Q1 2025 OppFi Inc Earnings Call
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Speaker Change: Good morning and welcome to OppFi's first quarter 2025 earnings conference call. All participants are in a listen only mode. As a reminder, this conference call is being recorded. Following management's presentation, a question and answer session will be held.
Speaker Change: For those listening by dial in, you will be prompted to enter the queue after the prepared remarks.
Speaker Change: I am pleased to introduce your host, Mike Gallantine, Head of Investor Relations. You may begin.
Speaker Change: Thank you operator. Good morning and welcome top 5s, 1st quarter 2025 earnings call.
Speaker Change: Today, our Executive Chairman and CEO , Todd Schwartz, and CFO , Pam Johnson, will present our financial results followed by a question-and-answer session.
During this call, OppFi may discuss certain forward-looking information.
Speaker Change: The company's filings with the SEC describe essential factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements.
Speaker Change: Please refer to slide two of the earnings presentation and press release for our disclaimer statements covering forward-looking statements and references to information about non-GAAP financial measures which will be discussed throughout today's call.
Speaker Change: Reconciliation of those measures to GAAP measures can be found in the appendix to our earnings
Todd Schwartz: With that, I'd like to turn the call over to Todd [inaudible]
Todd Schwartz: Thanks Mike, and good morning everyone. Thank you for joining us today.
Speaker Change: After a strong finish to 2024, I am proud to report that the first quarter of 2025 was a record quarter for OppFi. The business achieved record quarterly revenue, adjusted net income, and operating margin. [inaudible]
Todd Schwartz: OppFi is now beginning to unlock its full growth potential, increasing profitability and strengthening our balance sheet.
Todd Schwartz: Given our Q1 out performance, we are increasing full year 2025 adjusted net income and adjusted EPS guidance.
Todd Schwartz: During the quarter, the company generated a strong 16% increase in originations and a 10% increase in revenue year over year.
Todd Schwartz: Our disciplined approach to growth and dynamic pricing led to this double digit growth and we anticipate this year over year growth will continue throughout 2025.
Todd Schwartz: In addition, OppFi continues to explore and test exciting new direct response initiatives and expand its marketing channel partners.
Todd Schwartz: In Q2, we also paid a special dividend of $21.7 million in total.
Todd Schwartz: We believe our strong balance sheet and cash position will allow us to continue to be opportunistic in determining how and when to deploy capital to reward shareholders and invest in high ROI initiatives and inorganic growth opportunities.
Todd Schwartz: Throughout the quarter, Model 6 continued to perform well. As a reminder, Model 6 was designed to more effectively identify the risks of long-term charge-offs compared to earlier versions that focused on upfront shorter-term repayment status.
Todd Schwartz: Additionally, it is designed to facilitate risk separation, enable seasonal segmentation, and support optimized targeting for new approvals throughout the year.
Todd Schwartz: OppFi continues to invest in product and technology initiatives to improve customer experience and originations and servicing.
Todd Schwartz: The auto approval rate improved to 79% in Q1 2025, up from 73% in Q1 2024, which in turn improved funnel metrics and propelled our net revenue up 44% year-over-year.
Todd Schwartz: Oplones remains one of the highest rated products in the industry, boasting an 80 NPS score and a CSAT score of over 90% throughout the quarter.
Todd Schwartz: Our investment in Biddy continues to perform well in the first quarter of 2025. The business continue to drive a creative profitability and cash flow to OppFi. We continue to see significant imbalance between supply and demand for working capital among small businesses. We are excited to be part of Biddy's growth ahead.
Todd Schwartz: Overall, OppFi had an extremely strong quarter financially and operationally. We expect continued strong revenue momentum and profitable growth throughout the remainder of 2025 and into [inaudible]
with that, I'll turn the call over to Pam. [inaudible]
Pam Johnson: Thanks, Todd, and good morning everyone. As Todd noted, we are off to a fantastic start to the year.
Pam Johnson: These results build upon the improved results that OppFi has generated since 2023 and are also a result of the significant operating improvements made over that period.
Pam Johnson: Notably, we expect the operating changes and investments that OppFi has made to continue generating strong results for the foreseeable future, as evidenced by our increased guidance which I will discuss shortly.
Pam Johnson: For this discussion, all results are based on the first quarter of 2025 compared to the first quarter of 2024.
Pam Johnson: Driven by strong loan demand and good credit performance, total revenue increased to a record 140 million, up 10%
Pam Johnson: Net originations grew 60% to 189 million, with retained net originations increasing 11% to 169 million.
Pam Johnson: The increase resulted from growth in total net originations partially offset by an increase in the percentage of loans retained by our bank partners.
Pam Johnson: Contributing to this increase in originations was an increase in average loan size driven by Model 6, which identified areas where there could be an increase in loan sizes for current and past customers.
Todd Schwartz: The revenue growth, coupled with the improved credit quality discussed by Todd earlier, resulted in a higher yield and an improved charge-off rate, driving a significant 44% increase in net revenue to $91 million.
Todd Schwartz: The net result of these positive effects was an impressive 630 basis point improvement in the average yield to a record 136%.
Todd Schwartz: Our focus on cost discipline also played a key role in our strong performance. Continued improvements to the automated loan approval process contributed to effective cost control.
Todd Schwartz: For the first quarter, 79% of loans were approved in seconds with no human intervention of 5.2%.
Todd Schwartz: The higher auto approvals, along with continued operational improvements, contributed to lower total expenses before interest expense, which declined to $38 million and 18% decrease.
Todd Schwartz: As Todd indicated, during the quarter, we proactively paid down our higher interest corporate debt, which reduced interest expense to 7% of total revenue down from 9% in the prior year.
Todd Schwartz: As a result of the increases in revenue and reductions in expenses, adjusted net income increased 285% to a record $34 million up from $9 million.
Todd Schwartz: At the same time, adjusted earnings per share grew significantly to 38 cents from 10 cents last year.
Todd Schwartz: We maintained a strong balance sheet ending the quarter with $91 million in cash, cash equivalence, and restricted cash, alongside 288 million in total debt and 238 million in total stockholders equity.
Todd Schwartz: Our total funding capacity was $616 million, including $237 million in unused debt capacity.
Todd Schwartz: We expect our strong momentum to continue into the second quarter driven by robust revenue growth and adjusted net income.
Todd Schwartz: Given our strong start to 2025 and our operating performance drew by our growth initiatives, improved credit model, and focused on operating efficiencies, we are providing the following updated guidance.
Todd Schwartz: For the full year 2025, we expect total revenues of 563,594 million, representing a 7% to 13% increase compared to 2024. This is unchanged from our previously issued guidance.
Todd Schwartz: We are increasing our adjusted net income guidance to 106 million to 113 million, up from the prior guidance of 95 million to 97 million, representing a 28% to 37% increase from 2024.
Todd Schwartz: Based on an anticipated diluted weighted average share count of 90 million, adjusted earnings for share are expected to be between $1.18 and $1.26, up from the prior guidance of $1.06 to $1.07.
Todd Schwartz: With that, I would now like to turn the call over to the operator for Q&A. Operator?
Speaker Change: At this time, if you would like to ask a question, please press star one now on your telephone keypad to withdraw yourself from the queue you may press star two. Again, please press star one now to enter the queue. One moment while we queue.
Speaker Change: and we'll take our first question from Scott Buck of Wainwright. Your line is open.
Guys, thanks for taking my questions.
Speaker Change: I guess the first one is on the Adjusted Net Income Beat. I'm curious what changed from the beginning of March when you reported for a few results and gave the guidance from where you ended up at the end of the month?
Yeah, white, white, yeah, thanks Todd.
Yeah, thanks. I think I'm in with we
Speaker Change: We were able to, you know, usually in that time of year in repayment season, you see a little bit of a decline in receivables and, you know, we also don't have a read out on the repayments due to tax refunds.
Speaker Change: and we, you know, have some seasonal modeling going on in the fourth quarter, so there was some conservatism also with some of the choppiness in the macro, so we raised it, if you remember, we raised it pretty considerably.
Speaker Change: When we reported, but things just were better than expected.
Speaker Change: I just better expect it all around some of the operational efficiency took effect from last year, the credit performed while the repayment season came in very strong.
Speaker Change: and the growth was there, which is something and then also yield, you know, continue to be strong. So it was just a really overall, really strong march and just a strong quarter for us.
Speaker Change: Great. I appreciate that at a color time. And now I'm curious.
Speaker Change: on the small business side with Biddy. Are you guys seeing any...
Speaker Change: As a patient or desire to wait to make these kind of investments given kind of a higher level of macro uncertainty or are we all systems go there as well?
Speaker Change: Yeah, I mean, I think it's a good question. You know, it's top of mind, for sure, in our conversations with Craig and the Biddy team. We are actively looking at the underwriting and where we think terrorists will impact businesses the most, just to give you a transportation retail, some of those sectors and what can be done about it. Um.
Speaker Change: The good news is, is, you know, Vity, the revenue-based finance product is short duration and it gives the ability to course correct. I think...
Speaker Change: When you go out on term right now, there's a lot more risk, there's duration risk, especially with some of the uncertainty, but I think Biddy's well-positioned right now to continue to grow and weather some of the choppiness from terrorists.
Speaker Change: Great, and I'm curious, you get to announce the special David and what at the end of March.
Speaker Change: This is, you know, clearly not the first special dividend that you guys have done in the last few years. Is there a, you know, what's the thought process around moving towards a more regular quarterly dividend versus, you know, the occasional special. [inaudible]
Speaker Change: But, you know, I think we're going to preserve the flexibility.
Speaker Change: so that we have capital at our discretion to choose from the menu of items.
Speaker Change: You know, that are out there. We're, you know, actively looking at inorganic opportunities. We're actually looking at growth opportunities [inaudible]
Speaker Change: and we think there's some high ROI options out there that we're exploring and want to make sure we have the capital so that anything we do is as non-delutive as possible to share with the world, there's an accretive to the business.
Speaker Change: Great, and then last one if I can squeeze it in on those in or grant organic opportunities could you give a little a little?
Speaker Change: A little bit of color on the criteria of what you're looking for.
Pamela Johnson: Or maybe what space or what you're looking to add. It's not my growth, it's kind of top of mind. Yeah, I mean, we still think that there's more opportunities in the SMB space. There's different flavors and different credit bands that are some interest.
in the consumer POS space.
Pamela Johnson: We're doing a lot of looking there. We think that it plays really nicely with our current core offering and there's a lot of synergies across all opportunities. So, you know, those are kind of the areas that we're focused on for now, but yeah, we're continuing to explore.
Pamela Johnson: Great. Well, I appreciate a time, guys, and congrats on the results.
Thank you. Thanks for the questions.
[inaudible]
Speaker Change: And we'll take our next question from David Scharf of Citizens Capital Market. Your line is open.
Speaker Change: Hello, good morning. This is Zach, I'm for David, and that's congrats on the strong first quarter. I want to dig in a little bit on the yield and just the credit box. The yield was a little bit above our expectations. The one to see if we can kind of get a little bit more inside, instead of just as the credit box is kind of today, and you know, what the kind of potential is for credit loosening, particularly given young macro trends. Thank you very much.
Speaker Change: Yeah, I mean, I think, you know, we're not, we've held pretty firm on not loosening the credit box. We've been very disciplined on our growth approach.
Speaker Change: You know in the accrual ones are in accrual status [inaudible]
Speaker Change: and then also you're seeing our wrist-based pricing that we deployed last year along with Model 6.
Speaker Change: which is essentially better pricing risk for new customers on the front end and flowing through so you started to see some increased yield coming from that.
Speaker Change: Got it understood, and then one more question just to cut and pop on on the catwalks inside. Any kind of thought process behind, you know, potential shared experiences, you know, kind of picking back up with that. Yeah.
Speaker Change: Yeah, it's something for sure. I mean, you know, we have to...
Speaker Change: You know, the timing of it with open windows and potentially 10B 501s, we have to make sure that we're ready to go, but I think we are definitely looking at, you know, when we think the share price is disconnected from reality. I mean, I think you need to look at our business.
Speaker Change: with our current earnings potential and also the improvement of the metrics on the revenue side on the operational efficiency side.
Speaker Change: You know, we do think that we're undervalued, but you know, we also have a lot of other, you know, attractive options out there. So we're always kind of weighing what the highest and best use of capital is for the business and where we can think it could be most accrued for shareholders and for the business in general. [inaudible]
God bless.
Speaker Change: Our next question is coming from Dave Storms of Stonegate. Your line is open.
Dave Storms: Good morning. Thank you for taking my questions. Just wanted to start with what you're seeing as far as customer patterns. Are you seeing any, you know,
Dave Storms: Full forward of their biome patterns, borrowing activities, you know, for some of these forecasted macro events or anything like that.
Dave Storms: Yeah, I talked about SMB earlier, I think there's more direct impact there. I don't think we have any direct impact on our consumers as far as the Paris are related. We have not seen.
Dave Storms: You know, much change who's in a very stable customer. If you actually look at the macro metrics.
Dave Storms: of inflation was in a four-year low, I think last week was reported. You know, interest rates have come down from from their highs. I think prices for major things like oil.
Dave Storms: You know and food have come not so like the other end people are employed right you know employment numbers were good So right now if you take you know the moment in time
Speaker Change: You know, things are solid and stable, and we're not seeing anything. Obviously it's something we're watching extremely closely. This is also, you know, what happened in 22. That was more of a shock inflation, but those learnings is really what developed Model 6.
Speaker Change: which we've been deployed last year and is designed to help smooth out some of the volatility and some of these macro things but right now we're seeing mostly stability in the consumer.
Speaker Change: Understood for help. Thank you. And then just on the cost discipline front, how many more lovers do you think you have to pull here and are there any examples you give us?
Speaker Change: I'm sorry I missed the first part of the question that you said how many more livers are on the gross?
Ah, cross-discipline [inaudible]
Oh, Conn the Conn.
Speaker Change: You know, listen, I think it's something that is just ingrained in our culture.
Speaker Change: Continuous improvement, operating efficiency, we're continuously looking for ways to get more efficient. I mean, if you look at our auto approval rate...
year-over-year went from 73.4% to 78.6%.
Speaker Change: looking to do it to provide a better customer experience and higher customer satisfaction.
Speaker Change: to our customers. We already lead the industry with our ADNPS and our 90% or 90% CSAT. So we view it as a way to help with the origination process make it smoother for our consumers and then also service them better on the back end.
Speaker Change: And there's Sir, thank you for taking my questions and good luck in YouTube.
Thanks.
Speaker Change: We'll take our final question from Mike Grondahl of Northland. Your line is open.
Speaker Change: Yeah, hey guys, this is Luke on for Mike, congrats on the on the great quarter.
Speaker Change: I just wanted to touch on how 2Q has been tracking so far, kind of specifically the month of April and how your kind of outlook on the year has changed or if at all with the sort of macro uncertainty.
Speaker Change: Yeah, I mean, I think it's consistent with my comments, you know, in the transcript that, you know, we see positive momentum for growth, you know, we think we still have a lot of letters to unlock.
Speaker Change: in our marketing channels. We're continuing to target lower risk segments, effectively.
Speaker Change: and we continue to think that we are going to be able to grow significantly this year, so we are excited and things are looking good.
Speaker Change: Yeah, and then last one here just what one or two things are you kind of most excited about for the remainder of the year?
Todd. [inaudible]
Speaker Change: You know, I think, you know, we're executing on a larger vision, right, to be the digital financial platform of the future for alternative financial service credit products.
Speaker Change: and like I said in the last earnings call, that was phase 1. [inaudible]
Speaker Change: We're now into the pros of phase two where we're going to really unlock the earnings potential and growth of the business but also be a multi-product platform for the future. And I'm excited to execute on that vision and continue to incrementally improve our models, improve our auto approval rates for our consumers and continue to be the leader in the space.
Speaker Change: Awesome. Well, that's it for me, guys. Thanks for taking the questions and congrats on the quarter.
Thank you.
Speaker Change: This does conclude our question and answer session, as well as our conference for today. You may now disconnect your lines and everyone have a great day.