OPFI - NYSE

Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Good morning, and welcome to OppFi Inc.'s Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. All participants are in a listen-only mode. As a reminder, this conference call is being recorded. Following management's presentation will be a question-and-answer session. 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 OppFi Inc.'s Fourth Quarter 2025 Earnings Call. Today, our Executive Chairman and CEO, Todd G. Schwartz, and CFO, Pamela D. Johnson, will present our financial results followed by a question-and-answer session. You can access the earnings presentation on our website at investors.opfi.com. During this call, OppFi Inc. may discuss certain forward-looking information. 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 2 of the earnings presentation and press release for our disclaimer statement covering forward-looking statements and references to information about non-GAAP financial measures which will be discussed throughout today's call. Reconciliations of those measures to GAAP can be found in the appendix to our earnings presentation and press release. With that, I would like to turn the call over to Todd.

Thanks, Mike, and good morning, everyone. Thank you for joining us today. I am looking forward to discussing another year of record-breaking performance at OppFi Inc. For 2025, total revenue increased 13.5% year over year and adjusted net income increased 69% year over year while keeping our industry-leading 78 Net Promoter Score. We continue to find benefits from Underwriting Model 6 which is designed to identify riskier borrowers and properly price risk across segments. Despite higher delinquencies on our summer vintages, OppFi Inc. maintained strong unit economics and adjusted in real time to support continued growth into the fourth quarter. The auto-approval rate in the fourth quarter was 79%, which allowed more customers to be approved without human interaction and helped increase originations 48% year over year. In conjunction with our lending partners, we plan to release Model 6.1 in 2026, which we anticipate will boost originations and reduce risk. We believe Model 6.1 better weights attributes in the model and enables more accurate segmentation of risk when identifying borrowers. The credit team is actively working on Model 7.0 with our bank partners and early indicators are promising on both origination and risk fronts. We plan to launch Model 7.0 in Q3 of this year. We are encouraged to see improving vintage metrics in December and January coupled with strong recovery metrics in Q4, which we believe will enable us to grow the top and bottom line in the double digits in 2026. OppFi Inc. continues to make great progress on building LOLA, the origination and servicing system of the future. LOLA is designed with a clean architecture to leverage rapidly evolving AI tools across origination, servicing, and corporate operation. The build and test phase is complete, and we are actively finishing up the QA phase of the project. We plan to substantially migrate to our new software system in Q3 2026. Early indicators give us confidence that LOLA will help continue to improve funnel metrics, increase automated approvals, enhance efficiency in servicing and recoveries, better integrate major systems, deliver reduced cycle times, and provide greater throughput for our product, tech, and risk teams. We believe our LOLA system and architecture will allow us to rapidly deploy and build new products to respond to our customers' needs and market dynamics. To that end, we are excited to announce a new line of credit product. We expect this product to launch with our bank partners in 2026. We believe this exciting product will not only serve as another high-quality credit access option for customers in the states where we operate, but also enable us to serve new geographies. This product is designed to have fair, transparent features that the OppLoans installment product has provided to millions of customers. 2025 was a great year for OppFi Inc. as we executed on our vision of being the leading technology-enabled platform that facilitates essential credit access and community services to everyday American businesses. We believe the strong foundation of performance sets OppFi Inc. up for another year of potentially double-digit revenue and earnings growth. With that, I will turn the call over to Pam.

Thanks, Todd, and good morning, everyone. As Todd noted, we achieved another record year, and we finished with a strong fourth quarter generating revenues of $159,000,000, an impressive 17% increase over Q4 2024. Model 6 has been a significant contributor to this growth. Its enhanced predictive power has enabled us to better manage our loan economics through risk-based pricing and to underwrite larger loan amounts for creditworthy individuals, helping fuel record originations and receivables balances. In the fourth quarter, originations increased by 8% to $230,000,000 compared to the prior-year quarter. Factoring in loan repayments, origination growth increased our ending receivables by 16% to $493,000,000 for the quarter. The growth in revenue was fueled by these originations and receivables growth, generating a stable revenue yield of 130%. As Todd noted, for the loans originated in the summer, we continued to see higher default rates. However, one of the benefits of short-duration loans is that loans work through the system relatively quickly. That means that by first quarter 2026, the majority of the higher default rate loans should be reflected in our earnings. As a result of the higher defaults, net charge-offs as a percentage of revenue increased to 45% for the quarter, up from 42% in the prior-year quarter, and net charge-offs as a percentage of receivables increased to 59%, up from 54% in the prior-year quarter. It is important to note we believe that much of the higher risk associated with these loans was appropriately priced into them through higher interest rates. Our scale and focus on cost discipline contributed to our strong financial performance in the quarter. Continued operational improvements drove notably lower total expenses before interest expense, which declined to 28% of revenue in the fourth quarter, a substantial improvement compared to 33% in the same quarter last year. Additionally, by paying down our corporate debt and successfully upsizing one of our main credit facilities at more attractive interest rates earlier in the year, we reduced interest expense to 6% of total revenue, down from 8% in the prior year. As a result of strong revenue growth and improvements in our operating expense structure, adjusted net income increased 27% to a fourth-quarter record of $26,000,000, an increase from $20,000,000 last year, and adjusted earnings per share grew 28% to $0.30 from $0.23 last year. On a GAAP basis, net income increased by 175% to $38,000,000, reflecting our higher revenues, lower expenses, and a $12,000,000 non-cash gain related to the change in the fair value of our outstanding warrants. Because our Class A common stock price decreased during the quarter, the estimated value of the warrants issued when we went public decreased, driving this non-cash income. However, as we have consistently stated, this is a non-cash item and does not affect the company's underlying profitability. Looking at the balance sheet, we continue to maintain a robust financial position, ending the quarter with $93,000,000 in cash, cash equivalents, and restricted cash, alongside $321,000,000 in total debt and $309,000,000 in total stockholders' equity. Our total funding capacity stood at a strong $618,000,000 at quarter's end, including $204,000,000 in unused debt capacity. During the fourth quarter, OppFi Inc. strategically repurchased 515,000 shares of Class A common stock for $5,000,000. Now looking at the full-year results, total revenue increased to $597,000,000, up 14% compared with 2024. Driving this strong growth was a 12% increase in originations to $899,000,000 in 2025, which contributed to a 16% increase in ending receivables to $493,000,000. This also translates to an average yield of 133%, up from 131% in 2024. As we discussed, we experienced growth in originations, ending receivables, and yield from the improvements from Model 6, but we also saw a decrease in net charge-offs as a percentage of total revenue, down to 37% from 39%, and a decrease in net charge-offs as a percentage of average receivables to 49%, down from 51% in 2024, respectively. While OppFi Inc. generated record revenues, the company maintained tight control over expenses excluding interest, driving a sharp decrease in expenses as a percentage of revenue to 29% from 35% in 2024. As a result of the record revenues, coupled with the decreases in expenses, GAAP net income increased significantly to $146,000,000, up from $84,000,000 in 2024, and diluted EPS for the full year was $0.99, up significantly compared with $0.36 in 2024. Adjusted net income increased to $140,000,000 compared with $83,000,000 in 2024. Adjusted EPS was $1.59, also up significantly compared with $0.95 in 2024. The company delivered strong full-year results, exceeding guidance and Street estimates, driven by the successful implementation of numerous strategic initiatives and operational improvements throughout the year. These efforts enhanced efficiency, expanded market opportunities, and strengthened financial performance, underscoring the company's ability to execute its long-term strategy and deliver stockholder value. Given our strong operating performance driven by growth in net originations, revenue, and adjusted net income, we are pleased to provide the following 2026 full-year guidance. For total revenues, we expect $650,000,000 to $675,000,000, an increase of 9% to 13% over 2025. Adjusted net income is expected to be $153,000,000 to $160,000,000, an increase of 9% to 14% over 2025. Based on an anticipated diluted weighted average share count of 87,000,000 shares, adjusted earnings per share are expected to be $1.76 to $1.84, an increase of 11% to 16% from 2025. With that, I would now like to turn the call over to the Operator for Q&A. Operator?

Thank you. We will now open for questions. We will take our first question from David Michael Scharf with Citizens Capital Markets. Your line is open.

Great. Thanks for taking my questions. Good morning. Todd, maybe to start more on the macro side, and given the events going on right now geopolitically, can you remind us, since these are such short-duration loans, how quickly loss emergence—like, in weeks or months—typically occurs, and specifically whether it is far too early to be talking about the impact of gas prices on some of your borrowers?

Yes. David, thank you for the question. We see early indicators very early within the month of when they are originated, looking at first payments 28 days, 42 days out. So we get earlier indicators. And, in the summer, what was interesting was we saw consumer sentiment index take a nosedive during the summer, and what followed was some lower repayments, I should say, and we course corrected pretty quickly. Also, the business is structured with risk-based pricing now, which better prices risk for customers throughout the risk segments, and that helps unit economics tremendously. So, we were still able to grow into the fourth quarter, and the good news is we have definitely seen some improvement on those in December and in January on those early indicators, and it is giving us confidence to allow for double-digit growth on top and bottom line for 2026. Yes, sorry about the cost again. Yes, there is no doubt. Inflation is a tax on our customers. It hits their discretionary income and ability to repay, something we are watching closely. We are hoping it is temporary, but anytime prices of major items like gas go up rapidly like it just has over the last week, it is something that we are going to watch. We are also going to continue to watch the customer sentiment index and just make sure that the customer is in a good place. It is definitely going to be top of mind here in 2026.

Got it. Understood. And maybe just staying on credit. I know you do not provide specific loss guidance for 2026, and as you mentioned, obviously risk-based pricing has to be factored in for total returns, but is there anything we should think about in terms of the cadence of losses coming out of—type thing—in the second half?

Yes. I mean, there was some tightening that was done in response to some of the summer vintages. However, it is stable, and we were starting to feel more confident. Obviously, it is a wait and see here through the first quarter, but we think there are also some strategic initiatives that we are working on in the business that are going to unlock some more growth. We are very bullish on our model refit 6.1, which factors in more recent data to allow us to give us confidence to grow. And then I will point to we are getting more yield. We are getting more yield to price the risk properly across the segments. So back in 2022 when there were some credit spikes due to rapid inflation, we did not have risk-based pricing. So it was not a lever in our toolkit to be able to properly price risk across the segment. So we feel like with our model, with our new product line of credit, and with some of the risk-based pricing initiatives, we are well positioned to continue to grow profitably and keep strong unit economics.

Got it. Maybe just one more follow-up, and then I will get back in queue. You noted in your presentation that your bank partners had increased the percentage of their retention. I am assuming it was notable enough for it to be included in the deck. Can you give us some color on both order of magnitude, but more importantly, is this something that usually cycles up and down that maybe we had not paid attention to, or if there is anything else that we should take away from that?

Yes. It is really just in some states. Every state is a little bit different because we abide by all federal and state laws. Banks do take higher percentages in some states of originations, and so, obviously, our gross to net comes down a little. But I think what gives us comfort is the banks are very comfortable with our servicing and underwriting capabilities and are willing to put their equity into the originations, which is our interest alignment and builds confidence for us. And so we view it as a good thing long term and think that it shows the confidence that the banks have in us.

Got it. Great. Thank you.

We will move next to Michael John Grondahl with Northland Securities. Your line is open.

I wanted to ask on those early summer vintages. If you look back, what are the learnings from that? Was there any region to call out, type of loan, or a risk tier to call out? Just curious what you learned from some of those higher losses.

Yes. That is a great question. We did look at—we have extensive data: banking data, cash flow data, in addition to a lot of customer-level data to look at—and the repayment, the actual repayment. So you cannot get better data than that. There is nothing that stood out to us as being the sole reason as to why we started to see some strain and some lower repayment rates. One thing that is and has been is customer sentiment index—has been something that we have started to look at as being a way to, not obviously decision on credit, but as an early indicator of how the customer is, how the customer is feeling. And there is some ability to see that when the customer is not feeling financially secure, or they do not feel like the direction of their financial path is upward, that you see some lower repayments. But there is nothing to decision on. We looked across the spectrum at a lot of different data points. There was nothing that stood out as, “Oh, that is the reason for this happening.” But that is why we monitor this on a daily basis, and it is something that we have really good reporting to be able to read and react. In this world, it is not set-and-forget anymore on credit. That is why we are doing the refit. That is why we are building Model 7. The pace of model building and change is rapid now, and I think we are well positioned to respond to it and make course corrections along the way.

Got it. And then just to clarify, is it Model 6.1 goes live in 2026?

Model 6.1 is going to go first half. We are going to be launching—it is a refit, so it is taking Model 6 and improving on it—and we do see early indicators are boosting originations and better credit performance across the board. It really has a benefit on the origination side too, which we are excited about. We have been testing it all throughout the fourth quarter and into the first quarter, so our confidence level is getting higher. And then we are also already starting to work on building Model 7, which is a brand-new model, which will take in a lot of the data from last year and the most current data and be able to build our strongest model ever.

Got it. And if there is one or two things to call out in 6.1, which you are relaunching now, what advantages or what benefits—is it a certain data cohort, or what would you say you are getting an edge from there?

Yes. It is looking at repayment data and reweighting our variables to have the model be more predictive. That is really what it is. We look at a lot of different data points throughout the application process to determine creditworthiness, and when you actually have repayment data to support it, it becomes extremely powerful. So it is a reweighting. We have really good tools. Our credit team does a great job at constantly back testing and finding areas for improvement. Once they go to work and they start to run the regression analysis, we found some things where we could better weight different variables and produce a more accurate score.

Got it. Then, lastly, 2024 had $95,000,000 of free cash flow, 2025 had $94,000,000—low to mid-nineties each year. I would assume 2026 is going to be in a similar ballpark, maybe adjusted for a little bit of growth. How are you thinking about capital allocation? Do you have a chunk of buyback ability to buy in 2026? I am trying to think about uses for another large year for free cash flow.

In the fourth quarter, we did buy back some shares. We thought that the long-term value of our stock price and the record performance that we have had and the consistency of that was not being valued properly. So we did buy back some shares with some of our capital. I am happy to support the stock at those prices for sure. I kind of always say this, but it is a menu of options. We like to be well capitalized to read and react to the broader markets and see what is going on. We are still active in the M&A space looking at stuff. We are exploring different strategic initiatives that would need capital. We have been investing in our tech systems. We believe that LOLA, when launched, will be the most cutting-edge tech-enabled lending system out there, and it will allow us to plug into AI tools. So we are investing in that. There is a menu of options. In the past, we have done a special dividend as well. We do anticipate free cash flow to continue to increase this year. We are paying down debt, as you can see, and getting the benefit there as well. We are using our cash wisely and strategically and like to be well capitalized to take advantage of situations that come up and continue to build the business.

Got it. Thank you.

We will move next to David Joseph Storms with Stonegate. Your line is open.

Morning, and thanks for taking my questions. I wanted to start by maybe pivoting back to the macro question from earlier. You mentioned that in the summer you guys course corrected pretty quickly. You would expect to do the same thing again should gas prices run. I was hoping you could illuminate a little more about what the playbook would be here. Is that targeting higher-quality segments? Is that adjusting your pricing a little more aggressively? What does that look like?

Yes, absolutely. That is something that we have successfully been able to do: targeting lower-risk customers and even adjusting pricing to accommodate more growth in the lower-risk segments. We have been launching that in the fourth quarter and will continue that throughout the year. The lower-risk segments are more predictable on payback and repayment rates. We are not seeing as much degradation in those segments, and we will continue to market and target. We think that the line of credit product that we are building, when we launch, will potentially open up some new geographies for us with our bank partners. We are excited about that. It will give us some new geographies to provide credit access for customers. Inflation is something we are watching, and seeing gas shooting up that quickly is concerning, but we are ready to respond if needed, and right now it appears to be a temporary surge. Hopefully, it will come back down in line and will not impact our customer repayment rates.

Very helpful. Thank you. Turning to the new model we will also have this year, maybe could you spend a little time talking about what has changed between—not maybe the models themselves—but the process of putting a model together? I have to imagine you have a lot of tools at your disposal to create better, faster, stronger models with the advent of AI and such. Are we going to see that turn into faster model rollouts, or should we expect a step change in the quality of the model?

First of all, you are absolutely right. The AI tools and the tools that we are now able to deploy—the pace of change, the cycle times of developing refits and developing new models—has significantly reduced, which is a huge benefit to read and react. But the world is also changing at a much faster pace. I do not remember a time where gas went from $80 a barrel to $120 in one week. You have to— that is table stakes now—be able to read and react and be out in front of any macro noise that may affect repayment rates and be ready to make changes as needed. You will continue to see more rapid model development, reduced cycle times, and better, more predictive data as we continue to operate.

That is great. And one more for me if I can sneak it in. Just looking at your guidance, anything here that is baked in that we should be aware of? Do we expect pretty simple seasonality on the year based on what you can see? Anything there would be very helpful.

We are encouraged by some of the early vintage metrics of December and January. We are seeing a normal to strong tax refund season. It was well documented from the IRS that the average return would increase this year, which is also very beneficial for us from a credit perspective. We see growth. We feel like we have some good growth initiatives and feel good throughout the year that we can achieve double-digit revenue and profit growth.