OppFi Inc.

Good morning and welcome to OpFi's first quarter 2022 earnings 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. It is now my pleasure to introduce your host, Sean Smolars, head of investor relations. You may begin.

Thank you, operator. Good morning. On today's call are Todd Schwartz, chief executive officer and executive chairman of and Pam Johnson, Chief Financial Officer. Our first quarter 2022 earnings press release and supplemental presentation can be found at investors.opsci.com. During this call, Opsci will discuss certain forward-looking information. These forward-looking statements are based on assumptions and assessments made by Opsci'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. Any forward-looking statements made during this call are made as of today, and Opsite 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 Securities and Exchange Commission, including the sections entitled Risk Factors. In today's remarks by management, the company will discuss non-GAAP financial metrics. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in the earnings press release issued earlier this 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.

Thanks, Sean, and good morning, everyone. The past two months since I returned to OpFi as CEO have been very exciting. We have refined our company mission and growth strategy, refocused our efforts on the installment loan business, and continued to build our leadership team to take us to the next level as a publicly traded company. Now, I would like to cover three topics before I turn the call over to Pam. One, offer some reflections on the first quarter and macro trends. Two, discuss more detail about our long-term growth strategy. And three, elaborate on our proactive regulatory initiatives. While Pam will discuss our financial results in more detail, I want to start by discussing a few key highlights from the first quarter. The robust demand environment we experienced in Q4 continued to accelerate through Q1, resulting in a 63% growth in origination volume year over year, a first quarter record for originations for us, with a more normalized credit demand environment in the absence of federal stimulus dollars. In addition, our receivables ended the quarter at $338 million, up 38% year over year, and remaining flat since the beginning of the year. Moreover, we rolled out an updated underwriting model, which tightened our scoring parameters and shifted our mix to higher quality customers. As a result, we believe the quality of our originations was very strong, as measured by future expected net charge-off rates. The Q1 vintages are experiencing early delinquency rates for new loans that are 20% lower than for loans originated in the second half of 2021. As a result, we are cautiously optimistic about this improved trend. We are also very pleased with our improved operational efficiency in the quarter. Our auto approval rate reached 61%, up from just 41% in the prior period. In addition, our cost per new funded loan decreased 17% year over year to $221 and decreased 15% sequentially from fourth quarter 2021. Turning to the income statement, total revenue grew 20% to 101 million year over year, ahead of our expectations driven by robust origination growth. However, as we anticipated, profitability was muted in the quarter due to elevated charge-offs from lower credit quality originations during the second half of last year, combined with a softer benefit from tax refund season. As a result, net revenue declined to 51 million, adjusted EBITDA decreased to 11 million, adjusted net income was approximately $600,000, with adjusted diluted earnings one cent per share. While we anticipated these results, we pride ourselves by our strong track record of solid profitable growth. Therefore, we view these first quarter results as a one-time event, and we are already starting to see credit normalized as we anticipated. In addition, the current macro environment, which includes 40-year high inflation and rising interest rates, is fueling demand by our customers. Within our industry, non-prime lenders and banks are pulling back from our target market, driving strong borrower demand to our platform. We believe we are well positioned to capitalize on this strong demand environment within our addressable market, affording us the opportunity to be more selective in our underwriting and facilitate credit to stronger, high-quality borrowers. Moving on to discuss the long-term strategy, with my return as CEO, we have refined our mission to be focused on facilitating safe, simple, and more affordable credit access to the 60 million everyday Americans who currently lack traditional options while rebuilding their financial health. All of our current and prospective growth initiatives are, and will be, designed to help facilitate affordable credit access to achieve our overall mission for financial inclusion. For example, our market-based offer feature is helping us penetrate our existing market by also expanding our addressable market by more strongly competing on rate, term, and loan amounts, and thereby enabling us to reach customer segments that we have not historically served. We are actively exploring product extensions to enter adjacent market segments, including a sub-36% installment loan product that would feature a different business model with less balance sheet and credit risk. We would also consider acquisitions that would enable us to provide access to other customer types in adjacent lending categories and diversify our business mix. We have continued to build and augment our leadership team. In late March, we announced the appointment of Pam Johnson as Chief Financial Officer. Pam joined OpFi last year as Chief Accounting Officer, leading and expanding our accounting department since prior to our business combination with FG New America. Pam was CFO for more than a decade at multiple consumer finance companies, served nine years in accounting at a large, regional bank, and began her career in public accounting. We are very fortunate to promote Pam and are appreciative of Shivan Shah, our former CFO, for his tremendous leadership during the past five years. We also recently welcomed Manny Chagas as our Chief Operating Officer. He manages our people team, customer operations functions, and banking partnerships to attain greater productivity and optimize employee and customer experiences. Manny joined us from Discover, where he spent eight years in various leadership roles, which included managing product, marketing, and operations for its student loans business. We are confident that Manny will help us enhance employee engagement, gain market share, and achieve stronger profitable growth. We also underscored our commitment to building a best-in-class investor relations program by welcoming Sean Smolars as head of investor relations, a newly created position. We believe Sean's expertise will be invaluable to Optify as we seek to grow our analyst coverage and investor base. We look forward to engaging with current and prospective investors more frequently so that our growth strategy and competitive differentiation are clearly understood. We are confident that as more than 10 years of capital markets experience including equity research on both the sell side and buy side, will enable him to successfully lead the strategy and execution of our investor relations function. Turning to the regulatory side of our business, I want to provide a brief update of our proactive activity to defend our business in California. In March, we filed a complaint in Los Angeles Superior Court for a declaratory and injunctive relief against the Commissioner of the Department of Financial Protection and Innovation for the State of California. We are seeking a declaration that the interest rate caps set forth in California law do not apply to loans that are originated by OpFi's bank partner and serviced through OpFi's technology platform. On April 8th, the FPI filed a counterclaim against the company. The company intends to aggressively prosecute the claims set forth in the complaint and vigorously defend itself against the counterclaim as OPFI believes that the DFPI's position is without merit as explained in our complaint. There are 7.2 million Californians that lack access to traditional credit options and OPFI will continue to defend their ability to obtain credit by utilizing our platform. While we will not comment further on this pending litigation, I will share with you highlights of a recent survey that we undertook to better understand our customers in California and the value that they place on our platform. Of the 1,700 plus respondents, more than 90% had a positive experience. Almost 50% were turned down by a bank or credit union, and more than 50% declined by another online lender. Without OPFI or one of our peers, more than 80% would fall behind on bills, 30% would be at risk of losing their job or losing their housing, and 12% would file bankruptcy. We think these statistics are compelling and speak for themselves. However, I want to further underscore the primary conclusion from this survey. 80% of the respondents choose to leave an optional comment, and of these, 93% were positive. Here's one such comment, quote, It helped me get through the struggle I was facing. Without the help, I honestly don't even know what would have happened. I'm very blessed to know Op Loans exists because there's many people out there who probably don't know there is this helping hand." These survey results and comments illustrate why we continue to lead the industry with an 85 net promoter score. Facilitating access to credit for these customers during their challenging financial times is exactly what motivates me and our entire company every day to truly make a difference in people's lives. In closing, I want to reiterate that we are committed to executing on our corporate share repurchase program. When we believe OpFi's share price is disconnected from the long-term value and potential of the company, in addition, My family and I are and have been strong believers in the long-term potential of OPFI and are prepared to further invest and support the stock when we see such a disconnect in the market. With that, I'll turn the call over to Pam to review our first quarter in more detail.