OppFi Inc.

Good afternoon and welcome to OPFI's second 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 Smolarz, Head of Investor Relations. You may begin.

Thank you, Operator. Good afternoon. On today's call are Todd Schwartz, Chief Executive Officer and Executive Chairman, and Pam Johnson, Chief Financial Officer. Our second quarter 2022 earnings press release and supplemental presentation can be found at investors.opfi.com. During this call, OpFi will discuss certain forward-looking information, These forward-looking statements are based on assumptions and assessments made by OPFI'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 OPFIGHT 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 today. 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 afternoon, everyone. I'd like to cover three topics today. including the key financial and operational highlights from our solid second quarter, our view on the macroeconomic environment and its impact on our customers, and provide a quick update on strategic initiatives underway that are designed to position us for success in 2023 and beyond. We are pleased with our financial and operational performance for the second quarter relative to our expectations. Continued strong customer demand led to a 57% year-over-year increase in originations. Marketing costs per funded loan dropped by 16% year-over-year to $206. The auto approval rate increased by 12 percentage points year-over-year to 62%. We reduced our operating expenses, excluding interest expense, add-backs, and one-time items, as a percentage of total revenue by three percentage points, as a direct result of initiatives we launched in the first half of the year. We also upsized one of our credit facilities, resulting in over 600 million of current funding capacity, and maintained a customer NPS score above 80 points. With regards to the macroeconomic environment, it is clear to us that the 40-year high inflation is having a negative impact on our customers. Our average customer is employed, college educated, earns middle household income, and has minimal savings. The increased price of everyday necessities like gasoline, groceries, and home utilities has crunched these customers and their ability to service debt, despite the strong labor market. We originally expected that inflation would be transitory, in line with previous economists' predictions. However, as we can see now, inflation has persisted well beyond our expectation. In early May, we started to see the effects of inflation on credit performance, both in new loans as well as older vintage refinance loans that were originated during last year's growth phase. In response, credit models were swiftly adjusted in May and again in July to target higher performing customers as inflation began accelerating. These measures represent the most significant credit adjustments in our company's history. As a result, the credit profile of new loans being funded through our platform has improved greatly since implementing these changes. We are encouraged to see continued strong demand for our product amongst these higher quality borrowers. Going forward, we will continue to diligently monitor macroeconomic changes and their impact on our customers and take action accordingly. Even with these credit tightening measures, our profitability in the second half of this year will be impacted by the delinquencies and charge-offs of loans originated with the previous credit model in the first half of this year. As a reminder, loans that charge off in a given quarter are generally originated in the prior two quarters. We now believe these loans from previous credit model will charge off at higher rates than initially expected. resulting in break even on an adjusted basis or a modest adjusted net loss for the full year. Despite our disappointment about the second half, we are confident that the lower risk receivables base we anticipate at the end of 2022 will perform very well in 2023. In addition to the credit measures I've described, we're taking additional measures in marketing and operations that we expect will further position us for success in 2023 and beyond. Shifting to our marketing efficiency initiatives, we believe there are significant opportunities to continue lowering our cost per newly funded loan. We are optimizing our partner channels by removing higher cost, lower quality partners and expanding higher quality ones. We have also taken steps to improve efficiency in direct mail and have seen significant reductions in cost per funded loan in this channel in Q2. Within operations, we have implemented a number of enhancements to reduce delinquency and promote payments by redesigning our customer portal with more capabilities and payment options. In addition, during the second half of this year, we are initiating new partnership models to provide financial health resources to our customers, as well as testing new programs to help customers make affordable payments, avoid charge-offs, and minimize adverse credit score impacts. Before I close my prepared remarks, I want to also highlight, as previously disclosed, that my family and I purchased $1.9 million of Class A common stock at an average price of $3.13 during the most recent open trading window. We are prepared to continue supporting OpFi shares when we see that the share price is disconnected from long-term fundamentals. While we are facing credit headwinds and the effects of the macroeconomic environment, We view these challenges as temporary speed bumps that we are able to navigate. We are confident that the actions we are taking will improve our performance in 2023 and make the company stronger than ever. With that, I'll turn the call over to Pam to review our second quarter results and updated guidance.