the book that you would have been cycling through? I'm just surprised it wouldn't be at least similar.
Two vintages vintages in the book that you would've been cycling through I'm, just surprised it wouldn't be at least similar yeah I wanted to clarify its Pam you can jump in as well, but I wanted to clarify that like as a as a dollar amount.
It may be higher but as a percentage of revenue, it's probably going to be similar.
So I don't.
Todd G. Schwartz: Yeah. I wanted to clarify, so Pam, you can jump in as well, but I wanted to clarify that, as a dollar amount, it may be higher, but as a percentage of revenue, it's probably going to be similar. So I don't think it's a little misleading when we say it's higher, like I'm seeing it being, you know, roughly similar or substantially similar to as a percentage of revenue. So the dollar amount really speaks to the fact that, in 22, we did a major tightening mid-year, which is not something you ever really contemplate or do. And so we got some of that benefit with some of the subsidies in first quarter 23, which we didn't, we were in a very more normalized environment, but seasonality wise, you know, first quarter is always going to be the lowest quarter of profitability for the year. And then it accelerates in the second, third, and fourth.
A little misleading when we say it's higher.
Im seeing it being.
Roughly similar or substantially similar to as a percentage of revenue so.
The dollar amount is really speaks to in 'twenty. Two we did a major tightening mid year, which is not something you ever really contemplate or do and so we got some of that benefit with some of the subsidized in first quarter 'twenty, three which we didn't we weren't I'm very no more normalized environment, but seasonality wise.
First quarter is always going to be the low the low quarter of profitability for the year and then it accelerates in second third and fourth fourth is a little is somewhat muted compared to second and third because you start growing again because of the fourth quarter seasonality, but you know.
I think.
It's.
Overall, the yields coming up.
Todd G. Schwartz: Fourth is a little, somewhat muted compared to second and third because you start growing again because of the fourth quarter seasonality. But, you know, I think it's, you know, overall the yield coming up, you know, as a percentage of revenue, as I mentioned that we've seen that much. Okay. Yeah, we see just a minor, minor lift, just a very minor lift in the percentage of charges, in the charge-offs as a percentage of revenue. Very minor, so, for the first time. Okay, that makes more sense. Thanks for clarifying.
As a percentage of revenue as I mentioned that we don't.
See that much difference from last year.
Okay, Yes, we see that that's a minor minor left that's a very minor lift in our percentage of charges.
The charge offs as a percentage of revenue very minor so for the first quarter.
Okay that makes more sense, thanks for clarifying.
Yeah.
Yes.
Just a final reminder, if you would like to ask a question Youre welcome space Star.
Yes.
We will post a moment see if you have any further questions.
It seems we have no further questions at this time and I would like to turn the floor back over to Todd.
As for closing comments.
Yes, I wanted to thank everyone for joining today and then the thoughtful questions. We look forward to speaking with.
Operator: Amanda, if you would like to... You're welcome. Yeah, I wanted to thank everyone for joining today and then for the thoughtful questions. We look forward to speaking with everyone again in May when we report our first quarter results. That concludes today's webinar. Thanks for joining us, www.opfi.org.
With everyone again in May when we report our first quarter results.
Thank you. This concludes today's conference. Thank you for joining US you may now disconnect your lines.
Okay.
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