Q1 2024 OppFi Inc Earnings Call

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Speaker Change: Good morning, and welcome to <unk> first quarter 2024 earnings Conference call.

Operator: Good morning, and welcome to OppFi's first quarter 2024 earnings conference call. All participants are in a listen-only mode.

Speaker Change: All participants are in a listen only mode. As a reminder, this conference call is being recorded.

Operator: As a reminder, this conference call is being recorded. After management's presentation, there will be a question and answer session. For those dialing in, you will be prompted to enter the queue after the prepared remarks. It is now my pleasure to introduce your host, Shaun Smolarz, Head of Investor Relations.

Speaker Change: After management's presentation, there will be a question and answer session for those dialing in you will be prompted to enter the queue. After the prepared remarks. It is now my pleasure to introduce your host Sean Snow Lars head of Investor Relations.

Shaun Smolarz: May I begin? Thank you, operator. Good morning.

Speaker Change: You may begin. Thank you operator, good morning on today's call are Todd Schwartz, Chief Executive Officer, and Executive Chairman and Pam Johnson Chief Financial Officer.

Shaun Smolarz: On today's call are Todd Schwartz, Chief Executive Officer and Executive Chairman, and Pam Johnson, Chief Financial Officer. Our first quarter 2024 earnings press release and supplemental presentation can be found at investors.oppfi.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.

Speaker Change: Our first quarter 2024 earnings press release, and supplemental presentation can be found at investors don't upsize Dot com. During this call upside we'll discuss certain forward looking information. These forward looking statements are based on assumptions and assessments made by <unk> management in light of there.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: Management, the company will discuss certain non-GAAP financial metrics, a reconciliation of these non-GAAP financial measures to most comparable GAAP measures can be found in the earnings press release issued earlier this morning.

Shaun Smolarz: A reconciliation of these non-GAAP financial measures to most comparable GAAP measures can be found in the earnings press release issued earlier this morning. 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.

Speaker Change: This call is being webcast live and will be available for replay on our website.

Speaker Change: I would now like to turn the call over to Todd.

Todd G. Schwartz: Thanks Shaun and good morning everyone. We are very pleased to report our first quarter 2024 results, which exceeded our earnings guidance and enabled us to raise our full-year earnings outlook. When we introduced our full-year guidance in March, we had limited visibility into 2024 based on the seasonality of the business. However, our profitability accelerated to end the quarter with a strong tax refund season, and we continue to see favorable credit trends in our portfolio. Pam will review our first quarter results in detail and revise guidance for full year 2024. But before she does, I will cover four primary topics.

Todd G. Schwartz: Thanks, Sean and good morning, everyone. We are very pleased to report our first quarter 2024 results, which exceeded our earnings guidance and enabled us to raise our full year earnings outlook. When we introduced our full year guidance in March we had limited visibility into 2024 based on the seasonality.

Todd G. Schwartz: <unk> of the business, however, our profitability accelerated to end the quarter with a strong tax refund season, and we continue to see favorable credit trends in our portfolio.

Speaker Change: Pam will review, our first quarter results in detail and revised guidance for full year 2024 before she does I will cover four primary topics one highlights from our first quarter of 2024 to progress on our operational initiatives three.

Todd G. Schwartz: 1. Highlights from our first quarter of 2024, 2. Progress on our operational initiatives, 3. Commentary on our macroeconomic outlook, and 4.

Speaker Change: Commentary on our macroeconomic outlook and for discussion of our capital allocation strategy.

Speaker Change: First quarter results were driven by revenue growth and continued credit performance improvements and expense leverage our key highlights for the quarter compared to the prior year period, our solid five 8% total revenue growth to $127 3 million a strong three five percentage.

Todd G. Schwartz: Discussion of our capital allocation strategy. First quarter results were driven by revenue growth and continued credit performance improvements and expense leverage. Our key highlights for the quarter compared to the prior year period are solid 5.8% total revenue growth to $127.3 million, a strong 3.5 percentage point increase in revenue yield to 129.5%, a meaningful 33.5% increase in recoveries, and a 1.1 percentage point improvement in the net charge-off rate as a percentage of total revenue to 47.9%.

Speaker Change: Increase in revenue yield to 129, 5% a.

Speaker Change: A meaningful 33, 5% increase in recoveries and a 1.1 percentage point improvement in the net charge off rate as a percentage of total revenue to 47, 9%.

Todd G. Schwartz: In addition, we continue to carefully manage expenses to realize greater operational efficiency. On a gap basis, total expenses as a percentage of total revenue increased 110 basis points year-over-year to 45.5 percent. However, when excluding one-time expenses and other add-backs such as severance costs and exiting the credit card business, this percentage decreased by 270 basis points year-over-year to 40.6 percent. This led to profitability increasing by more than 100% year over year. Net income of $10.1 million, an increase of $6.2 million from $3.9 million, and adjusted net income of $8.8 million, an increase of $4.9 million from $3.9 million. Additionally, we ended the quarter with a strong balance sheet that we believe positions us to achieve our strategic objectives. Total cash, cash equivalents, and restricted cash was $88.7 million, up 20% from year-end.

Speaker Change: In addition, we continued to carefully manage expenses to realize greater operational efficiency on a GAAP basis total expenses as a percentage of total revenue increased 110 basis points year over year to 45, 5%. However, when excluding onetime expenses and other add backs such as <unk>.

Speaker Change: <unk> costs and exiting the credit card business. This percentage decreased by 270 basis points year over year to 46%. This led to profitability increasing by more than 100% year over year.

Speaker Change: Net income was $10 1 million, an increase of $6 2 million from $3 9 million and adjusted net income of $8 8 million, an increase of $4 9 million from $3 9 million.

Speaker Change: Additionally, we ended the quarter with a strong balance sheet that we believe positions us to achieve our strategic objectives total cash cash equivalents and restricted cash was $88 7 million up 20% from year end of this unrestricted cash was $47 2 million, which increased $48 four per.

Todd G. Schwartz: Of this, unrestricted cash was $47.2 million, which increased 48.4% in the first quarter sequentially. Given our confidence in maintaining a strong balance sheet and generating free cash flow, we were proud to announce the company's first-ever special dividend in the amount of $0.12 per share to demonstrate our commitment to rewarding our stockholders. Now, I'll discuss our progress during the first quarter with our core operational function. During the first quarter, we experienced strong customer payment activity driven by one, the underwriting, testing, and implementation done last year, two, the tax refund season, and three, recovery.

Speaker Change: <unk> in the first quarter sequentially, given our confidence in maintaining a strong balance sheet and generating free cash flow. We were proud to announce the company's first ever special dividend in the amount of <unk> 12 per share to demonstrate our commitment to rewarding our stockholders.

Speaker Change: Now I'll discuss our progress during the first quarter with our core operational functions.

Speaker Change: During the first quarter, we experienced strong customer payment activity driven by one the underwriting testing and implementation done last year to tax refund season, and three recoveries. All of these factors contributed to our improved credit performance year over year, we identified higher risk applicants to deny and <unk>.

Todd G. Schwartz: All of these factors contributed to our improved credit performance year over year. We identified higher-risk applicants to deny and stronger ones to approve that would have been denied otherwise. This trend has continued through April, the early part of Q2. Early stage delinquency trends improved compared to the same period last year, with the total first payment default rate lowering by 40 basis points, and the total delinquency rate decreasing by 70 basis points. In addition, recoveries of previously charged-off loan balances increased 33.5% year-over-year.

Speaker Change: <unk> wants to approve that would've been denied otherwise. This trend has continued through April the early part of Q2 early stage delinquency trends improved compared to the same period last year with the total first payment default rate lower by 40 basis points and the total delinquency rate decreasing by 70 basis points.

Speaker Change: In addition recoveries of previously charged off loan balances increased 33, 5% year over year.

Todd G. Schwartz: We and our bank partners are excited to launch a new credit model in the second quarter. The model incorporates additional customer cash flow and behavior inputs that are designed to more accurately evaluate the risk of the application. As a result, we expect future originations to carry less risk and, therefore, our credit performance to improve over the long term. Turning to marketing, the total cost per funded loan was down 12% compared to the same period in 2023. During the first quarter, the addressable market expanded further as bank partners entered new states. In terms of customer experience, we recently launched an enhanced chatbot feature powered by artificial intelligence capabilities that we've named Opt AI.

Speaker Change: We and our bank partners are excited to launch a new credit model in the second quarter. The model incorporates additional customer cash flow and behavior inputs better designed to more accurately evaluate the risk of the applicants as a result, we expect future originations to carry less risk and therefore, our credit performance to improve.

Speaker Change: Over the long term turning to marketing the total cost per funded loan was down 12% compared to the same period in 2023 during the first quarter. The addressable market expanded further as bank partners entered new states in terms of customer experience. We recently launched an enhanced chatbot feature powered by artificial.

Speaker Change: Intelligence capabilities that we've named Op AI, we believe this will improve the customer experience and increase operational efficiency. We also celebrated national financial capability month by announcing our collaboration with <unk> to provide customers with a game of five financial literacy app to help them.

Todd G. Schwartz: We believe this will improve the customer experience and increase operational efficiency. We also celebrated National Financial Capability Month by announcing our collaboration with Zogo to provide customers with a gamified financial literacy app to help them further improve their financial health. OppFi is a mission-driven company, and we are excited by the new social impact relationship. Our net promoter score for the quarter remains strong at 77.

Speaker Change: Further improve their financial health <unk> is a mission driven company and we are excited by the new social impact relationship our net promoter score for the quarter remained strong at 77.

Speaker Change: Now I'll briefly discuss how we're thinking about the current macroeconomic environment based on recent macroeconomic data points and consumer finance surveys. We believe our previously discussed view has been validated we believe core inflation remain sticky and interest rates are unlikely to be reduced until the fourth quarter or early.

Todd G. Schwartz: Now, I'll briefly discuss how we think about the current macroeconomic environment. Based on recent macroeconomic data points and consumer finance surveys, we believe our previously discussed view has been validated. We believe core inflation remains sticky, and interest rates are unlikely to be reduced until the fourth quarter or early 2025. According to research by United Way, 29% of American households have members who are employed but income constrained and asset light. In other words, these are households whose members work and earn more than the poverty line but struggle to pay for basic needs. Sticky inflation disproportionately affects these consumers, and the share of these households has steadily grown.

Speaker Change: 2025.

Speaker Change: According to research by United Way, 29% of American households have members, who are employed but income constrained and asset light in other words. These are households, whose members work and earn more than the poverty line, but struggled to pay for basic needs sticky inflation disproportionately affects these consumers and the share of these households.

Speaker Change: <unk> has steadily grown in addition, recent vantage score data indicate lower income U S. Consumers are struggling to make loan payments, which is causing banks to tightened their credit standards. While we believe this up market tightening may present selective growth opportunities for us as more applicants may fall into the credit box.

Todd G. Schwartz: In addition, recent Vantage Score data indicate lower-income U.S. consumers are struggling to make loan payments, which is causing banks to tighten their credit standards. While we believe this upmarket tightening may present selective growth opportunities for us, as more applicants may fall into the credit box for op loans, we will remain cautious on originations given overall macroeconomic uncertainty. We won't chase growth merely for growth's sake. With that said, I want to emphasize we are deeply committed to profitable growth and believe we have numerous levers to continue to create shareholder value.

Speaker Change: <unk> loans, we will remain cautious on originations given overall macroeconomic uncertainty, we won't chase growth merely for growth's sake.

Speaker Change: With that said I want to emphasize we are deeply committed to profitable growth and believe we have numerous levers to continue to create shareholder value. In this current environment improvements in credit performance and operational efficiency have enabled us to grow earnings generate significant free cash flow and strengthen our balance sheet. This influence the decision of our board of directors to declare.

Todd G. Schwartz: In this current environment, improvements in credit performance and operational efficiency have enabled us to grow earnings, generate significant free cash flow, and strengthen our balance sheet. This influenced the decision of our Board of Directors to declare the $0.12 per share special dividend and approve a new $20 million share repurchase program. We plan to use cash to repurchase stock when we believe our stock price is disconnected from its intrinsic value and unreflective of the long-term earnings potential of OppFi.

Speaker Change: The <unk> 12 per share special dividend and approved a new 20 million share repurchase program.

Speaker Change: We plan to use cash to repurchase stock when we believe our stock price is disconnected from its intrinsic value and unreflective of the long term earnings potential of Akamai and.

Todd G. Schwartz: In addition, we remain committed to pursuing opportunities for potentially accretive partnerships or acquisitions that fit with our company mission to facilitate credit access to underbanked Americans. We believe all these factors help demonstrate OppFi's unique value proposition for investors. OppFi presents the opportunity to invest in closely-held, founder-led family businesses in the public markets that is committed to both returning value to stockholders and creating new value. Part of the reason for my return as CEO two years ago was to execute my multi-year strategic vision for OppFi.

Speaker Change: In addition, we remain committed to pursuing opportunities for potentially accretive partnerships or acquisitions that fit with our company mission to facilitate credit access to Underbanked Americans.

Speaker Change: We believe all these factors helped demonstrate <unk> unique value proposition for investors five presents the opportunity to invest in closely held founder led family business and the public markets that is committed to both returning value to stockholders and creating new value part of the reason for my returned as CEO two years ago was to <unk>.

Speaker Change: Executing a multiyear strategic vision for <unk> now that the core business has stabilized and our balance sheet is solid we are working to fill some of the significant supply demand imbalances that exist in the financial marketplace across customer types that traditional banks do not service, we believe through accretive partnerships and acquisitions at Phi has the potential.

Todd G. Schwartz: Now that the core business has stabilized and our balance sheet is solid, we are working to fill some of the significant supply-demand imbalances that exist in the financial marketplace across customer types that traditional banks do not service. We believe, through accretive partnerships and acquisitions, OppFi has the potential to be transformed into a platform to offer additional types of alternative digital financial products and services.

Speaker Change: <unk> to be transformed into a platform to offer additional types of alternative digital financial products and services.

Pamela D. Johnson: Thanks, Todd, and good morning, everyone. For the first quarter, total revenue increased 5.8% year-over-year to $127.3 million, with a 2.4% increase in total net originations to $163.5 million and a 350 basis point improvement in yield to 129.5%. Total retained net originations decreased 2% to $152.5 million from $155.6 million in the year-ago period, based on one of our bank partners retaining a higher percentage of loans originated in some states. Total net originations are defined as gross originations, net of transferred balance on refinanced loans.

Speaker Change: Thanks, Todd and good morning, everyone for the first quarter total revenue increased five 8% year over year to $127 $3 million with a two 4% increase in total net originations to $163 5 million and a 350 basis point improvement in yield to $129.

Speaker Change: 5% total retained net originations decreased 2% to $152 5 million from $1 $55 6 million in the year ago period.

Speaker Change: Just on one of our bank partners, retaining a higher percentage of loans originated in some states.

Speaker Change: Total net originations are defined as gross originations net of transferred balance on refinanced loans, while total retail net originations are defined as the portion of total net originations with respect to which up by ultimately purchased a receivable from bank partnerships or originated directly.

Pamela D. Johnson: While total retained net originations are defined as the portion of total net originations with respect to which OppFi ultimately purchased a receivable from bank partners or originated directly. As previously disclosed, in late 2023, OppFi transitioned fully to the bank partnership model and therefore currently does not originate any loans directly. From a mixed perspective, 57.7% of originations were to existing customers, and 42.3% were to new customers. During the quarter, along with our bank partners, we continued our prudent approach to risk, as we believe loans to existing customers are generally less risky than those to new ones.

Speaker Change: As previously disclosed in late 2023 of bite transition fully to the bank partnership model and therefore currently does not originate any loans directly.

Speaker Change: From a mixed perspective 57, 7% of originations were to existing customers and 42, 3% were to new customers during the quarter along with our bank partners. We continued our prudent approach to risk as we believe loans to existing customers generally less risky than those two new ones.

Pamela D. Johnson: On an absolute basis, new customer originations for the quarter decreased by 1.7 percent year over year, while existing customer originations increased by 5.7 percent. The annualized net chargeoff rate as a percentage of average receivables increased by 20 basis points to 62.0% for the first quarter, compared to 61.8% for the prior year quarter. However, the annualized net chargeoff rate as a percentage of total revenue decreased by 110 basis points to 47.9% compared to 49% last year.

Speaker Change: On an absolute basis, new customer originations for the quarter decreased by one 7% year over year, while existing customer originations increased by five 7%.

Speaker Change: The annualized net charge off rate as a percentage of average receivables increased by 20 basis points to 62.0% for the first quarter compared to 61, 8% for the prior year quarter. However, the annualized net charge off rate as a percentage of total revenue decreased by 110 basis points to 47, 9% compared to.

Speaker Change: <unk>, 49% last year.

Pamela D. Johnson: Interest expense totaled $11.4 million, or 9% of total revenue, compared to $11.4 million, or 9.4% of total revenue, in the same period a year ago. Turning to expenses, total expenses were $57.9 million, or 45.5% of total revenue, compared to $53.5 million, or 44.4% of total revenue, in the first quarter last year. Included in the total expense figure were $6.2 million and $1.4 million of one-time expenses and other add-backs in the 2024 and 2023 periods, respectively. The year-over-year increase was primarily due to exit costs related to the credit card business, as well as severance and legal costs.

Speaker Change: <unk> expense totaled $11 4 million or 9% of total revenue compared to $11 4 million or nine 4% of total revenue in the same period, a year ago, turning to expenses total expenses were $57 9 million or <unk> 45, 5% of total revenue compared to $53 5 million or 44.

Speaker Change: Four 4% of total revenue in the first quarter last year.

Speaker Change: <unk> in the total expense figure were $6 2 million and $1 4 million of one time expenses and other add backs and the 2024 and 2023 periods respectively.

Speaker Change: The year over year increase was primarily due to the extra costs related to the credit card business as well as severance and legal costs. Excluding these items total expenses were $51 7 million or 46% of total revenue in the first quarter. This year down from $52 1 million or 43, 3% of total.

Pamela D. Johnson: Excluding these items, total expenses were $51.7 million, or 40.6% of total revenue in the first quarter this year, down from $52.1 million, or 43.3% of total revenue for the same period last year. Adjusted net income was $8.8 million, compared to $3.9 million for the comparable period last year. Adjusted earnings per share was $0.10 per share compared to $0.05 in the first quarter of last year. This was significantly higher than our guidance for $0.05 due to a strong tax refund season, which resulted in better-than-expected credit performance, including recovery.

Speaker Change: Revenue for the same period last year.

Speaker Change: Adjusted net income was $8 8 million compared to $3 9 million for the comparable period last year.

Speaker Change: Adjusted earnings per share was <unk> 10 per share compared to <unk> in the first quarter last year. This was significantly higher than our guidance for <unk> due to a strong tax refund season, which resulted in better than expected credit performance, including recoveries.

Pamela D. Johnson: For the three months ended March 31st, 2024, OppFi had 86.2 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 $88.7 million, total debt of $301 million, and equity of $197.3 million as of the end of the first quarter. Unrestricted cash of $47.2 million at the end of the first quarter marked a 48.4% increase since year-end 2023 and provides us confidence in our optionality for capital allocation strategic decisions. In addition, we had $613.7 million in total receivable funding capacity, including undrawn debt of $224.7 million.

Speaker Change: For the three months ended March 31 2024.

Speaker Change: <unk> had $86 2 million weighted average diluted shares outstanding for the calculation of adjusted earnings per share.

Speaker Change: Our balance sheet remains healthy with cash cash equivalents and restricted cash of $88 7 million total debt of $301 million in equity of 197 3 million as of the end of the first quarter unrestricted cash of $47 2 million at the end of the first quarter marked a 48 four <unk>.

Speaker Change: <unk> increase since year end 2023 provides us confidence in our Optionality for capital allocation strategic decisions. In addition, we had $613 7 million in total receivable funding capacity, including Undrawn debt of $224 7 million.

Pamela D. Johnson: Turning now to our outlook, for full year 2024, we reiterate guidance for total revenue of $510 million to $530 million. We continue to focus on profitable growth. To provide additional perspective on how we are thinking about the second quarter, we expect total revenue to be relatively flat year over year. Shifting back to full-year guidance, based on the stronger-than-expected first quarter, we have increased guidance for profitability. We now expect adjusted net income of $50 million to $54 million, compared to the prior range of $46 million to $49 million.

Speaker Change: Turning now to our outlook for full year 2024, we reiterate guidance for total revenue of $510 million to $530 million, we continue to focus on profitable growth and to provide additional perspective on how we're thinking about the second quarter. We expect total revenue to be relatively flat year over year shifting.

Speaker Change: Shifting back to full year guidance based on the stronger than expected first quarter. We've increased guidance for profitability. We now expect adjusted net income of $50 million to $54 million compared to the prior range of $46 million to $49 million based on an anticipated diluted weighted average share count of $86 5 million, we now anticipate adjusted earnings.

Pamela D. Johnson: Based on an anticipated diluted weighted average share count of $86.5 million, we now anticipate adjusted earnings per share between $0.58 and $0.62, compared to the prior range of $0.53 to $0.57. With that, I would now like to turn the call over to the operator for Q&A.

Speaker Change: Per share between <unk> 58, and <unk> 62.

Speaker Change: Compared to the prior range of 53 to.

Speaker Change: <unk> to 57.

Speaker Change: With that I would now like to turn the call over to the operator for Q&A operator.

Operator: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. We will pause for a moment to allow questions to queue, and we will take our first question from David Scharf with Citizens JMP.

Speaker Change: At this time, if you would like to ask a question. Please press the star and one on your telephone keypad.

Speaker Change: You may remove yourself from the queue at any time by pressing star two.

Speaker Change: We'll pause for a moment to allow questions to queue.

Operator: And we will take our first question from David Scharf with citizens JMP.

David Michael Scharf: Good morning, and thanks for taking my questions. To start off with, Todd, you made some references to not only the transition to the bank partnership model but some specific actions in terms of your partners expanding into maybe one or more states, and retaining some more loans in a certain state. Maybe it's a good time, can you take a step back and can you just kind of bring us current on how many states you're operating in through your partners, how many partners there are, and, broadly speaking, whether there are any notable changes to the terms of your partnership arrangements. Thank you.

David Michael Scharf: Hey, good morning.

David Michael Scharf: Thanks for taking my questions.

David Michael Scharf: To start off with.

David Michael Scharf: Todd you made some references.

David Michael Scharf: Two.

David Michael Scharf: Not only the transition to the bank partnership model, but some.

David Michael Scharf: Specific actions.

David Michael Scharf: In terms of your partners expanding into maybe one or more states retaining some more loans in a certain state.

David Michael Scharf: Maybe it's a good time can you take a step back and can you just kind of bring us current on.

David Michael Scharf: How many states you're operating in through your partners, how many partners there are.

David Michael Scharf: And broadly speaking whether there are any notable changes to the terms.

David Michael Scharf: Of your partnership arrangements.

David Michael Scharf: <unk>.

Speaker Change: Yeah, Hey, David Good morning.

Todd G. Schwartz: Yeah, hey David, good morning. We currently have three bank partners. And, you know, the banks are the originators in the different states, so it really is up to them on the structure on the other side. In some of the states, due to some state laws that have passed in this cycle of legislation, the percentage ownership, you know, once the loan is sold to the SBE varies. But we're in 40 states, and I think we have a strong national footprint to serve our customers.

Speaker Change: We currently maintain three bank partners.

David: And the banks are the originators.

David: In the different states. So it really is up to them on the structure on the other side some of the states due to some some state laws that have passed in this cycle of legislation the percentage ownership.

David: Once once the loan is sold to the SPE.

David: Varies.

David: But we're in 40 states.

David: And.

David: I think we have a strong national footprint to serve our customers.

Todd G. Schwartz: Got it. And, um, somewhat related, I know the geographic mix may have partially contributed to the elevated revenue yield. In terms of thinking about yield going forward, just trying to get a sense for whether we should think of... You know, the Q1 performance is sustainable, you know, whether it's impacted by geographic mix, pricing leverage, just the competitive backdrop, or if it was just more of a reflection of some of the delinquency trends. But as we think about the balance of the year and pricing leverage, is 130% kind of a ceiling? How should we be thinking about that?

Speaker Change: Got it.

David: Hey.

David: Somewhat related I know the.

David: The geographic mix may have partially contributed to the elevated revenue yield.

David: Sure.

David: In terms of thinking about the yield going forward, just trying to get a sense for.

David: Whether we should think of.

David: The Q1 performance is sustainable.

David: Whether it's impacted by geographic mix pricing leverage just competitive backdrop.

David: Or if it was just more a reflection of some of the delinquency trends, but as we think about the balance of the year.

David: And pricing leverage as 130% kind of.

David: How should we be thinking about that.

Todd G. Schwartz: Yeah, I think that's probably on the higher end of the range. I mean, I think, you know, we had a really, really strong payment recovery period due to the operational efficiencies in the ops and recoveries, but also tax refund came in really strong. It was strong and accelerated in March significantly, which sets us up well for the year. We're happy about that. I think we've also, you know, if you remember, there was some testing we did back in 22 and 21, that's finally, you know, burned off.

Speaker Change: Yes, I think that's probably on the higher end of the range I mean I think.

David: We had a really really strong.

David: Payment recovery period.

David: Due to the operational efficiencies and the ops and recoveries, but also tax refund came in really strong was a strong and accelerated in March significantly.

David: Sets us up well for the year were happy about that.

Speaker Change: I think we've also if you remember there was some testing we did back in 'twenty, two and 'twenty one that's finally burned off.

Todd G. Schwartz: We've exited Georgia, which was a lower yielding state, so some of that has also allowed for, you know, some increase in yield. I think that's, you know, we're very happy to see because you got to remember we're paying a much higher interest cost and, you know, there's some headwinds there, and we haven't raised prices to this point. So, you know, this is a really good way to, and it's really just getting back to where we were in the 2019-2021 era of yield.

David: We've exited Georgia, which was a lower yielding state. So some of that has also allowed for some increase in yield I think that's.

David: We're very we're very happy to see because you got to remember, we're paying a much higher and higher interest costs and there are some headwinds there.

David: Haven't raised price to this point.

David: So this is.

David: Really a good way to and it's really just getting back to where we were in.

David: In the two.

David: 2019, 2021 era.

David: Yield.

Pamela D. Johnson: Got it, got it. And then, maybe lastly for Pam, when we eliminate the roughly $6 million in severance in CARD, one-time expenses, just trying to get a sense for if that gives us a good sort of quarterly run rate of OPEX for the balance of the year, or is it seasonally low because it's tax refund season and we should increase that number going forward? From an OpEx point of view, it'

Speaker Change: Got it got it and then.

Speaker Change: Lastly for.

David: Pam.

David: When we eliminate the.

David: The roughly $6 million.

David: Severance.

David: Card.

David: One time expenses, just trying to get a sense for.

David: If that gives us a good sort of quarterly run rate.

David: Opex for the balance of the year or.

David: Is it seasonally low because its tax refund season, maybe we should increase that number going forward from.

David: From an opex.

David: It's a run rate.

Speaker Change: Oh pardon me.

Speaker Change: Yeah.

Speaker Change: It may even go down a little bit going forward.

Pamela D. Johnson: Pardon me? It may even go down a little bit going forward based on our...

Speaker Change: Got it.

David Michael Scharf: Okay, thank you very much.

Speaker Change: Okay. Thank you very much.

Operator: Thank you, and we will take our next question from Mike Grondahl with Northland Securities.

Speaker Change: Thank you and we will take our next question from Mike Grondahl with Northland Securities.

Owen: Hi guys, this is Owen on for Mike this morning. Congratulations on the quarter and what drove out performance. What's going right? And what maybe is still a headache? Yeah, I think it's pretty clear that, you know, we had really, really strong payments come in. You know, we lowered our acquisition costs year over year by $10. That's, that's a help.

Speaker Change: This is owen on for Mike This morning, congrats on the quarter.

Owen: What drove the outperformance, what's going right and what maybe it's still a headache.

Speaker Change: Yes.

Todd G. Schwartz: We, while still increasing revenue by 5%, our charge to us as a percentage of revenue went down. So, you know, all metrics, OpEx as a percentage of revenue went down. All metrics of the business were informed year over year.

Owen: I think I mean, it's pretty clear, we had really really strong payments come in.

Speaker Change: We lowered our acquisition costs year over year by $10.

Speaker Change: That's a help.

Speaker Change: While still increasing revenue by 5%.

Speaker Change: Charge offs as a percentage of revenue are down so all metrics opex as a percentage of revenue went down.

Speaker Change: All metrics of the business in part informed year over year and that's our goal alright every year is to get a little bit better.

Todd G. Schwartz: And that's, that's our goal, right? Every year, is to get a little bit better and continuous improvement. And, you know, we feel it's really sets us up well for this year. You know, we're really focused on, you know, we're starting to see some credit trends we like, things have really stabilized in the credit. And think that, you know, obviously, with some new geographies, and with some, you know, nothing to report on, but you know, some interesting conversations having on partnerships and growth strategies, there's, there's definitely some, some hopefully some, some pastures, greener pastures ahead, where we're going to, you know, be able to originate more and, you know, have confidence that the customers are going to be, you know, paying us back at the rates we think we can achieve.

Speaker Change: <unk> improvement.

Speaker Change: And we feel it's really sets us up well for this year, we're really focused on we're starting to see some credit trends we like.

Speaker Change: Things have really stabilized in the credit and think that obviously with some new geographies and with some.

Speaker Change: Nothing to report, but some interesting conversations having on partnerships and growth strategies. There is definitely some some hopefully some some pastures greener pastures ahead, where we're going to.

Speaker Change: If you're able to originate more and have confidence that the customers are going to be.

Speaker Change: Paying us back at the rates, we think we can achieve.

Todd G. Schwartz: So I think when you look at the first quarter, people came out and said we were, oh, we were really conservative, or we almost had a little bit of a negative connotation to our earnings. It wasn't that; I think we were validated.

Speaker Change: I think I think when you when you look at the.

Speaker Change: Our first quarter people came out and said we were all we were really conservative or you almost had a little bit of a negative.

Speaker Change: <unk> to our earnings but it wasn't that I think we were we were validated.

Todd G. Schwartz: The Fed's not lowering rates. Interest has, sorry, inflation's been super sticky. They can't seem to get it below 3%. And we've always told people this disproportionately affects our customers.

Speaker Change: The fed's not lowering rates interest is sorry inflation has been super sticky they can't seem to get it below 3%.

Speaker Change: And we've always told people like this disproportionately affects our customer stuff.

Todd G. Schwartz: So as far as challenges go, interest costs and sticky inflation, those would be the ones that, I mean, though we can't control those, everything we can control, you see, we're addressing and performing really well. The things we can't control, we're just watching very closely and hopeful that inflation will come down and eventually some relief on interest rates.

Speaker Change: As far as challenges go interest cost and sticky inflation that would be the ones that I mean that we can't control. Those so everything we can control you see we were addressing and performing really well.

Speaker Change: Things, we can control, we're just watching very closely.

Speaker Change: Hopeful that the inflation will will come down and eventually some relief on interest rates.

Speaker Change: Okay got it and then in terms of the competitive environment are there any updates here on a quarter over quarter basis or is that pretty similar.

Owen: And then, in terms of the competitive environment, are there any updates here, you know, on a quarter-over-quarter basis, or is that pretty similar? Yeah, I mean, listen. I said this before, like we are experiencing tightening above us, you know, that's, that's allowing for, you know, some more segment one customers to come into the funnel. But that doesn't offset, to remind everyone, that doesn't offset the tightening we've done on the back end, which is, you know, we're still originating in a pretty, pretty tight band of segments.

Speaker Change: Yes, I mean listen I said this before like we are at we are experiencing tightening above us that's allowing for some some more segment one customers to come into the funnel.

Speaker Change: But that doesn't offset to reminder, that doesn't offset the tightening we've done on the backend, which is we're still originating in a pretty pretty tight band of segments.

Owen: You know, I think we did some testing last year that was very successful, some swap and swap out stuff. We really, really refined our cash flow underwriting model, which has been very successful. So you know, we're waiting for the day where we can, you know, in 2019, I remind everyone that 40% of our new originations came from that segment, segment four. So we're waiting for the day where we feel comfortable and have the confidence to be able to start originating on behalf of the bank partners in those segments again.

Speaker Change: I think we do.

Speaker Change: Did some testing last year that was very successful some swap and swap out stuff.

Speaker Change: We really really refined our cash flow underwriting model, which has been very successful.

Speaker Change: So we're waiting for the day, where we can in 2019 I remind everyone that was 40% of our new originations came from that segment segment for so we're waiting for the day, where we feel comfortable and have the confidence to be able to start originating on behalf of the bank partners those segments again, but right now we feel really comfortable.

Owen: But you know, right now, we feel really comfortable; our acquisition cost is where we want it. We're still able to grow. And we're, you know, finding operational leverage every quarter. So you know, we feel good about where we are.

Speaker Change: Our acquisition cost is where we want it.

Speaker Change: We're still able to grow.

Speaker Change: And we're finding operational leverage every quarter. So we feel good about where we're at.

Speaker Change: Great. Thank you and congrats on the quarter.

Owen: Great, thank you, and congrats on the quarter.

Speaker Change: Thank you.

Operator: Thank you. Once again, if you would like to ask a question, please press star and one on your telephone keypad now. And we will take our next question from Dave Storms with Stonegate.

Speaker Change: Thank you once again, if you would like to ask a question. Please press star and one on your telephone keypad now.

Speaker Change: And we will take our next question from Dave storms with Stonegate.

Dave Storms: Good morning, I appreciate you taking the questions.

Dave Storms: Morning, appreciate you taking the questions. Just hoping we could start with maybe a little peek behind the curtain on the process for declaring that special dividend. Is that something you would revisit once a year, once a quarter, when cash levels get to a certain point? Just any clarity around that would be very helpful.

Dave Storms: Just hoping we could start with maybe a little peek behind the curtain on the process for declaring a special dividend.

Dave Storms: Is that something you would revisit once a year once a quarter when cash levels get to a certain point.

Dave Storms: Just any clarity around that would be very helpful.

Todd G. Schwartz: Yeah, I mean, there's no formula, but it's definitely something we would consider again. I mean, what's become apparent to us is, you know, as we hold receivables to manage interest costs, obviously those can, you know, be put into a borrowing base, but, you know, we have a lot of, even beyond that, we have a lot of unrestricted cash, and what's become clear to us is we're not getting value for that cash properly, right?

Speaker Change: Yes, I mean, theres no theres no formula, but it is definitely something we would consider again.

Dave Storms: What's become apparent to us is as our.

Dave Storms: We hold receivables.

Dave Storms: Manage interest costs.

Dave Storms: Obviously, those can be put into a borrowing base that we have a lot of even even beyond that we have a lot of unrestricted cash in what's become clear to us is we're not getting value for that cash properly right and thats something that we.

Todd G. Schwartz: And that's something that, you know, we didn't have, you know, we knew we were going to increase that cash because of the recoveries and payment season coming and we felt it was great to reward shareholders that have been patient and have been supportive of the stock and, you know, feel really good about the fact that we were able to execute our first special dividend but it is something absolutely that will be, you know, it's not formulaic like I mentioned or programmatic but it is something we will consider depending on, you know, cash position and cash needs.

Dave Storms: We didn't have we knew we were going to increase that cash back because of the recoveries and payment season coming and.

Dave Storms: We felt it was great to reward shareholders that have been patient and had been supportive of the stock.

Dave Storms: Feel really good about the fact that we were able to execute our first special dividend, but it is something absolutely that will be.

Dave Storms: It's not formulaic like I mentioned or programmatic, but it is something we will consider depending on cash position and cash needs.

Todd G. Schwartz: Very helpful. And then just sticking with the kind of uses of cash you've mentioned before, you are always looking for adjacent services businesses. You know, you'd love to grow vertically if possible. Assuming the value is correct, what kind of adjacent services businesses would you be targeting? What would you be looking for in an M&A deal?

Speaker Change: Very helpful. And then just sticking with kind of uses of cash.

Speaker Change: As mentioned before we're always looking for adjacent services business you know good luck to grant.

Speaker Change: Vertically if possible.

Speaker Change: Assuming the value was correct what kind of adjacent services businesses would you be targeting what would you be looking for.

Speaker Change: And in an M&A deal.

Speaker Change: Yes.

Todd G. Schwartz: Yeah, I mean, first we look to see where there are large addressable markets where there are supply and demand imbalances, and banks are not covering it. So, you know, the first things we've looked at are small business lending and, you know, consumer financing for goods. There are different models that kind of flow, and those are highly fragmented, large addressable markets where we think there's an absence of, you know, institutional capital, institutional players like OppFi.

Speaker Change: First we look to like Hey, where there are large addressable markets, where there are supply demand imbalances and banks are not covering it so.

Speaker Change: The first things we've looked at our small business lending and.

Speaker Change: Consumer financing for goods.

Speaker Change: There's different models that kind of flow and those are highly fragmented large addressable markets, where we think there's an absence of institutional capital institutional players like <unk>, we think with our branding social impact and commitment to credit access we can really.

Todd G. Schwartz: We think with our branding, social impact, and commitment to credit access, we can really, you know, get market share and, as that world continues to go online and digitize, get the benefit of it. So, we're looking at, you know, different options there. We're going to be very careful to do the right thing and, you know, it would be our first, obviously, acquisition as a company, and it's something that, you know, we want to, you know, make sure we get right.

Speaker Change: Get market share and as that World continues to go online and digitize, you'll get the benefit of it. So we're looking at different different options. There, we're going to be very careful.

Speaker Change: To do the right thing and we're going to.

Speaker Change: It would be our first obviously acquisition as a company and it's something that we want to make sure. We get right. We're not going to do something thats highly accretive to us and is going to benefit the business long term, but I think I talk.

Todd G. Schwartz: We're not going to, we want to do something that's highly accretive to us, and it's going to benefit the business long term. But, you know, I think I've talked about it, but now that the business is stable, my attention, you know, has really started to focus on, you know, getting growth again, partnerships on that side of the house. We've got a lot of, we expanded some geography last year, which was really great and set us up well for this year. But I really, you know, think that OppFi's brand has the platform ability to really service a suite of digital alternative financial service products where there's, you know, a large supply.

Dave Storms: Very helpful. And then one more for me, if I could.

Speaker Change: <unk> talked about it but now that the business is stable <unk>.

Speaker Change: My attention.

Speaker Change: Has it really has really started to focus on.

Speaker Change: Getting growth again partnerships on that side of the house, we've got a lot of that we expanded some geography last year, which was which is really great.

Speaker Change: And set us up well for this year.

Speaker Change: But I really think that <unk> brand.

Speaker Change: <unk> has the platform ability to really serve as a suite of digital alternative financial service products, where there is a large supply demand imbalances in that banks are not going to really ever be there and thats really the goal of upside in the strategic vision.

Speaker Change: Very helpful. And then one more for me if I could when you think about bringing in new customers for success in customers whats the initiation in the underwriting process, how does that differ.

Dave Storms: When you think about bringing in new customers versus existing customers, what's the initiation and the underwriting process? How does that differ? And then, I guess kind of with that, you mentioned your acquisition cost was down about $10 year-over-year. How much of that can be attributed to operational efficiencies and how much of that can be attributed to maybe the relative cheapness of underwriting an already existing customer?

Speaker Change: And then I guess kind of.

Speaker Change: With that you mentioned your acquisition cost was down about $10 year over year, how much of that can be attributed to operational efficiencies and how much that can be attributed to.

Speaker Change: Maybe.

Speaker Change: Relative cheapness of underwriting on already existing customer.

Speaker Change: Yeah, there's a couple of questions. There I just want to make sure I am.

Todd G. Schwartz: Yeah, there are a couple questions there. I just want to make sure I answer them.

Speaker Change: Answer them, but.

Speaker Change: I think like.

Speaker Change: We've optimized the funnel right and we've really gotten more granular in the funnel and the cost also gotten.

Speaker Change: Direct mail has been one that we've really scaled back.

Speaker Change: We didn't we didn't drop mail in the first quarter.

Speaker Change: Really wanted to make sure that the unit economics of that are sound before we start to test into that again.

Todd G. Schwartz: But I think like, you know, we've optimized the funnel, right? And, you know, we've really gotten more granular in the funnel, and and and the cost that also got, you know, direct mail has been one that we've really scaled back. You know, we didn't drop mail in the first quarter.

Speaker Change: But I think.

Speaker Change: As far as the funnel. We've also operationally on conversion qualified rate all the major metrics of the funnel has gotten better.

Speaker Change: The operational improvements around that so we feel we feel good that it sets us up well for this year.

Speaker Change: That's very helpful. Thank you for taking my questions and good luck in the second quarter.

Speaker Change: Thank you.

Speaker Change: Thank you and we will take our next question from Ross Davidson with Barrington capital.

Speaker Change: Yes.

Ross Davidson: Hi, good morning, Thanks for taking the question Todd I just wanted to quickly ask a follow up on sort of the macro and how it how you think about your growth.

Todd G. Schwartz: You know, really want to make sure that the unit economics of that are sound before we, you know, start to test that again. But I think as far as the funnel is concerned, we've also operationally improved on conversion, qualified rate, all the major metrics of the funnel have gotten better. And, you know, the operational improvements around that. So, we feel good that it sets us up well for this year.

Speaker Change: Like you said.

Ross Davidson: We remain sticky, which you guys had sort of expected.

Ross Davidson: And as you think about sort of that taking it for or even more just generally do you feel like you have to see.

Ross Davidson: Inflation come down or.

Ross Davidson: Or are things stabilizing.

Ross Davidson: Off that you think that your sort of core consumer.

Dave Storms: That's very helpful. Thank you for taking the questions and good luck in the second quarter.

Ross Davidson: We'll we'll recover even if inflation doesn't.

Ross Davidson: Further fall at least in the short term.

Ross Davidson: Yes, no. It is not based on inflation, it's based on our our data right. Our credit performance data that we look at daily weekly.

Operator: Thank you, and we will take our next question from Ross Davidson with Banneton Capital.

Ross Davidson: Hi, good morning. Thanks for taking the time to answer the question. Todd, I just wanted to quickly ask a follow-up on sort of the macro and how you think about your growth. Like you said, inflation remains sticky, which you guys had sort of expected. And as you think about sort of that segment four or even more just generally, do you feel like you have to see inflation come down or, you know, how do you or, you know, are things stabilizing enough that you think that your, you know, sort of core consumer will recover even if inflation doesn't further fall, at least in the short term?

Todd G. Schwartz: Yeah, no, it's not based on inflation. It's based on our data, right? Our credit performance data that we look at, you know, daily, weekly.

Todd G. Schwartz: We have really, really strong data that, you know, in a lot of years of history where our confidence level is high when we see trends that are stable for some period of time, we would be comfortable, you know, starting to expand. But, you know, I think even without that expansion, there's a lot of opportunity. I mentioned that the bank's tightening above us.

Ross Davidson: We have really really strong data that.

Ross Davidson: And a lot of years of history.

Ross Davidson: Where our confidence level, when we see trends.

Ross Davidson: That are stable for some period of time, we would we.

Ross Davidson: We would be.

Ross Davidson: Comparable starting to starting to expand but.

Ross Davidson: I think even without that expansion there is a lot of opportunity.

Ross Davidson: And I mentioned that the banks tightening above us.

Todd G. Schwartz: There's also, you know, we're exploring some pretty significant partnerships. So there's a lot of room for growth just in the segments we are and at a price that, you know, we'll work with our unit economics. So I think, and then obviously the geography expansion that I mentioned before. So we feel like even without that, we can, you know, still find growth and still, you know, really, really be, um, positive on the growth side this year.

Ross Davidson: Also we're exploring some some pretty significant partnerships, so theres a lot of that.

Ross Davidson: There's a lot of room for growth just in the segments, we are and at a price that we are.

Ross Davidson: We'll work with our unit economics, So I think.

Ross Davidson: Then obviously the geography expansion that I mentioned before so we feel like even without that we can still find growth and still.

Ross Davidson: Really really be.

Todd G. Schwartz: So I'm, you know, but obviously, if we start to see that credit, you know, come in line with kind of more of the 2019 timeframe, I think, you know, that's obviously just would be an addition to anything we're planning for this year.

Ross Davidson: Positive positive on the growth side this year so.

Ross Davidson: But obviously, if we start to see that credit come in line with kind of more of the 2019 timeframe I think that's obviously just.

Ross Davidson: Would be in addition to anything we're planning for this year.

Ross Davidson: Yes.

Ross Davidson: Okay, great. That makes sense. Thanks. Go ahead.

Speaker Change: Okay, great that makes sense. Thanks go ahead.

Todd G. Schwartz: Thank you. It appears that we have no further questions at this time. I will now turn the program back over to CEO Todd Schwartz for closing remarks.

Speaker Change: Thank you. It appears that we have no further questions. At this time I will now turn the program back over to CEO, Todd Schwartz for closing remarks.

Todd G. Schwartz: Thank you everyone for joining us today.

Todd G. Schwartz: Thank you everyone for joining us today on the call. We look forward to speaking with everyone in August for the Q2 results.

Todd G. Schwartz: On the call.

Todd G. Schwartz: Look forward to speaking with everyone in August for the Q2 results have a great day.

Todd G. Schwartz: Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.

Operator: Have a great day. Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.

Operator: Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.

Operator: [inaudible]

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