OppFi Inc.

Good afternoon and welcome to OpFi's fourth quarter 2022 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. Participants can submit questions at any time by either emailing investors at opfi.com or utilizing the ask a question feature on this live webcast. And for those listening by dial-in, you will be prompted to enter the queue after the prepared remarks. And it is now my pleasure to introduce your host, Sean Smolarz, Head of Investor Relations. Thank you, sir. 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 fourth quarter 2022 earnings press release and supplemental presentation can be found at investors.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 OPFI 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 certain 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 afternoon. 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 Schwartz.

Thanks, Sean, and good afternoon, everyone. We're excited to begin 2023, and we believe our business continues to stabilize and strengthen. As founder of OpFi, I returned as CEO a year ago and immediately took steps to enhance our leadership team as well as talent in key roles throughout the company. While the macro environment in 2022 was challenging in many ways, We persevered with resiliency, focus, and a relentless emphasis on improvement. As a result, despite significant economic headwinds, including a 40-year peak in inflation, we delivered record net originations, total revenue, and ending receivables for the full year. As a result, we achieved our eighth consecutive year of profitability, exceeding our profitability guidance for 2022. Although challenging at the time, we embrace the learnings from 2022 as they provide a distinctive competitive advantage. We believe that embedding these learnings into our operating processes going forward enhance our ability to deliver a stable, profitable platform across economic cycles. We are optimistic about 2023 while remaining mindful of the continuation of an uncertain macroeconomic environment The experiences of 2022, coupled with our 10-year business history, give us the confidence that we can control our success by balancing Originations growth, overall risk, and expenses. Pam will review our fourth quarter and full year results in detail, as well as discuss guidance for Q1 and full year 2023. Before she does, I will cover four topics. One, Some highlights from our Q4 and full year 2022 financial performance. Two, an update on strategic business initiatives for 2023. Three, our macroeconomic outlook and quarter-to-date business trends. And four, our long-term growth strategy. Our fourth quarter results were driven by credit performance and operational leverage through expense reductions. This enabled us to beat the top end of our full year guidance for adjusted net income. The key highlights for the full year compared to the previous year included 27% growth in net originations to $758 million, 19% growth in ending receivables to $403 million, 29% growth in total revenue to $453 million, net income of $3.3 million, and adjusted net income of $5 million. We also successfully improved our marketing and operating cost efficiencies in 2022, as demonstrated by the 20% decrease in marketing costs per new funded loan and the 13% improvement in operating expenses as a percentage of total revenue, excluding interest, expense, add-backs, and one times. In addition, our Net Promoter Score, or NPS, was 82 for 2022. We believe that maintaining an 80-plus NPS score demonstrates the value and quality of OpFi's platform in different operating environments, and even more so when there are elevated charge-offs and challenging macro conditions. Turning to our fourth quarter summary, on a year-over-year basis, total revenue increased by 25% to $120 million. Net loss was $5.2 million, and adjusted net loss was $2.8 million. Our improved efficiency trends continued in the fourth quarter, with a 25% decrease in marketing costs per new funded loan and a 23% improvement in operating expenses as a percentage of total revenue, excluding interest expense, ad backs, and one times. One of the other highlights in the fourth quarter was the closing of a $150 million credit facility with Castle Lake. The addition of Castle Lake to our existing stable of funding sources has already helped fuel profitable growth and demonstrates that OPFI can continue to attract funding, even in challenging market conditions. We're excited to have a new financial partner and look forward to continuing to grow with them. Now I'd like to provide progress updates on some of our core strategic initiatives that we expect to drive our 2023 financial performance. Last year, the most significant adjustments to credit models were made in the company's history. In the fourth quarter, the first payment default rate continued to improve, which we think bodes well for performance later in 2023. The vintage level metric is generally a leading indicator for the net charge-off rate. In the fourth quarter, the first payment default rate for new customers continued to move closer to pre-pandemic levels. having been down 29% from the second quarter before credit adjustments were made. For existing customers on refinance loans, the first payment default rate was down 11% from the second quarter. In the fourth quarter, delinquency rates across the portfolio began to improve. The total past due rate decreased 7% from the end of the third quarter, and we've experienced further improvement so far in the first quarter. These improvements provide us with the confidence that the net charge-off rate will improve later this year as better-performing new and refinanced loans comprise a larger mix of the portfolio and older non-performing loans cycle out. The focus remains on continuous improvement to credit models, specifically by utilizing technology, data sources, and additional attributes to enhance the accuracy and manage risk for the underwriting platforms. This year, we're also very focused on enhancing our platform differentiation. Key marketing initiatives include exploring new partners and channels, improving search engine optimization, as well as making direct mail and email more compelling and efficient. We're also working towards building upon our 66% increase in referrals that we experienced last year. From a product perspective, we're continuing to introduce and communicate to customers new features such as same-day funding in collaboration with our bank partners, as well as enhancements to our self-service payment portal. Our renewed values-based collection strategy continues to be accretive to our business, yielding increased payments and lowering our net charge-off rate. Additionally, recoveries of previously charged-off loan balances grew by 26% year-over-year. We expect this area to further contribute to our earnings rebound this year. 2022 was a strong year from an expense leverage perspective, as revenue grows substantially outpaced operating expenses. This year, we remain focused on realizing more expense efficiencies by focusing on technology and operational initiatives. I'd now like to spend a couple minutes discussing our current macroeconomic view, as well as some current business trends for the first quarter. We're encouraged by recent economic reports indicating that inflation is decelerating and that for some categories, such as used vehicles, prices are falling. The employment market continues to be strong as the overall unemployment rate remains low at 3.6%. These trends are helpful for middle class consumers, which is our addressable market. Pam will detail our Q1 and full year 2023 guidance However, I will say that we are encouraged by our quarter-to-date trends, which we think set us up nicely for a significant rebound in full-year adjusted net income. With that said, we expect profitability to be skewed to the second half of the year as Q2 will be partially impacted by loan vintages from last year before credit adjustments were made. Now, I'd like to take a step back and provide an update on our long-term growth strategy to accelerate profitable growth. In addition to our plans to drive core product volume growth and expand our partnerships to serve more consumers, we're expanding our focus on corporate development. In our view, this is the best way for us to diversify the business. During our 10-year history, OpFi has generated significant brand equity across a core set of attributes, credit access and choice, transparency, value, and market-leading customer experience driven by technological innovation. We believe these same attributes would have significant synergy and create incremental value with platforms or assets in adjacent customer or product categories. We think by bringing such platforms or assets under the OpFi umbrella, we could drive scale and diversification in a manner that strategically leverages our core competencies. For investors, our long-term goal is to deliver sustainable earnings per share growth that is consistently among the highest in our industry. We're confident that we're on the right path to achieving this vision. Before I turn it over to Pam, I want to reiterate that we are optimistic about 2023, given continued strong origination demand and improved credit performance. With our positive outlook and confidence in the business, My family and I purchased OpFi shares in the open market during the fourth quarter open trading window. We intend to continue purchasing shares in the open trading windows when we believe the market price does not reflect its long-term intrinsic value. With that, I'll turn the call over to Pam.