OppFi Inc. Q3 FY2024 earnings call

• This quarter achieved record quarterly net income and revenue, enabling a third raise of full year earnings guidance. - Credit initiatives drove strong loss payment and recovery performance, marketing cost efficiency and prudent expense discipline. - Successfully executed on strategic initiatives, realized operational efficiencies. - Total revenue increased to $136.6 million, GAAP net income grew 106.4% to $32.1 million, adjusted net income increased 116.2% year-over-year to $28.8 million. - Annualized average yield increased, annualized net charge-off rate as percentage of total revenue improved, total expenses as percentage of total revenue decreased, net income margins increased. - Operationally focused on process automation, resulting in decreased OpEx as a percentage of revenue. - Plan to continue efforts in 2025 and integrate AI-based enhancements. - Made progress with equity investment in Bitty to enter small business financing market, continue to explore accretive strategic opportunities.

Total revenue increased to $136.6 million, a company record for any quarter. GAAP net income grew 106.4% to $32.1 million, and adjusted net income increased 116.2% year-over-year to $28.8 million. Annualized average yield increased by 5.4 percentage points to 133.9%; the annualized net charge-off rate as a percentage of total revenue improved by 8.1 percentage points to 34.3%; total expenses as a percentage of total revenue decreased by 400 basis points to 41.1%; net income margin increased by 1,180 basis points to 23.5%, while adjusted net income margin expanded by 1,110 basis points to 21.1%. Total net originations increased 11.8% to $218.8 million, and total retained net originations increased 4.0% to $198.4 million. 53.2% of originations were to existing customers and 46.8% to new customers. The annualized net charge-off rate as a percentage of average receivables decreased by 860 basis points to 45.9% for the third quarter compared to the prior year quarter, and as a percentage of total revenue decreased by 810 basis points to 34.3%. Total expenses were $56.1 million or 41.1% of total revenue compared to $60.1 million or 45.1% of total revenue in the third quarter last year. Interest expense totaled $11.3 million or 8.3% of total revenue compared to $12.1 million or 9.1% of total revenue in the same period a year ago.

• For full year 2024, increasing adjusted net income guidance to $74 million to $76 million from prior range of $63 million to $65 million, resulting in anticipated adjusted earnings per share of $0.85 to $0.87 compared to previous range of $0.73 to $0.75. - Reiterating guidance for total revenue of $510 million to $530 million and currently pacing towards the midpoint of this range. - Looking forward to 2025, expect first quarter adjusted net income growth in excess of 15% year-over-year, but note significant seasonality in loan demand with first quarter generally lower, so Q1 earnings growth shouldn't be extrapolated out to full year. - Plan to introduce full year 2025 guidance when reporting 2024 full year results in March.

Q: Just wanted to dive a little deeper into the improvement in yields, improving 5% year-over-year. Just wondering how much of that was due to pricing versus mix? And any other color you guys can provide on that?

A: Yes. I think it's a combination of better credit, people paying us back at a higher rate, but also in last year, we had retired some lower risk-based pricing initiatives that is causing the yield to increase year-over-year. We also are starting to test pricing into some other segments as well, which has added to that, but it's a combination of the 3 things.

Q: Just wanted to kind of start -- you just mentioned some strategic M&A initiatives as a potential use for cash. Would you be willing to kind of lay out what a target profile would look like? Would it be similar to equity stake like a Bitty transaction, maybe any geographic targets? Anything of that nature would be very helpful.

A: Yes. I mean we're looking at both. I mean I think whatever it is, it's got to be something that's highly accretive. I mean, OppFi's vision is to be a platform for digital alternative financial service products where we see large supply-demand imbalances in large addressable markets. There's definitely different profiles of business out there, different situations are pretty -- it's pretty bespoke, but we're prepared to handle either-or. So it has to make sense for us, though. And obviously, we're going to protect and mitigate risk with anything we do to make sure that it's successful and make sure that we're going to be getting a return on our capital and it's highly accretive to shareholders.