Good afternoon. On today's call are Todd Schwartz, OppFi's Executive Chairman and Chief Executive Officer; and Shiven Shah, Chief Financial Officer. The company's fourth quarter and full year 2021 earnings press release and supplemental presentation can be found at investors.oppfi.com.

During the call, the company will discuss certain forward-looking information. These forward-looking statements are based on assumptions and assessments made by OppFi'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 OppFi undertakes no duty to update or revise any such statements, 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 SEC, including the section 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 this afternoon's earnings press release. This call is being webcast live and will be available for replay for 1 month on our website. I would now like to turn the call over to Todd..

Thank you, and good afternoon, everyone. First, I want to say how proud and excited I am to return as CEO of OppFi and lead this dynamic company in its next phase of growth. As some of you know, 10 years ago, I founded OppFi with a compelling mission to help millions of consumers who are locked out of mainstream options to gain access to credit.

The goal is clear, provide simple credit to help people with unforeseen expenses and help millions build a better financial path. Today, I remain as passionate about this mission for financial inclusion as I did in 2012, and I'm extremely confident in our future.

As I will detail in the next few minutes, this year, we are focusing on our core business, which we believe will position us to continue to achieve consistent profitable growth.

Therefore, we are pursuing initiatives we believe that represent the best allocation of capital and yield the highest return on investment to unlock the potential to further expand our market share and continue to lead our industry.

As OppFi's Executive Chairman, CEO and the largest shareholder, I want to underscore that OppFi's Board of Directors is committed to maximizing long-term stockholder value.

To this end, we recently announced our $20 million corporate share repurchase authorization that we intend to utilize when we believe OppFi'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 OppFi and are prepared to further invest and support the stock when we see such a disconnect in the market. Now, I would like to go over 3 topics before I turn over the call to our CFO, Shiven.

Number one, offer some reflections on our record for 2021; number two, speak about the macro outlook for 2022; three, discuss our key product enhancements specific to the installment loans business for 2022. We are very pleased with our record results and strong profitability in 2021.

We continue to have a strong profitable core business with robust demand on the heels of the economic recovery and increased consumer spending. For the year, we generated $351 million of revenue, in line with guidance and $66 million of adjusted net income, consistent with the higher end of our expectation.

We ended the year with a strong balance sheet with $62 million of cash, $158 million of unused debt capacity and $473 million of total funding capacity to fund future growth. As we anticipated, we are seeing a shift in the macro environment with consumer spending, financing trends normalizing to the pre-pandemic levels.

The end of federal stimulus programs, including child tax credits, decades high inflation and increased consumer spending are accelerating demand for credit from our customer. In addition, the strong labor market is creating more employee qualified borrowers.

This normalization of demand drove the second consecutive quarter of record originations in the fourth quarter, resulting in record volumes for the year. We also ended the year with record receivables, which establishes a strong baseline for which we grow in 2022 and beyond.

While it's early, we have seen this acceleration of demand continue thus far in 2022. In January and February combined, we generated a 51% year-over-year increase in originations. This trend is better than expected from historical seasonality trends. At the same time, demand is returning to pre-pandemic levels.

As a result, we are proactively managing our expected credit performance to ensure that all customers to which we facilitate credit meet our risk-return criteria. Recently, we rerolled out our new next-generation credit model that we believe will enable us to target more prospective customers while achieving our target return hurdles.

In the second half of 2021, we also made several product and operational enhancements that we believe will have a meaningful impact on growth and profitability in 2022. First, our market-based offers.

We are introducing market-based offers to profitably grow our core loans business that incorporates different rate, term and loan amounts following promising testing in the fourth quarter of 2021. We saw certain channels and price points generate 2.5x volume increases with lower credit risk versus our traditional product.

We believe this initiative will enable us to expand our market share and reach customers we have not historically served, all while reducing credit risk. Second, tech-enabled efficiencies and automation. We continue to leverage our proprietary technology platform and artificial intelligence systems to automate the loan approval process.

This not only enhances the customer experience with speed, but also improves operational efficiency. Percentage of automated loans more than doubled in 2021. These loans are funded with 0 human interaction. We expect to continue this upward trend in 2022, which should drive increased operational scale and efficiency. Third, credit enhancements.

As mentioned earlier, we recently introduced our next-generation credit model, which will allow us to target qualified customers more effectively. When credit began to normalize in Q4, we implemented optimized underwriting parameters in our new model that have resulted in a decline in early-stage delinquency.

Of course, in addition to these initiatives, we continue to work on improving the user experience, increasing conversion rates and acquiring customers proficiently. To this end, we are excited to further leverage our industry-leading customer service as exemplified by our Net Promoter Score of 85.

In 2022, we are highly focused on maximizing our core OppLoans product as we believe we can gain market share with the enhancements that I outlined, unlocking profitable sustained growth.

In summary, we are excited by our key initiatives and the resurgence of consumer demand and are confident about our future as well as our ability to serve more customers by facilitating safe, reliable credit options.

With that, I'll turn the call over to Shiven to review our fourth quarter and full year 2021 results as well as provide commentary on our outlook for 2022..

Thanks, Todd, and good afternoon, everyone. To start, I would like to note that our 2020 income statement is presented on a pro forma fair value adjusted view to present like-for-like comparison. You will recall that on January 1, 2021, the company transitioned to the fair value accounting method for its core installment receivables.

Turning now to our results. Despite a challenging macroeconomic backdrop, 2021 adjusted net income increased 19% year-over-year to $66 million, in line with our original outlook at the time of our business combination announcement in February of last year. This is a testament to the resiliency of our business model through varying economic cycles.

Adjusted revenue increased 9% to $351 million, while adjusted EBITDA grew 16% to $117 million. In addition, originations were up 23% year-over-year to $595 million, driving a 22% increase in ending receivables to $338 million.

Strong financial performance during the fourth quarter led to record full year earnings and the high end of our guidance ranges for adjusted net income and ending receivables. More specifically, revenues of $96 million were up 11% compared to the fourth quarter of 2020 and increased 4% from the prior quarter.

Our ending receivables balance on an amortized cost basis was $338 million at the end of the year, up 15% from September 30 and up 22% compared to the end of 2020. Much of that growth was tied to accelerating origination volumes, which totaled $187 million for the fourth quarter, up 25% year-over-year and up 14% sequentially.

From a mix perspective, more than half of the quarter's originations were extended to new customers versus 43% in the fourth quarter of 2020. On an absolute basis, new customer loan originations for the quarter increased by 51% compared to the prior year quarter and were up 14% sequentially.

Our annualized net charge-off ratio was 53% for the fourth quarter of 2021 versus 36% for the third quarter and 31% for the prior year quarter. Charge-offs continued to normalize as expected in the fourth quarter with our 2021 net charge-off ratio coming in at the midpoint of our previous guidance range of 35% to 40%.

While the child tax credit program initially muted the upward trajectory of delinquencies, the impact aided later in the year. Moreover, on behalf of our bank partners, in the second half of 2021, we tested new channel partners as well as extended testing and credit facilitation to newer customer segments.

We are no longer facilitating the origination of loans to these segments. And we believe this charge-off trend will likely dissipate by the second quarter. We project first quarter losses will trend similar to the fourth quarter 2021.

Looking ahead, we expect improvement in our net charge-off ratio beginning in the second quarter and therefore, trend towards pre-pandemic levels as the year progresses. We have seen improvement in delinquency trends from January and February origination that we believe bodes well for future loss rates. Turning to expenses.

Operating expenses for the fourth quarter, excluding interest expense as well as add backs and one-time items totaled $44 million or 46% of revenue compared to $44 million or 48% of revenue for the prior quarter and $38 million or 44% of revenue for the fourth quarter of 2020.

The year-over-year increase was primarily driven by more than 50% year-over-year growth in new loan origination and the corresponding impact on direct marketing and acquisition expenses.

Following a detailed review of our cost structure, we are implementing operating cost efficiency initiatives that will result in a reduction in our cost base of approximately $15 million on an annualized after-tax basis, of which only a portion we expect to realize this year.

More broadly, we expect to continue to reduce overhead and unit-level costs with a goal of driving higher incremental margins over time as we more fully leverage our technology platform.

We expect first quarter 2022 operating expenses, excluding interest expenses as well as add backs and one-time items as a percent of revenues to remain in line with the fourth quarter of 2022 before improving in the second half of the year as we realize savings from our efficiency initiatives.

For 2022, we are projecting operating expenses, excluding interest expenses as well as add backs and one-time items to be 43% to 47% of revenue.

Adjusted EBITDA totaled $20 million for the quarter, down $11 million sequentially and $14 million versus the prior year quarter as higher revenues and relatively flat expenses were more than offset by increased charge-offs.

As expected, our adjusted EBITDA margin continued to normalize through the fourth quarter, reflecting rising net charge-offs and higher volume-related expenses. For the quarter, our adjusted EBITDA margin came in at 21% compared to 35% in the third quarter and 40% for the fourth quarter of 2020.

Looking ahead, we expect margins to remain in the 20% to 25% range for 2022, with the first quarter expected to come in at roughly half of those levels due to the temporary elevated charge-off levels in the first quarter.

We are confident that margins will expand as the year progresses, driven by our new underwriting model as well as realization of expense efficiency.

Furthermore, we anticipate additional step-up in profitability in 2023 and beyond and as we realize the benefits of accelerating growth in higher quality originations with 30% as our long-term margin target.

Interest expenses, excluding debt amortization for the fourth quarter totaled $6 million or 7% of total revenue compared to $4 million or 5% of total revenue last year. Interest expense increased versus the previous quarter as we funded receivables growth from cash flow from operations and debt.

We expect interest expense as a percentage of revenue to remain at 7% for 2022. We generated adjusted net income of $11 million for the fourth quarter compared to $17 million for the prior quarter and $21 million for the fourth quarter of 2020. As of December 31, 2021, OppFi had 84.5 million total shares outstanding, excluding 25.5 million earnouts.

Adjusted basic and diluted earnings per share for the fourth quarter was $0.13 and $0.78 for the year. Our balance sheet remains healthy with cash of $62 million, total debt of $274 million, balance sheet receivables of $338 million and equity of $158 million.

Our net debt-to-equity ratio remains well below 2x coupled with $470 million in funding capacity with ample liquidity available to support our future growth plans. Turning now to our outlook.

As Todd discussed, the credit cycle is normalizing after being temporarily supported by lowering demand, reflecting the influx of cash from government stimulus programs. These factors will impact revenue, net charge-offs and earnings in 2022.

That said, our more recent initiatives are designed to allow us to adjust to these changes and maximize returns and minimize credit risk in the long run. In summary, for 2022, we are introducing the following guidance ranges.

Total revenue and ending receivables growth of 20% to 25%, net revenue, defined as gross revenues less change in fair value margin between 60% and 65%, adjusted operating expenses, excluding interest expense, add backs and one-time items as a percentage of revenue between 43% and 47%, adjusted EBITDA margin between 20% to 25% and adjusted net income margin between 8% and 12%.

We are currently executing efficiency and process automation initiatives and anticipate realizing their full annualized benefits after 2022.

In addition, we believe that in a 2022 steady-state environment with credit normalization and realization of all of our efficiency initiatives, we would achieve adjusted net income at least in line with our 2021 results, assuming conservative origination growth.

Importantly, we expect adjusted net income to ramp up throughout the year as we realize the benefits of tighter underwriting parameters, origination volumes reaccelerating following tax season refund seasonality in the first quarter and operating efficiency initiatives that are underway and will continue through 2022.

More tactically, net income will be impacted by an elevated charge-off in the first half of the year related to late 2021 vintages. As those loans run off, we expect lower net charge-offs beginning in the second quarter, driven by higher growth in lower risk customer segments with normalized credit performance.

As a result, we believe the first quarter will be our weakest of the year with profitability muted. We anticipate adjusted net income margin for the quarter to be approximately breakeven. Looking to 2023 and beyond, we remain confident in the trajectory and sustainability of our earnings growth in light of several powerful tailwinds.

First, we expect accelerating revenue realization related to strong growth in originations in 2022. Second, we anticipate our net income will benefit from a full year of $15 million after-tax operating cost efficiency savings.

And third, credit trends are continuing to improve, reflecting a more normalized macroeconomic backdrop, which we believe we will benefit from as our underwriting and targeting initiatives increasingly take hold.

In addition, we believe our balance sheet is well positioned to weather market disruptions with multiyear committed lines and ample capacity. We are increasingly focused on exploring off-balance sheet strategies that are more capital efficient and increase our borrowing and leverage capacity.

We are very excited about this initiative since we would expect to generate the same financial returns with similar economic risks while simultaneously lowering the amount of loans held on our balance sheet and increasing our capacity to borrow to generate higher growth. With that, we would now like to turn the call over to the operator for Q&A.

Operator?.

[Operator Instructions]. First question comes from David Scharf with JMP Securities..

And I guess, Todd, you haven't necessarily gone anywhere all these years, but welcome aboard anyway to the first earnings call..

Thank you..

Maybe one kind of macro question and then a follow-up. As we think about consumer demand and credit performance, I mean, obviously, the topic of credit normalization has been front and center for several quarters now among consumer lenders with the eventual dissipation of all the stimulus and so forth.

But I'm wondering, are you seeing any incremental changes in consumer behavior either on the demand side or on the credit performance side as it relates to the emergence of steep inflation? And are those factored into kind of your underwriting models going forward, because obviously, it's been 15 years since we've seen really any inflation in 4 decades since we've seen it at these levels?.

Yes. It's a great question and one that has -- over the last couple of years through the pandemic, the answer has been changing. But I think we're starting to get some certainty. And I think with the burn off of some of the federal stimulus, we're getting to a more normalized environment, which looks more like 2019.

I can assure you that there is demand. The demand is back. We're working through it. But as the CEO, the way I think about this is that's a perfect time to look at credit, right? When things are going well and the demand is there, I'm getting -- I'm thinking about credit, where can we optimize credit.

And that's why the second half of last year, we optimized our credit model to be able to better target borrowers and better segment them and then also like stay away from what we deemed more high-risk customers. Listen, OppFi is a place where we want people to be successful with our product.

We want people that are going to improve their financial health. We report all the payments to the bureaus. And we get rewarded with our -- we have an 85 NPS and the way we get rewarded is when customers are successful in our system.

And so delinquency is front and center and something that is not going to -- we're not going to allow it to happen and we're going to get to the bottom of it when we're growing. So, it's always top of mind for us..

And that's a great segue just to my follow-up, which I wanted to make sure I sort of understood correctly the commentary about maybe those late 2021 vintages because you had 2 consecutive quarters of record origination volumes, but combined with what seems like maybe some credit underperformance relative to finance.

Were these channel related or FICO band? A little more color maybe on who was targeted..

It's a great question. So, I'll just be straightforward. So, the changes were made at the end of last year. Obviously, they flow through in the first quarter. But I'll tell you this, we have seen an increase in neobanks. So, neobanks are chime and some of these new age digital bank customers that are coming through.

And what we did in a combination of channel and in some -- the style of bank that customers are using, more significant percentage of that population, we tested into some things. And frankly, we had mixed results.

right? And what we decided was that they -- those customers were probably not the right fit for us for the long term and they weren't going to be successful in our system, which is really to build financial health. And so we since ceased it. And going forward, we may revisit.

But I think right now, due to the increased demand and the strong growth and the ability to really -- we're the leader, and so we're able to continue to gain market share without having necessarily having to test into riskier segments..

Next question, Chris Brendler with DA Davidson..

Todd, also welcome aboard in terms of the public forum. I want to start with credit just real quickly. Shiven you mentioned, I think delinquency trends looked encouraging. Can you give us a little more color there? I don't see we get delinquencies until we get the K..

So, we had -- as Todd mentioned, we have seen some normalization of credit and elevated credit loss in the first quarter. What we've seen in -- what we've seen recently in the recent vintages based on our new underwriting model, we've seen growth with losses kind of coming down.

We'll report more kind of those stats for Q2, but we see trends going forward into the second quarter, third, fourth quarter and beyond, coming back to kind of conversion banks [Technical Difficulty]..

Yes. And to add to that, the early trends in loans are highly correlated to the final vintage numbers. And so we have -- and we have the most history. We've been doing this for 10 years. So, our data is pretty robust.

So, that's the great thing about -- on the forecasting side is when we see trend lines, we can identify where things are working pretty quickly. So, yes..

The benefit of having short-term paper too. A separate question is the off-balance sheet securitization sounds interesting and compelling.

What are the challenges? Why have you not done it earlier and just the overall health of the credit markets, given what's happening in the world these days?.

I mean, that ties into a -- that ties into the vision and a little bit of why now for me it's coming back. There was thought that like we have a customer base and we want to provide a suite of products. And I think we're a little bit of a different approach is we are really, really good at servicing the installment product.

And our belief is that our service and our brand resonates across all credit. And there are ways that sub-36% we can be originating and earning service and fee-based income. We have an incredible brand to acquire customers. We also are great at product market fit and positioning.

I think there's, if you will, a turndown in the sub-36% space that we could position and come -- so it's not people who necessarily qualify for the core installment but people who kind of are falling down in the sub-36% space where we can start to service and do more of a fee and servicing-based model for the business.

And then it also provides an incredible turn-up opportunity for our customers. So, it fits really well with our story. And as far as our tech and infrastructure, keeping it as an installment loan is very favorable..

Just the last one, the most exciting part of this release, I think this buyback and given where the stock is, any reason why you wouldn't take advantage of that from a cash and liquidity perspective? It looks like you've got a pretty good sizable cash flow to go after that buyback..

Yes, that's the plan. The plan is to aggressively defend our share price. I'm prepared -- the Schwartz family, including myself, are prepared to defend it and the company will be defending it. We believe it's disconnected from reality.

There's others in the peer group that came public via SPAC mergers that -- I'm not going to say any specific names, but don't have the financial profile we have or the brand and the success we've had operationally that we've been -- I feel like we've been grouped into.

And we really want to differentiate ourselves at this point and get credit for the great work we're doing, the great team and the great brand we have. So, we're going to be defending our service and I think it's a great installment..

Next question, Brian Lombardi with Seaport..

I feel like maybe I missed part of the, I guess, intro, but I guess, welcome back to the management side.

I want to try and get maybe a little bit of a narrative as to like where we were, where we are, how long are you committing to be with us? I think I'm kind of extrapolating, but I think I'm right when I could say, it sounds like you had a management that wanted to grow maybe got over at skis too much.

You've got skin in the game, you want to run this like a business, you're rolling off some bad investments and you're going to get that back on track.

Like am I wrong about that? And if I'm right about that, how long will you stay?.

Yes. First, I'll say this is an indefinite move. I'm here to stay. I am energized and passionate about this and when I started this in 2012. It's always been the mission of providing access in safe, simple terms and helping people. And I'm more driven by that than ever.

I'll tell you this, like I was doing other things, Managing Principal at Schwartz Capital. We have a couple different business lines under that.

I had an honest conversation with first and foremost, my wife and then my immediate family and the Board and everyone was incredibly supportive of me coming back into the business and saw my passion and excitement. And it wasn't in a temporary way. It's indefinitely.

And I'm here actually in the Chicago office today, had an unbelievable town hall with the team yesterday, and we're really connecting again and I feel really good about the situation..

Okay. Thank you. I guess maybe -- look, I'm looking at the situation I think like as long as we don't like have a wheel come off, we're in good shape, but I'm looking at -- the recent past hasn't been as seemingly troubling for a business like this as perhaps the near future and yet this business was challenged.

And so what's the like lesson that or the kind of reassurance that like, okay, we maybe made some bad loans as we leaned into some newer areas and we're going to roll off those? And in this environment of accelerating inflation, we feel confident because x?.

I mean that's what it was. It's something that we identified quickly and we're no longer originating or facilitating on behalf of the bank partners.

And it's -- obviously, I can only say that, but I feel really good about the trend lines and the direction and also the volume, the new origination volume is coming back, and we're very happy with that to see a more normalized environment.

Is that -- does that answer your question, or --?.

I think so.

I mean it's more of a field type answer, but you see what I'm getting at is that like I feel like the challenges now are greater than they were in the near past, but the near past causes a ripple and you're saying it's -- it was a relationship-based segment of business that you've stopped?.

Yes. Yes. I mean, we have -- I'm very confident in our model, in our segmentation of customers, it was a choice, right? And we wanted -- our job and by fault is to find credit access for people who are turned down by traditional banks. By definition, that is some of the neobank customer set.

And we ran a test and also we tried some new channel partners and we had mixed results, right? And it didn't align with the mission of the company. The company's mission is clearly to provide credit access, but they have to be successful in our system.

We report all payments to the bureaus and we provide positive trade lines and we allow people to be successful and then we build a relationship with them and then try to graduate people, right, to lower cost of capital.

If people are too high risk or they're not using our system effectively, we're probably not -- it's not the right customer company fit. So, we determine that and decided to move on..

Yes, I think the discipline in the underwriting is really kind of what we're focusing on and we're not going to be chasing after growth in segments that are not profitable.

So, we're really looking at unit economics and profile on early-stage delinquencies to see what the lifetime loss trends are going to be and we're committed to getting this charge-off ratio in line with historical levels..

Your next question comes from Mike Grondahl with Northland Capital Markets..

This is Mike on for Mike.

Most of mine have been answered, but maybe if you can just talk a little bit on the newer products like salary cap and what the kind of competitive environment looks like today as we sit here?.

Yes. So the newer products, there's still in more of a test mode and product market fit mode. I think like there's 2 ways to go about our business, right? There's a way where we can take our customer and surround them with a bunch of products.

And I think there's a lot of risk and uncertainty from an investment standpoint and a financial performance standpoint and that -- and I think what I'm coming in and saying is like, hey, we have this unbelievable Net Promoter Score and customer relationship and a tech platform that can service this installment loan, there is absolutely with the market-based offer approach in the installment category and our current core business an unbelievable opportunity.

We're seeing a huge ROI there that we're going to be focused on. And it better services our customers by pricing them with terms, rates and better aligned with their goals as a consumer and allows us to better compete on marketing partner channels and in direct mail. There's stuff we can be doing at sub-36% with the installment product.

And these are things that can be done in our system that don't require that heavy essentially riskier investment that doesn't have the proven probability of ROI. I think like we can be looking at that. I think there's some stuff that's interesting on small business that we're considering, it's installment-based stuff.

So, I mean there's a lot of opportunity with the installment base. And I think what we came to the realization is like we're going to have -- we have these products, credit card and salary cap and we'll continue to test to see if it fits.

But I think there's a lot more we can be doing with our current installment product and a lot more potential and high ROI. And ROI can look high, but it has to have high probability too of success, right? So, there's 2 factors there.

You have to say, hey, that's high ROI, but what is the probability at the end of the tunnel that we actually achieve it..

And then just maybe on timing and size of like investment spend as we look at 2022, what are your kind of high-level thoughts on that?.

I just want to make sure I understood the question.

Is it --?.

Investment spend..

So, in terms of the timing on investment spend, so what we're going to be doing is really we've looked at our cost structure and we found a lot of efficiencies.

And we mentioned that in my script that we found -- we identified about $15 million of cost efficiencies, which we will then reallocate a portion of that to focus on market-based offers and our core business.

So, we're committed to driving margins up through the year and making calculated investments in our core product to be able to extrapolate those excess returns..

Thank you. I will now turn the floor over to management for closing remarks..

So first of all, thank you and thank you for those questions. Listen, I'm back. I'm excited. It's been great to reconnect with the team. The principles that got us here are the same principles that are going to get us to the next frontier. I think right now, the stock is completely -- it's at extreme value.

I'm somebody who -- I'm obviously biased, but I think that there's a lot of value and maximization here that can happen. There's a lot of improvements we're making operationally. We're focused on credit. We're focused on the right things. So, I'm excited to be back and just excited for the journey. So thank you, everybody, and more to come..

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation..