OppFi Inc.

And welcome to OPFIC's second quarter of 2025 earning conference call. All participants are in a listen-only mode. As a reminder, this conference call is being recorded. Following the 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 Gallentine, head of investor relations. You may begin.

Thank you, operator. Good morning and welcome to OPFIC's second quarter 2025 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 .opfi.com. During this call, OPFIC may discuss certain forward-looking information. The company's filings with the SEC describe essential factors that can cause actual results, development, and business decisions to differ materially from forward-looking statements. Please refer to slide two of the earnings presentation and press release for a disclaimer statement covering forward-looking statements in 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 press release. With that, I'd like to turn the call over to Todd.

Thanks, Mike, and good morning, everyone. Thank you for joining us today. After a strong start to 2025, I'm proud to report that the second quarter was a record quarter for OPFI. The business achieved record quarterly revenue, adjusted net income, and operating margin. Our Q2 results reinforce our belief that OPFI is unlocking its full growth potential and demonstrating that we are well positioned to continue increasing profitability and strengthening our balance sheet. Given our Q2 outperformance, we are increasing full year 2025 revenue, adjusted net income, and adjusted EPS guidance. During the quarter, the company generated a 14% increase in total net originations, a 13% increase in revenue, and a 59% increase in adjusted net income year over year. Our disciplined approach to growth and dynamic pricing led to this double-digit growth, and we anticipate that year over year growth will continue throughout 2025. Throughout the quarter, the underwriting model, Model 6, continues to perform well. In the second quarter of 2025, OPFI's net charge-off rate improved to 32% of revenue compared to 33% for the prior year. The model gives us the confidence that we will be able to continue to grow and weather different periods of economic volatility. OPFI continues to invest in product and technology initiatives to improve customer experience in originations and servicing. The auto approval rate improved to 80% in Q2 2025, up from 76% in Q2 2024, which in turn improved funnel metrics and propelled our net revenue of 16% year over year. OP loans remains one of the highest rated products in the industry, boasting a 79 NPS score and a CTAP score of 89% throughout the quarter. We are proud to announce our new loan origination lending application, named Lola. Our product, tech and operations teams have been working diligently over the last year to build the loan origination system of the future. It's designed to significantly reduce loan application processing times and boost operational efficiencies. By integrating with AI tools, Lola is expected to enhance customer experiences, improve satisfaction and increase automation, including auto approvals. Its modern architecture also allows for seamless integration with other major systems and tools, creating a cleaner data layer and providing deeper insights to fuel further innovation. Over the next six months, OPFI plans to migrate to Lola. Our investment in BIDI continued to perform well in the second quarter of 2025. The business continues to add a creative profitability and cash flow to OPFI. BIDI is doing a great job utilizing technology to improve operations and the customer experience, identifying additional growth opportunities and new credit segments and capitalizing on the continued supply, demand and balance in the small business lending space. Overall, OPFI had a strong quarter financially and operationally. We expect continued healthy revenue momentum and profitable growth throughout the remainder of 2025 and into 2026. We believe OPFI 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.

Thanks, Todd, and good morning, everyone. As Todd noted, we had another quarter with record results. These are due in large part to the proprietary Model 6 credit software. Model 6 has helped us expand our reach and grow our business in a highly capital-efficient and profitable manner. Its enhanced predictive power has enabled the ability to confidently underwrite larger loan amounts to creditworthy individuals. This ability to increase the average loan size while maintaining rigorous risk standards directly fueled the growth and originations which Todd mentioned. The impact of Model 6 extends beyond just loan size. We have also seen an improvement in the auto-approval rate. This enables deserving borrowers to more easily access credit, thereby enhancing the customer experience, increasing operational efficiency and improving customer satisfaction. The synergy between expanding originations driven by larger and more efficiently approved loans and disciplined credit performance is clearly reflected in the healthy growth of our finance receivables, which increased 13% to $438 million year over year. This growth is supported by the improved predictive accuracy of Model 6, which has properly aligned loan prices and terms with risk-driving revenue. As a result of the machine learning improvements incorporated in the Model 6, which helped underwrite better performing loans and increase bank receivables, total revenue reached a quarterly record of $142 million, representing a 13% increase year over year. The revenue growth, coupled with a lower net charge-off rate, drove a significant 16% increase in net revenue to $100 million. The net results of these positive effects was a 130 basis point improvement in the average year old, so a quarterly record of 136%. Our focus on cost discipline also played a key role in our strong performance. Continued operational improvements contributed to lower total expenses before interest expense, which declined to 39% of revenue in the second quarter compared to 45% in the same quarter last year. As we noted during the first quarter earnings call, we proactively paid down our 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 59% to a quarterly record of $39 million, up from $25 million. At the same time, adjusted earnings per share grew significantly to 45 cents from 29 cents last year. On a gap basis, our net income decreased by 59% to $11 million, primarily due to a $33 million non-cash charge, reflecting the change in fair value of our outstanding warrants. Because our class A common stock price increased during the quarter, the estimated value of the warrants issued when we went public also increased, driving this non-cash expense. Moving to the balance sheet, we maintained a strong position and made the quarter with $78 million in cash, cash equivalents and restricted cash, alongside $306 million in total debt and $218 million in total stockholders' equity. Our total funding capacity was $603 million at quarter end, including $219 million in unused debt capacity. We expect our healthy momentum to continue into the second half of 2025. Given our strong operating performance, driven by growth and originations, and a focus on operating efficiencies, we are providing the following updated full-year guidance. For the full year 2025, we now expect total revenues to be between $578 million and $605 million, representing a 10% to 15% increase compared to 2024. We are again increasing our adjusted net income guidance to be between $125 million and $130 million, representing a 51% to 57% increase compared to 2024. Based on an anticipated diluted weighted average share count of 90 million shares, we are increasing our adjusted earnings for share guidance, to be between $1.39 and $1.44. With that, I would now like to turn the call over to the operator for Q&A. Operator?

Thank you. After time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to ask a question. We will pause for a moment to allow questions to queue. And our first question will come from David Scarf with Citizens Capital Market. Your line is open.

Hi, good morning, and thanks for taking my questions. The first one, a little more high level, you know, for both Todd and Pam, I mean, obviously, you've delivered on everything and more of kind of your restructuring over the last couple of years on both the expense and credit side, as well as volume. And this is not a back-ended way of trying to force you into providing, you know, future guidance, but is there a long-term margin structure operating model that we ought to think about or maybe more specifically, you know, is there a target ROE or net margin over the next three, five years that you have in mind for the business based on all the changes you've made?

Yeah, thanks David, thanks for the question. I think we are, when we were on this journey, when I come back as CEO back in 2022, we had laid out, you know, roughly what we thought those could be. We were a long way from home at that point, but we kind of told you, hey, this is what we think we're going to achieve, and we've achieved it. You know, I think we're very satisfied where we're at today. We think that the business is performing incredibly well. Now, it does have to flow, right, depending on some macro factors, just that there's some, you know, clouds out there that we're looking at with Harris and stuff like that, with the consumer on inflation and unemployment, but, you know, we, if we can, you know, bump that if we're achieving a 20% margin, that is a very healthy margin, and that is, you know, probably a season of our expectations, and we feel really, really good there. One of the things this year, you know, we wanted to return to growth, and that was a big priority for us, and I think, you know, the team has done a really great job, you know, executing on that. It's a combination of not only recruiting, you know, new customers with our great service and auto approvals, but also finding the right price and the right size of origination for our customers. So it's a nice balance. So we have a nice, you know, kind of combination right now of growth and profitability that we will look to continue to achieve here throughout the 25 and beyond.

Got it, got it, understood, and more, more granularly on the quarter, you referenced, and I apologize, I haven't done the math myself, but, you know, that the latest credit model still enabled you to, it sounds like, you know, notably increase the average origination size. Can you give some context around that, sort of what the average loan size has increased by, or how much origination in the quarter was due to just increasing the average loan amount as opposed to just the number of origination?

Yeah, I mean, I think the way we're thinking about it is, you know, you've had significant inflation, you know, how this inflation today is less than it was a couple of years back, but that inflation has stopped. Prices have not fallen down, and so what's really happened is our top end price of $4,000 was one of the largest originations we made. You know, that had not been adjusted in almost 10 years where we had not really taken into account for inflation, and so we are now able to incrementally, I would say, increase that up to closer to $5,000, which will allow us for the updating of prices and, you know, inflation in today's economy. And then also, you know, incremental term, but these are all incremental things that we're doing, so it's, you know, probably 10% increase in size, and so it's not, it's not like we're only relying on just raising the amount of the origination. It's a combination of, you know, doing that and then also, you know, making sure that our current customers are paying us when we're just staying current, and then also, you know, there's a large population of customers that have been successful in our product and paid in full that are, you know, coming back to us at great rates as well. So it's a combination of things. So

David, our average, our average loan price, David, has increased by about $100 for the year over year, but again, it's, you see, newer larger loans are just now infiltrating the portfolio, right? And so you're just starting to really get the initial impact of those, but an average loan price right now is about $100 more than it was during the first month last year. No, I didn't see.

Hey, just, if I can squeeze in just one more on originations, I see in your, in your slide deck, there's a reference to sort of the growth in the percentage of loans retained by bank partners. Is that something that is contractual or is it concentrated with, you know, one partner? Is it just kind of the demand they just want to retain or maybe provide a little more content? Yeah,

you know, depending on the state, you know, we abide by all federal and state laws. Depending on some of the state's banks retain different percentages. And so that just means, you know, for the quarter, there was some growth, maybe more growth in those states. So that's how they retain more.

Got it,

got

it. Great. Thanks so much.

Thank you. Our next question will come from Kyle Joseph with Stevens. Your line is open.

Hey, good morning, guys. Thanks for taking my questions and you can ask them now. Next quarter, just want to dive into credit a little bit more. Obviously, your charge-offs are heading the right direction and you saw a good expansion in your net revenue margin. But, you know, just want to get your thoughts on the macro, the health of the underlying consumer or kind of any trends you're seeing on the GQ or first payment default trend and, you know, layer that in with kind of some of the largest, is it commentary around larger originations and how you expect that to impact credit going forward?

Yeah, that's a good question. You know, I think we saw a strong start to the year. I think, you know, coming into the summer months, we're being pretty, we're still being cautious. I mean, we've never, you know, we've always been very slow to ever change in the credit back when we're still running, I would say, pretty tight. The good news is we've been able to, you know, still achieve growth and continue to, you know, push down the charge-offs as a percentage of revenue. I think, you know, similar to the Fed waiting and seeing on lower interest rates, we're, you know, waiting and seeing a couple more things here in today's economy to make sure that, you know, we're seeing the FPDs and also long-term charge-off rates that we need to work within the confines of our, you know, of our structure. So, but yeah, it's still, we're still running, you know, relatively, I would say, tight compared to, you know, years past back in 2018-19 where much more risk segments were, you know, available at the current charge-off rates. So, we've kind of largely unchanged that and we'll continue to be, you know, cautious and read and react. And that's the nice thing about Model 6 now is our ability to dynamically read and react to situations. And, you know, we've said it a couple times on the end of the call, it also focuses more on long-term charge-off rates than short-term, you know, volatility and FPD numbers.

John, you're really helpful. And then just to continue the expenses a bit, obviously, you know, the quarter really highlighted the operational leverage in the model. But, you know, you're seeing kind of accelerating origination growth that has far outpaced, you know, at least marketing expense growth, you know, to be honest, signals a relatively healthy market. But, you know, how are you thinking about the market overall? How are you thinking about marketing expenses, given kind of competitive factors in the market?

Yeah, I mean, if you look at 2024 and 23, we averaged right around $200 MCPS. And that has increased. And NITANA talked about it in the first quarter that there was some marketing initiative that we were able to do, you know, to make some investments in some of our organic search methods as well. So, you know, we've started to roll that out. Our cost for the quarter was Q20, so we're definitely making those investments. But we're being, you know, we're being smart about it. But we think that there's continued investments for Q3 and Q4 that will be in MCPS. That's good news is, you know, so far we've been happy with the results and, you know, continuing to learn and find new methods and channels that work for us in a scalable way.

Got it. Helpful. And then, yeah, just one last one for me, if you don't mind. Just want to get your sense for or your expectations for yields, given some of the dynamics in the portfolio. Obviously, credit is good. Kind of a shift towards, you know, larger loans. Obviously, some of that's probably graduating consumers into higher or larger loan balances. But and then at the same time, you see pretty good year over year yield expansions, but just kind of back that and give us a sense for where you see your trending for the portfolio over time.

Yeah, we think it's going to be stable, you know, incrementally increasing to stable. I think, you know, we're, you know, one of the things we implemented last year was more risk-based pricing approach for different segments, you know, based on credit risk. And so, you know, that's been starting to that was rolled out starting last year and is now starting to, you know, take shape in the portfolio. But we feel like it's, you know, at a stable level, so it's probably increasing.

Okay. That really helpful. Thanks for taking all my questions.

Thank you. Our next question will come from Mike Gardel with Northworm Security. Your line is open.

Hey guys, thanks. Another very nice quarter. Pam, maybe the first one for you, you guys did mention like roughly 10% higher average loan size, maybe $100 year over year. Do you expect the average loan size to keep creeping up? Have you kind of fully absorbed that increase? Or how should we think about that the next couple quarters?

I would say incrementally, it will creep up a bit. You know, we again really haven't seen, I'd say, the full rollout of these larger loans yet, you know, at the level that we could be making them. So I think you'll see an incremental increase.

Okay. Got it. Got it. Nothing's changed materially in terms of your average loan size, but it's creeping up a little bit. I think Todd said, hey, we're kind of adjusting the inflation. I think it is what I heard, which makes sense. Secondly, on credit quality, last week, we kind of had a reset from the government in the jobs data, you know, June, July. Did you guys see that at all? Like, did that charge you guys to rethink a little bit about leaning into growth? I just curious kind of how you feel about the macro right now. Yeah,

I mean, listen, the job numbers, you know, get revised every month later and then they're not even looking, you know, sort of, they get worse. And it's something we watch. It's the macro indicators that we'll watch. Unemployment, we watch inflation. Those are the two big ones for us that we, you know, kind of, it's not something we're going to like, you know, dynamically change the model because of some macro indicator that may not even be, you know, fully accurate. But it is definitely something, you know, we're watching as you're going into the growth months of the year. I think you have to always be, you know, careful in watching, you know, what's going on in the economy. You know, it's things are changing pretty quickly in today's environment. So you can't read and react to everything, but it's definitely something that will inform us. And then also, you know, we have very, very good early data to kind of see crash or see problems kind of well before any economists or anyone due to the, you know, repayment rates kind of and the default frequency in DC. So we can read and react as needed.

Got it. Does that data still look really good? Yeah, I mean,

I mean, so far, I mean, like, you know, this is coming off of the half refund season, you know, you're going to start to see higher losses for the second half. It's something that, you know, we model and are prepared for, but it's something we're always, you know, closely watching, especially on new loan originations is something you have to be careful with because the environment changes, things can, you know, change as well.

Perfect. And then you guys call out what the collection amount was in 2Q. I know, you know, two years ago, give or take a little bit, you revamped collections, started being more active there. And I know you've had a lot of success. How was collections in 2Q?

Just to understand your question, Mike, are you talking about recovery? Like, oh, yeah, I'm both charged up.

Yeah. Yeah. I've got that handy, Mike. Last year, Q2, our recoveries were ,400,000. And this year, they're ,692,000. So, you know, again, major increase.

Got it. Great. And then just lastly, OpEx was pretty much flat year over year. I think it was roughly 45 million bucks. How do we think about the growth there going forward? Should it track the growth? How do we think about it?

Yeah, I mean, I don't think if we think about it necessarily as like a formula per se. I mean, we're going to invest when we see a high, you know, there's a need for it. And I think, you know, I mentioned for the first time our Lola system, our lending application, Lola. We think that, you know, a great investment is something that is going to propel us into the future, allows us to seamlessly integrate it with AI tools that will better integrate all our major systems and is like, is really going to, you know, set us up really nicely here once we migrate for the next 10 by 10 years. It's not beyond. So, you know, I think as far as like the corporate and our servicing, we think that, you know, with the team in place, we can definitely continue to scale without having to add, you know, maybe some incremental growth, but without having to add major costs. But, you know, our response to scaling and continuing to grow is to really, really focus on delivering value to our customers and really getting our, you know, all the technical debt and all the software that had been built in the past really cleaned up and to give us a clean footprint going into this new world where, you know, we know that there's the cool AI tools that can benefit not only us operationally, but also our customer experience.

Got it. And, hey, I'm sorry, I'll squeeze one more inch. With the robust free cash flow, any updated thoughts on capital allocation? You know, I saw you, the dividend was what was incremental. How are you thinking about that?

Yeah, we're continuing to explore, you know, opportunities and investment opportunities. And, you know, our goal, Mike, is to be a multi-price platform for well-heard credit space, to be the leader in that. And, you know, we're seeing some interesting stuff out there. I'm not going to report, but, you know, we're really happy with the bidding investment that's continuing to perform really well in the SMB space. We're continuing to look at adjacent spaces and point of sale, continuing to look at, you know, the earn with the access space, which obviously is a very, very hot space. The valuations are, you know, very, very full there. But, you know, they're getting a lot of credit. It seems like consumers really like the product, right? A lot of the product markets sit there for consumers. So, you know, we're definitely active looking, you know, where it can make sense. It's going to be something that, you know, we make sure it really fits within our brand promise and our mission. We don't want to do anything just to say, hey, we did an acquisition. It really has to fit our, you know, our footprint and our vision for being a multi-product platform. But we're definitely looking at that, you know,

we would be considering stock repurchases. We feel like there's a mismatch between the value of the enterprise and the stock price.

Yeah, well, I would go ahead and say we do think it is disconnected, but yeah, we think it's been very, very disconnected. That is another menu option for us as well to protect our, you know, our share price when we think it's, you know, not valued correctly as well.

So, perfect, perfect. Hey, thanks guys.

Thank you. Our next, our last question today will come from Dave Storms with Stonegate. Your line was not open.

Hey, good morning and thanks for taking my questions. Just want to circle back to the Lola Initiative. You know, how should we be thinking about that rollout over the next six months? I guess, what does success look like? Is it either at cost or auto approval rates? You can come for a quick, just to Richane alone. Just any more there would be great.

Yeah, I mean, I think success is we just continue to achieve the results we're getting right now with our current system. The real value is the ability to, for the future, to really unlock the full potential of all the new technologies in AI and plug them in without breaking the system and then being able to seamlessly integrate them. It also really improves our data analysis and connects better and major systems. But it would be to continue to achieve the great results we're getting today and even build upon them incrementally better. But also it really just gives us that optionality to be able to deploy new tools in all facets of the business. Marketing, credit, operations, you know, even better for compliance and financials as well as data. So it really just helps us paint up a lot of the tech clips that we've had over the last 10 years that we've built and improve on it.

Thank you. And just a little more from your guidance taken into account, you know, the tech and half being seasonally softer, are you seeing anything in the macro that would throw off a seasonal distribution between pre-Q and poor Q?

Can you be a little more specific just to make sure I answer your question correctly?

Yeah, of course. So your guidance takes into account the tech and half being seasonally softer as it normally is. Should we expect pre-Q and poor Q to be seasonally in line, you know, with their typical seasonal trends? Or are you seeing anything in the macro picture that might

throw that off?

Yeah, no, I think, I mean, listen, I think as you start to grow more, you know, there's costs associated with that and obviously, you know, charge-offs, you know, build a little bit. And so you kind of reach up to next year. So I mean, we're seeing a pretty, you know, standard process there, but, you know, nothing to call out out of the ordinary.

Thank you for taking my questions and good luck in the third quarter.

Thank you. Ladies and gentlemen, this concludes today's event. You may now disconnect.