OppFi Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2025

There are 8 speakers on the call.

Operator

Please standby, your program is about to begin. If you need assistance on today's conference, Good morning and welcome to OPFI's First Quarter twenty twenty five Earnings Conference Call. All participants are in a listen only mode.

Operator

As a reminder, this conference call is being recorded. Following management's presentation, a question and answer session will be held. For those listening by dial in, you will be prompted to enter the queue after the prepared remarks. I am pleased to introduce your host, Mike Gallantine, Head of Investor Relations. You may begin.

Speaker 1

Thank you, operator. Good morning, and welcome to OP Phi's First Quarter twenty twenty five Earnings Call. Today, our Executive Chairman and CEO, Todd Schwartz and CFO, Pam Johnson, will present our financial results, followed by a question and answer session. You can access the earnings presentation on our website at investors.opphi.com. During this call, Opphi may discuss certain forward looking information.

Speaker 1

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. 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. Reconciliation of those measures to GAAP measures can be found in the appendix to our earnings presentation and our press release. With that, I'd like to turn the call over to Todd.

Speaker 2

Thanks, Mike, and good morning, everyone. Thank you for joining us today. After a strong finish to 2024, I am proud to report that the first quarter of twenty twenty five was a record quarter for OPFI. The business achieved record quarterly revenue, adjusted net income and operating margin. OpFi is now beginning to unlock its full growth potential, increasing profitability and strengthening our balance sheet.

Speaker 2

Given our Q1 outperformance, we are increasing full year 2025 adjusted net income and adjusted EPS guidance. During the quarter, the company generated a strong 16% increase in originations and a 10% increase in revenue year over year. 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. In addition, OpFy continues to explore and test exciting new direct response initiatives and expand its marketing channel partners. As we mentioned on our Q4 twenty twenty four earnings call, we paid off our corporate debt in the first quarter of twenty twenty five.

Speaker 2

Additionally, we expanded our BlueOut facility to accommodate increased capacity for future growth. In Q2, we also paid a special dividend of $21,700,000 in total. 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. Throughout the quarter, Model six continued to perform well. As a reminder, Model six 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.

Speaker 2

Additionally, it is designed to facilitate risk separation, enable seasonal segmentation and support optimized targeting for new approvals throughout the year. In the first quarter of twenty twenty five, OPFI's net charge off rate improved to 35% as a percentage of revenue compared to 48 for the prior year. Our model gives us the confidence that we will be able to continue to grow and also weather different periods of economic volatility. OpFi continues to invest in product and technology initiatives to improve customer experience and originations and servicing. The auto approval rate improved to 79% in Q1 twenty twenty five, up from 73% in Q1 twenty twenty four, which in turn improved funnel metrics and propelled our net revenue up 44% year over year.

Speaker 2

OpLoans 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. Our investment in Biddy continued to perform well in the first quarter of twenty twenty five. The business continued to drive accretive profitability and cash flow to OpFi. 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.

Speaker 2

Overall, OPFI had an extremely strong quarter financially and operationally. We expect continued strong revenue momentum and profitable growth throughout the remainder of 2025 and into 2026. OpFy is well on its way to executing its vision of becoming the leading tech enabled digital finance platform that collaborates with banks to offer financial products and services to everyday Americans. With that, I'll turn the call over to Pam.

Speaker 3

Thanks, Todd, and good morning, everyone. As Todd noted, we are off to a fantastic start to the year. These results build upon the improved results that has generated since 2023 and are also a result of the significant operating improvements made over that period. Notably, we expect the operating changes and investments that OPFI has made to continue generating strong results for the foreseeable future, as evidenced by our increased guidance, which I will discuss shortly. For this discussion, all results are based on the first quarter of twenty twenty five compared to the first quarter of twenty twenty four.

Speaker 3

Driven by strong loan demand and good credit performance, total revenue increased to a record $140,000,000 up 10%. Net originations grew 16% to $189,000,000 with retained net originations increasing 11% to $169,000,000 The increase resulted from growth in total net originations, partially offset by an increase in the percentage of loans retained by our bank partners. Contributing to this increase in originations was an increase in average loan size driven by Model six, which identified areas where there could be an increase in loan sizes for current and past customers. Our strategy of seeking profitable growth led to a substantial improvement in the credit quality of the customer base, resulting in a 15% decrease in gross charge offs to $59,000,000 and a 25% increase in recoveries to $11,000,000 This drove a significant improvement in the annualized net charge off rate as a percentage of total revenue, decreasing to 35% from 48%, as noted by Todd. It also improved annualized net charge offs as a percentage of average receivables from 62% to 47.

Speaker 3

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 $91,000,000 The net result of these positive effects was an impressive six thirty basis point improvement in the average yield to a record 136%. 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. For the first quarter, '70 '9 percent of loans were approved in seconds with no human intervention, up 5.2%. The higher auto approvals, along with continued operational improvements, contributed to lower total expenses before interest expense, which declined to $38,000,000 an 18% decrease.

Speaker 3

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. As a result of the increases in revenue and reductions in expenses, adjusted net income increased 285% to a record $34,000,000 up from $9,000,000 At the same time, adjusted earnings per share grew significantly to $0.38 from $0.10 last year. We maintained a strong balance sheet, ending the quarter with $91,000,000 in cash, cash equivalents and restricted cash, alongside $288,000,000 in total debt and $238,000,000 in total stockholders' equity. Our total funding capacity was $616,000,000 including $237,000,000 in unused debt capacity. We expect our strong momentum to continue into the second quarter, driven by robust revenue growth and adjusted net income.

Speaker 3

Given our strong start to 2025 and our operating performance driven by our growth initiatives, improved credit model and focus on operating efficiencies, we are providing the following updated guidance. For the full year 2025, we expect total revenues of $563,000,000 to $594,000,000 representing a 7% to 13% increase compared to 2024. This is unchanged from our previously issued guidance. We are increasing our adjusted net income guidance to $106,000,000 to 113,000,000 up from the prior guidance of $95,000,000 to $97,000,000 representing a 28% to 37% increase from 2024. Based on an anticipated diluted weighted average share count of $90,000,000 adjusted earnings per share are expected to be between $1.18 and $1.26 up from the prior guidance of $1.06 to $1.07 With that, I would now like to turn the call over to the operator for Q and A.

Speaker 3

Operator?

Operator

Star two. Again, please press 1 now to enter the queue. One moment while we queue. And we'll take our first question from Scott Buck of Wainwright. Your line is open.

Speaker 4

Guys, thanks for taking my questions. I guess the first one is on the adjusted net income beat. I'm curious what changed from the March when you reported 4Q results and gave the guidance from where you ended up at the end of the month?

Speaker 2

Yeah. Thanks

Speaker 5

Todd.

Speaker 2

Yeah, thanks. I think we were able to usually in that time of year in repayment season, you see a little bit of a decline in receivables. And we also don't have a readout on the repayments due to tax refunds.

Speaker 5

And

Speaker 2

we 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 when we reported. But things just were better than expected. Just better expected all around.

Speaker 2

Some of the operational efficiencies took effect from last year. The credit performed well. The repayment season came in very strong. And the growth was there, which is something and then also yield continued to be strong. So that was just a really overall, really strong March and just a strong quarter for us.

Speaker 4

Great, I appreciate that added color, Todd. And I'm curious on the small business side with Biddy, are you guys seeing any hesitation or desire to wait make these kind of investments given kind of a higher level of macro uncertainty? Or are we all systems go there as well?

Speaker 2

Yeah. Mean, I think it's a good question. It's top of mind for sure in conversations with Craig and the Biddy team. We are actively looking at the underwriting and where we think tariffs will impact businesses the most, just to give you transportation, retail, some of those sectors and what can be done about it. The good news is, Biddy, their revenue based finance product is short duration and it gives the ability to course correct.

Speaker 2

I think when you go out on term right now, you provide there's a lot more risk. There's duration risk, with some of the uncertainty. But I think Bitty's well positioned right now to continue to grow and weather some of the choppiness from tariffs.

Speaker 4

Great. And I'm curious, you guys did the announced special dividend, what, at the March. This is clearly not the first special dividend that you guys have done in the last few years. Is there a what's the thought process around moving towards a more regular quarterly dividend versus the occasional special?

Speaker 2

Yeah. I mean, we doubled it from the prior year. So we're glad to do that and show the financial strength. Mean, we also paid down debt. So, obviously, the business is generating strong returns and cash flow.

Speaker 2

We wanted to reward shareholders. But I think we're going to preserve the flexibility so that we have capital at our discretion to kind of choose from the menu of items that are out there. We're actively looking at inorganic opportunities. We're actively looking at growth opportunities. And and, you know, there's we think there's some high ROI options out there that we're, you know, exploring and wanna, you know, make sure we have the capital so that it's, anything we do is as non dilutive as possible to shareholders and accretive to the business.

Speaker 4

Great. And then last one, if I can squeeze it in. On those inorganic opportunities, could you give a little bit of color on the criteria of what you're looking for? Maybe what space or what you're looking to add? It sounds like growth is kind of top of mind, but

Speaker 2

Yes. I mean, we still think that there's more opportunities in the SMB space. There's different flavors and different credit bands are there's some interest. In the consumer POS space, 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 and cross sell opportunities.

Speaker 2

So those are kind of the areas that we're focused on for now. But yeah, we're continuing to explore.

Speaker 4

Great. Well, appreciate the time guys and congrats on the results.

Speaker 2

Thank you. Thanks for the questions.

Operator

And we'll take our next question from David Scharf of Citizens Capital Markets. Your line is open.

Speaker 6

Hi, good morning. This is Zach on for David. Congrats on the strong first quarter. I want to dig in a little bit on the yield and just the credit box. Know, the yields was a little bit above our expectations.

Speaker 6

So I wanted to see how we can kind of get a little bit more insight into just how the credit box is kind of today and what the kind of potential is for credit listening, particularly given macro trends.

Speaker 2

Yeah. I mean, I think, we're not we've we've held pretty firm on not loosening the credit box. We've been very disciplined on our growth approach. You know, the increase in yield you're seeing is obviously just better repayment rates, you know, in the accrual and loans that are in accrual status. And then also you're seeing our risk based pricing that we deployed last year along with Model six, which is essentially better pricing risk for new customers on the front end and flowing through.

Speaker 2

You're starting to see some increased yields coming from that.

Speaker 6

Got it, understood. And then one more question just to kind of hop on on the capital action side. Any kind of thought process behind potential share repurchases, kind of picking back up with that?

Speaker 2

Yeah, it's something for sure. I mean, have 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 that. When we think the share price is disconnected from reality, I think if you look at our business with our current earnings potential and also the improvement of the metrics on the revenue side, on the operational efficiency side, we do think that we're undervalued. But we also have a lot of other attractive options out there.

Speaker 2

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 accretive for shareholders and the business in general.

Speaker 6

Got it. Thanks.

Operator

Our next question is coming from Dave Storms of Stonegate. Your line is open.

Speaker 5

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 pull forward of their buying patterns, borrowing activities for some of these forecasted macro events or anything like that?

Speaker 2

Yeah. No. I talked about SMB earlier. I mean, I think there's more direct impact there. I don't think we have any direct impact on our consumers as far as tariffs are related.

Speaker 2

We have not much change. We've seen a very stable customer. If you actually look at the macro metrics of inflation, was it a four year low? I think last week it was reported. Interest rates have come down from their highs.

Speaker 2

I think prices for major things like oil and food have come down. So like the underhand, people are employed. Right? Employment numbers were good. So right now, if you take the moment in time, things are things are solid and stable, and we're not seeing anything.

Speaker 2

Obviously, it's something we're watching extremely closely. This is also what happened in '22. That was more of shock inflation. But those learnings is really what developed Model six, which we've been deployed last year and is designed to help smooth out some of the volatility in some of these macro things. But right now, we're seeing mostly stability in consumer.

Speaker 5

Understood. Very helpful. Thank you. And then just on the cost discipline front, how many more levers do you think you have to pull here? And are there any examples you could give us?

Speaker 2

I'm sorry, missed the first part of the question. You said how many more levers on the growth?

Speaker 5

Cost discipline.

Speaker 2

Oh, on the cost. You know, listen, I think it's something that is just ingrained in our culture. Continuous improvement, operating efficiency. We're continuously looking for ways to get more efficient. I mean, you look at our auto approval rate, year over year went from 73.4% to 78.6%.

Speaker 2

And that's really that's not just one silver bullet, that's really just the business operating more efficiently, getting more customers through without human interaction. It's something we strive to continuously incrementally improve on a quarter by quarter basis and also find operating efficiencies. With the AI revolution coming, there's definitely gonna be opportunities to continue to improve operational efficiencies. But we want to do it the right way. And we're not looking to just replace all humans.

Speaker 2

We're looking to do it to provide a better customer experience and higher customer satisfaction to our customers. We already lead the industry with our 80 NPS 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 5

Understood. Thank you for taking my questions and good luck in Q2.

Speaker 3

Thanks. We'll

Operator

take our final question from Mike Grondahl of Northland. Your line is open.

Speaker 7

Yeah. Hey, guys. This is Luke on for Mike. Congrats on the great quarter. 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 that at all with the sort of macro uncertainty.

Speaker 2

Yeah. I mean, I think it's consistent with my comments in the transcript that we see positive momentum for growth. We think we still have a lot of levers to unlock in marketing channels. We're continuing to target lower risk segments effectively. And we continue to think that we're gonna be able to grow significantly this year.

Speaker 2

So we're excited and things are looking good.

Speaker 7

Awesome. 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?

Speaker 2

I think we're executing on a larger vision, to be the digital financial platform of the future for alternative financial service credit products. And like I said in the last earnings call, that was phase one. We're now into the throes 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 7

Awesome. Well, that's it for me guys. Thanks for taking the questions and congrats on the quarter.

Speaker 2

Thank you.

Operator

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.

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Key Takeaways

  • OPFI delivered a record first quarter with revenue up 10% to $140 million, originations up 16%, and achieved record adjusted net income and operating margin, prompting an increase in full-year 2025 adjusted net income and EPS guidance.
  • The deployment of Model 6 and risk-based dynamic pricing drove credit improvements, lowering the net charge-off rate to 35% of revenue from 48%, boosting yield to a record 136%, and increasing net revenue by 44% year-over-year.
  • Operational efficiencies from a higher auto-approval rate (up to 79%) and cost discipline reduced pre-interest expenses by 18% and interest expense to 7% of revenue, supporting profitability and customer satisfaction (NPS 80, CSAT > 90%).
  • With $91 million in cash, a $21.7 million special dividend paid, corporate debt fully repaid, and an expanded funding facility, OPFI has reinforced its strong balance sheet and remains flexible to pursue share buybacks and high-ROI inorganic growth opportunities.
  • For 2025, management raised full-year revenue guidance to $563 million–$594 million and adjusted net income to $106 million–$113 million (EPS $1.18–$1.26), reflecting confidence in OPFI’s ongoing profitable growth and vision as a leading tech-enabled digital finance platform.
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Earnings Conference Call
OppFi Q1 2025
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