OppFi Q4 2024 Earnings Call Transcript

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March 5, 2025
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Operator

Good morning, and welcome to OpSci's Fourth Quarter twenty twenty four Earnings Conference Call. All participants are in a listen only mode. As a reminder, this conference call is being recorded. After management's presentation, there will be a question and answer session. For those listening by dial in, you will be prompted to enter the queue after the prepared remarks.

Operator

I am pleased to introduce your host, Mike Galentine, Head of Investor Relations. You may begin.

Mike Gallentine
Mike Gallentine
Head of IR at OppFi

Thank you, and good morning, and welcome to Opdiv's fourth quarter twenty twenty four earnings call. Today, our Executive Chairman and CEO, Todd Schwartz and CFO, Pam Johnson will present our financial results before taking questions. You can access our earnings presentation on our website at investors.opphi.com. During this call, Opfei may discuss certain forward looking information. 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.

Mike Gallentine
Mike Gallentine
Head of IR at OppFi

Please refer to Slide two of the earnings presentation 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. Reconciliations of those measures to GAAP measures can be found in the appendix to our earnings presentation. With that, I'd like to turn the call over to Todd.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Thanks, Mike, and good morning, everyone. Thank you for joining us today. When I returned to CEO, we laid out a three year plan to grow our 2021 operational and financial capabilities and I'm happy to report we've exceeded those expectations. Our motto of operational excellence coupled with continuous improvement is taking effect in all facets of the business. OpFund made tremendous progress in 2024 propelling our company to deliver strong financial results in the fourth quarter and the fiscal year 2024 including record Q4 and annual total revenue.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

We expect these strong results to continue in 2025 and our yearly guidance anticipates up to a double digit percentage increase in revenue and adjusted EPS driven by strong growth and continued operating efficiency. In addition, due to the solid performance so far in Q1, we are increasing our expectations for the Q1 twenty twenty five adjusted net income we shared during our last call by more than two times. Pam will provide a detailed review of our fourth quarter financials and guidance for 2025. Before she does, I'd like to highlight a few company updates for the fourth quarter of twenty twenty four, the full year of 2024 and the year ahead 2025. OppLoans remains one of the highest rated and most transparent loan platforms in our space.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Our product and tech teams continued innovation and use of AI tools led to a record auto approval percentage for our company. This number improved to almost 80% in Q4 twenty twenty four compared to 73% in Q4 twenty twenty three, which improved funnel metrics propelling our net revenue up 23% year over year. We expect this to continue to improve in 2025 building on our operational efficiency for future growth. The continuous refinement of our machine learning model helped improve the credit evaluation process and helped identify and approve applicants with higher credit quality. As you may recall, OpFund launched Model six in 2024, which better identifies the risks of long term charge offs versus earlier versions that were more focused on upfront shorter term repayment status.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

It also assists in targeting better quality borrowers at the top of the funnel. The model also enhances risk separation and allows for seasonal segmentation and modeling throughout the year. In the fourth quarter of twenty twenty four, OpFi's net charge off rates improved 10% as a percentage of revenue compared to the prior year. The model gives us the confidence to grow and weather different periods of economic volatility and it bodes well for our future. OpFi sees a favorable environment for growth in 2025.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Our strong balance sheet, favorable macroeconomic tailwinds, strong credit trends and scalable growth levers position us well. We believe the potential of entering into additional partnerships, continued funnel improvements and direct response marketing initiatives will enable us to attract new high quality customers who exhibit strong unit economics. As you may recall, Biddie was our first outside investment in the small business financing space. Similar to our consumer business, we continue to see a large supply demand imbalance in the working capital space for small business. Biddie has experienced significant growth and we believe it will continue to provide profitability and cash flow to OpFi in 2025.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

We are excited to continue working with Biddie as they seek to disrupt the space with best in class products, modeling and servicing. Top five's balance sheet remains strong. Earlier this week, we used excess cash to extinguish our corporate debt. Last month, we extended our asset based facility with Blue Isle providing additional capacity. This is a testament to our financial strength and continued growth opportunities.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Our corporate development team continues to look for complementary products where OpFi's best in class platform and technology can deliver exceptional value to consumers and businesses. OpFi will look for the highest and best uses of its capital to add accretive acquisitions and investments, invest in high ROI initiatives and reward shareholders. OpFi is building a leading mission driven tech platform with a suite of best in class digital financial service products that addresses large supply demand imbalances and credit access for consumers and businesses. Over the last three years, we have taken considerable steps to position OpFi as a leader in our space and fulfill our vision and strategic plan. Pam will now review our fourth quarter and full year results in detail and share our increased guidance for 2025.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

With that, I'll turn the call over to Pam.

Pamela Johnson
Pamela Johnson
CFO & Chief Accounting Officer at OppFi

Thanks, Todd, and good morning, everyone. Looking at the fourth quarter of twenty twenty four, we are pleased to report that the results reflect continued strong demand for loans, good credit performance and disciplined cost management. For this discussion, all results are for the fourth quarter of twenty twenty four compared with the fourth quarter of twenty twenty three. Total revenue increased 2.1% to $135,700,000 supported by an impressive three twenty basis point improvement in the average yield to 130%. Net originations grew 11.3% to 213,700,000 with retained and net originations rising 6% to $192,500,000 as origination growth outpaced the percentage of loans retained by our bank partners.

Pamela Johnson
Pamela Johnson
CFO & Chief Accounting Officer at OppFi

Our strategic focus on growing our customer base through new targeted credit and marketing initiatives that exhibit economically attractive profit characteristics continue to drive results. New customer originations increased by 8.8%, while displaying improved credit risks as shown by the increased yield and lower charge offs. This strategy contributed to a substantial improvement in credit quality with the annualized net charge off rate as a percentage of average receivables decreasing by four thirty basis points to 54.5% and improving by four fifty basis points to 41.9% as a percentage of total revenue. The revenue growth coupled with the improved credit quality that Todd spoke about earlier, driving the higher yield and improved charge off rate drove the significant 22.9% increase in net revenue to $80,800,000 Cost discipline also played a key role in strong performance. Total expenses before interest expense declined to $45,100,000 or 33.2% of total revenue, down from 33.8%.

Pamela Johnson
Pamela Johnson
CFO & Chief Accounting Officer at OppFi

Continued improvements to our automated loan approvals contributed to effective cost control. For the fourth quarter, '70 '9 point '5 percent of loans were approved in seconds with no human intervention, up six thirty basis points from the fourth quarter of twenty twenty three. Interest expense improved to 8.1% of total revenue, down from 9.1% last year, driven by the pay down of our higher interest corporate debt and a reduction in rates. As a result, adjusted net income more than doubled to $20,300,000 from $8,400,000 while adjusted earnings per share grew to $0.23 from $0.1 in the fourth quarter of last year. We maintained a strong balance sheet ending the quarter with $88,300,000 in cash, cash equivalents and restricted cash alongside $318,800,000 in total debt and $234,200,000 in total stockholders' equity.

Pamela Johnson
Pamela Johnson
CFO & Chief Accounting Officer at OppFi

OpFund also paid down another $10,000,000 on its corporate debt in the fourth quarter of twenty twenty four and reduced it by another $20,000,000 in the first quarter of twenty twenty five, paying it off months ahead of schedule. Our total funding capacity at year end was $613,000,000 including two zero six million dollars in unused debt capacity, excluding our pay down of debt and expansion of our Blue Owl facility in the first quarter of twenty twenty five. Now looking at the full year results, which represent the full impact of the strategic initiatives that Todd discussed. Total revenue increased to $526,000,000 up 3.3% compared with 2023. This was towards the high end of our guidance of $510,000,000 to $530,000,000 With the revenue growth, improved yield and charge off rates we realized during the year, net revenues increased 17.7% to $321,500,000 GAAP net income increased significantly to $83,800,000 up from $39,500,000 in 2023 and diluted EPS for the full year was 0.36 compared with a loss of $0.06 in 2023.

Pamela Johnson
Pamela Johnson
CFO & Chief Accounting Officer at OppFi

Adjusted net income increased to $82,700,000 compared with $41,500,000 in 2023. This also exceeded our raised 2024 guidance of $74,000,000 to $76,000,000 Adjusted EPS was $0.95 compared with $0.49 in 2023. This also significantly exceeded our raised EPS guidance of $0.85 to $0.87 The company delivered strong full year results exceeding guidance and street estimates driven by the successful implementation of numerous strategic initiatives and operational improvements throughout the year. These efforts enhanced efficiency, expanded market opportunities and strengthened financial performance, underscoring the company's ability to execute its long term strategy and deliver shareholder value. These strong 2024 results also provide the template for the expected 2025 growth highlighted in our full year guidance, which I will now discuss.

Pamela Johnson
Pamela Johnson
CFO & Chief Accounting Officer at OppFi

Given our strong 2024 operating performance driven by our improved model, which strengthened the credit quality of originations, refinements in our seasonal modeling and the focus on operating efficiencies and cost discipline coupled with the testing of additional marketing partners in 2025 and the healthy start to the year, we are providing the following guidance for the entire year and the first quarter of twenty twenty five. For the full year 2025, total revenue of $563,000,000 to $594,000,000 an increase of 7% to 13% adjusted net income of $95,000,000 to $97,000,000 an increase of 15% to 17% and based on an anticipated diluted weighted average share count of $90,000,000 adjusted earnings per share would be between $1.06 and $1.07 In 2025, we expect less seasonality in our results than in prior years, driven by the stabilization and growth of yield, predictable credit trends and the full year impact of our operating efficiencies. Additionally, we expect a more stable interest rate environment to contribute further to our consistent performance throughout the year. We anticipate this impact will be most pronounced in the first and fourth quarters, with those quarters contributing more than in prior years. We expect our momentum to continue in the first quarter with adjusted net income expected to be $22,000,000 to $24,000,000 more than double our previous guidance.

Pamela Johnson
Pamela Johnson
CFO & Chief Accounting Officer at OppFi

With that, I would now like to turn the call over to the operator for Q and A. Operator?

Operator

Thank We'll go first to David Scharf with Citizens. Your line is open. Please go ahead.

David Scharf
Managing Director at JMP Securities LLC

Great. Good morning, everybody. Thanks for taking my call and congrats on wrapping up just a tremendous turnaround year for the team over there. Hey, listen, it's been an interesting earnings season where everyone has to ask the obligatory question about the macro outlook and kind of what assumptions on the consumer you're making. Maybe just at a high level, Todd, has anything changed in the last three months since the last call as you think about both better versus lesser credit consumers you want to target, as well as just your overall feeling about macro uncertainty and what the impact of tariffs might be on certain employment sectors?

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Yes. Thanks, David. I mean, listen, I think it's hard to tie it directly back, but I think I mentioned on the call our Model six, which takes a lot of the learnings of 2022 when we saw inflation. I mean, ultimately, I think tariffs could I think people are concerned about inflation and obviously that is something that would impact. I think our Model six and some of the learnings of 2022 have better prepared us to kind of weather some volatility in consumer repayments.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

But overall, we're I think if you look at our growth trends, we're growing at a really nice clip and we think there's a lot of growth out there, but we're going to we're going at a speed and a pace that we feel comfortable with that we know we have strong unit economics and we know that we're targeting really high quality customers.

David Scharf
Managing Director at JMP Securities LLC

Got it. And along those lines, can you provide well, maybe a refresher on what has driven the increase in yields over the past year and looking into 2025, what assumptions are underlying kind of the revenue guide there? And whether it reflects a change in focus on maybe the credit tiers you're going after?

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Yes. I mean, we launched a little bit of risk based pricing in the second half of the year, which allowed for more yield. We also we still had in the book back from 2022 and 2023 some lower yielding customers that have since been off the books and so that's prop yield up also better repayments, just better credit history, better repayment rates causing us to have some increased yield. But it's a nice blend of receivables in addition to a little bit more yields coming off the book causing more revenue.

David Scharf
Managing Director at JMP Securities LLC

Got it. And then maybe just one last one to squeeze in here, given obviously a lot of the headlines coming out of Washington. Is there any read on the pace of tax refund season for the critical Q1 sort of pay down quarter versus prior years?

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Yes. I mean, we're watching it closely. I mean, we're right in the start in the middle of it. It's probably too early to assess if it compared to other years. We don't anticipate that refunds will be necessarily delayed or not given due to that.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

That's our position. But we're watching it closely and hoping for a normal free payment.

David Scharf
Managing Director at JMP Securities LLC

Okay, great. Thank you very much and congrats.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Thank you.

Operator

We'll go next to Mike Grondahl with Northland Securities. Your line is open. Please go ahead.

Mike Grondahl
Head of Equities & Director of Research at Northland Capital Markets

Hey, thanks guys and congratulations on a really strong year. First question is really 2025 looks like you guys are leaning in a little bit or we're going to see that inflection in the top line. I think you talked a little bit about macro, a little bit about positive credit environment, but I don't know, could you just articulate again why you feel comfortable leaning into that growth in 2025? And then secondly, it sounds like you're having good success on the marketing side, targeting some channels and whatnot. Could you kind of describe what's going right there and how that's working well?

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Yes. Listen, I mean, we're not prognosticators of the stock market or the macroeconomic conditions that are going on. I think we really feel strongly about our underwriting model and the development of it over the last couple of years. Obviously, 2022 was a little bit of a painful time, but with the one benefit from that as we get a lot of the learnings coming out of that and helped us to get where we are today. We're going to always focus on quality over quantity, but we do think there's a lot of growth out there.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

We have really not deployed some scalable things, levers and direct response in brand marketing and other things that we think we're going to start to test into this year and think that it can yield some really growth, but with high quality customers. We're never going to necessarily open the credit box and increase the risk of our portfolio. But we definitely think that there's opportunities out there with us in our position, our balance sheet and we are seeing strong credit trends right now. Obviously, there's some ominous clouds on the horizon with what's going on, but we'll watch it closely and we have a really good read on it from getting data back pretty quickly. So we can read and react or adjust as needed.

Mike Grondahl
Head of Equities & Director of Research at Northland Capital Markets

Got it. And then on the marketing side, kind of where you're seeing the most success, what's working?

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Yes. I mean, I think like we just from a customer satisfaction standpoint, the auto approvals have really, really helped with getting improved funnel metrics to allow for customers to go through without human interaction. I think that's something that we prioritized and have really seen strong gains in. But I think from a customer experience standpoint, we think that we're in a really good spot to convert customers at a higher rate due to that. And that's why our appetite for increasing marketing spend in certain channels and then also turning on certain channels that we haven't before that we have experience in, but we've just kind of been a little dormant and we think there's a lot of growth.

Mike Grondahl
Head of Equities & Director of Research at Northland Capital Markets

Got it. And then maybe just lastly, cash balances at $88,000,000 at year end, then it sounds like you paid down $20,000,000 or $30,000,000 in early twenty twenty five on the debt. And that was cash generated in 2024. It looks like you could generate, I don't know, roughly $100,000,000 plus in free cash in 2025. How do you think about, do you want to do another bidi?

Mike Grondahl
Head of Equities & Director of Research at Northland Capital Markets

Is it share buybacks? What do you think about uses for that $100,000,000

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Yes. I mean, I think, and I touched a little bit on the script. It's a menu, right? We have a menu of options. And I think we're going to do what we think is the highest and best use of our capital.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

I think you kind of listed out some of those options. The corporate debt, we were really happy. That's something that was taken out from when we went public back in 2021. It was something it was a higher cost corporate debt that was at the corporate level that we wanted to extinguish to give us ultimate flexibility to really kind of build out our vision of being a platform business for alternative digital financial service products. And this really gives us that flexibility.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

But yes, we're going to be looking at number one growth, right? We're also developing continuing to develop our product and software. So there's high ROI initiatives there. Buybacks is always an option. There's dividends.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

There's a lot of and then there's obviously us inorganically looking for things like similar to Biddie. So there's kind of a menu of options that we'll be looking at and definitely going to prioritize things where we think it has the highest ROI for us.

Mike Grondahl
Head of Equities & Director of Research at Northland Capital Markets

Got it. Got it. Thank you.

Operator

We'll go next to Dave Storms with Stonegate. Your line is open. Please go ahead.

Dave Storms
Director of Equity Research at Stonegate Capital Partners

Good morning and congrats on the really strong quarter and end to 2024. Just hoping we could start with one of the prepared remarks because you're expecting less seasonality in 2025. Just hoping you could go a little further into what some of the drivers of that maybe smooth earnings profile are?

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Yes, it's really our new model in corporate seasonal modeling that we deployed last year that really accounts for seasonality and credit loss performance, which smooths out earnings so far in 2025. I think also the first quarter of twenty twenty four was also kind of the last quarter of some of the elevated charge offs that came out of 2022. So, but we feel like the earnings stream was going to be a lot more smoothed out this year and there's going to be strong income generations in the first and fourth quarter more so than the year before. So it's smoothing it out throughout the year.

Dave Storms
Director of Equity Research at Stonegate Capital Partners

Understood, very helpful. And then while thinking about the model, how do you view like the upper bound of automation? Are you going to run into maybe an end to some of the low hanging fruit where you can grow that by 500 basis points a year? Or will you be able to just expand into new markets and continue to push automation?

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Yes, I think it's I mean, I think it's something we can continue to incrementally improve. I think it's probably impossible to get to 100%. There's going to be, who knows with AI these days, maybe it is, but I think you're always going to have a subset that might take some human interaction. But our goal is to continuously improve that metric. We think it has a lot of benefits from an operational efficiency from the funnel metrics.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

And it also our customer satisfaction when someone goes through from an auto approval standpoint is much higher. Customers really enjoy the experience. So it's kind of a win win for us. So that's definitely something we'll prioritize and are looking at this year.

Dave Storms
Director of Equity Research at Stonegate Capital Partners

Understood. Thank you for taking my questions and good luck in 2025.

Todd Schwartz
Founder, Executive Chairman & CEO at OppFi

Thank you.

Executives
Analysts
    • Todd Schwartz
      Founder, Executive Chairman & CEO at OppFi
    • David Scharf
      Managing Director at JMP Securities LLC
    • Mike Grondahl
      Head of Equities & Director of Research at Northland Capital Markets
    • Dave Storms
      Director of Equity Research at Stonegate Capital Partners
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