OppFi Inc Aktie

Good morning, and welcome to OppFi's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.[Operator Instructions] 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's First Quarter 2026 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 investors.oppfi.com.

During this call, OppFi 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 measures can be found in the appendix to our earnings presentation and press release. In addition, certain important information related to the BNCC transaction will be included in the registration statement on Form S-4 that will be filed by OppFi in conjunction with the transaction. Investors are encouraged to read the Form S-4 and other documents filed with the SEC in conjunction with the transaction. Additionally, OppFi and BNCC and their directors and officers may be deemed to be participating in a solicitation of proxies in favor of the proposed merger. Please refer to the disclaimer information included in our earnings 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. Pam will review our strategic investments and our Q1 financial performance and metrics. But first, I'd like to share a little bit more about OppFi's recently announced plans to acquire BNCC Corp and BNC National Bank in a cash and stock transaction valued at approximately $130 million. OppFi's goal has always been to be the leading digital finance platform, offering essential financial products and services to everyday Americans. This acquisition, in addition to our previous investment in Bitty, our LOLA lending system and our new line of credit product is a pivotal step toward fulfilling that promise.

BNC National Bank is a community-focused institution with over $1 billion in total assets and a veteran management team with decades of banking experience. They serve individuals and small to medium businesses through a diversified set of financial products, including personal and commercial loans, SBA loans and wealth management. We believe the BNC transaction will not only provide OppFi with a larger geographic footprint to expand credit access, but will also unlock significant synergies and operating efficiencies and capital. By uniting OppFi's technology with BNC's national charter and established deposit base, which totaled approximately $1 billion at the end of '25, we will be positioned to provide broader access to financial products for underserved populations.

Financially, this acquisition is expected to be transformative. BNC brings a stable, low-cost funding profile with over 80% of BNC's deposits carrying a cost of less than 2%. We expect this to significantly enhance our balance sheet flexibility and lower our overall funding costs. We expect this combination to be at least 25% accretive to adjusted EPS in the first year post closing, 40% accretive in the second year and 50% accretive in the third year. We are very excited to work alongside the BNC team to expand and digitize their core business.

We believe that vertically integrating with BNC will provide our platform with the strongest possible strategic footprint, allowing us to expand our products and consumer choices and credit access while reducing costs for our customers. We believe this will also benefit our investment in Bitty by enabling us to further expand our small business platform, offering multiple products and serving additional customer segments. We expect to close in the fourth quarter of 2026, subject to regulatory approval and other closing conditions and look forward to providing further updates throughout the year.

In addition to the acquisition of BNC, we have simplified our corporate structure by transitioning from an Up-C structure to a traditional C corp legal structure. This change is intended to provide tax optimization and remove operational complexity of the Up-C structure. As a result of this simplification, all OppFi stockholders now hold Class A common stock with identical economic and voting interest. We believe this enhances our acquisition currency as our stock is more straightforward and attractive vehicle for future growth and M&A activity, ensuring our capital structure is as agile as our technology platform. For the remainder of my remarks, I will be discussing product and credit initiatives and the LOLA migration.

OppFi fully deployed the Model 6.1 refit in Q1. The refit is designed to increase volume while improving overall delinquencies. As discussed last quarter, our current goal is to launch a model refit every 6 months and a new model every year. This will allow us to have the most current data to build our models and keep up with the ever-changing macro environment and customer sentiment. The team is hard at work building our most powerful model, Model 7. We expect to launch Model 7 in the fall of this year. OppFi continues to make great progress on building LOLA, the origination and servicing system of the future.

LOLA provides a clean architecture designed to leverage rapidly evolving AI tools across origination, servicing and corporate operations. The building phase and test phase is complete, and we are actively finalizing the quality assurance phase of the project. Initial migration is planned for this month with substantial completion to our new software system expected in the third quarter of 2026. Early indicators give us confidence in our belief 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 greater throughput for our product, tech and risk teams.

With the initial launch of LOLA in Q2 2026, OppFi is excited to announce a new line of credit product. We expect this product to launch with our bank partners in the summer of 2026. This exciting product will not only serve as another high-quality credit access option for customers in our current states, but also enable us to serve new geographies. This product will have the same fair and transparent features that OpLoan's installment product has provided to millions of customers. Our LOLA system and architecture enable us to deploy and develop new products in response to customer needs and market dynamics. Finally, the Board of Directors has approved a new $40 million share repurchase program, which replaces our prior repurchase program, reflecting our firm conviction that OppFi stock is currently trading below its intrinsic value.

This decision underscores our Board and management's confidence in the robust long-term cash generation capabilities of the business we have built. By allocating capital toward our own shares, we are reaffirming our commitment to enhancing stockholder value and signaling our optimistic outlook on the company's financial health and growth potential. Our recent announcement to acquire BNC marks another major milestone in the evolution of OppFi. OppFi is strategically retooling and investing more than $150 million in 2026 to prepare our business for sustainable long-term growth. We are excited to get to work with the BNC team and execute on our shared vision of being a leading technology-enabled bank platform that offers essential credit access and community banking services to everyday Americans and businesses. With that, I'll turn the call over to Pam.

Thanks, Todd, and good morning, everyone. I want to reiterate Todd's remarks. 2026 is a strategic and transformational year for OppFi as we direct our focus toward investing for the long term. While we remain confident in our ability to navigate the normal cycles of our business, we are not managing the company solely maximizing returns for the next quarter. Instead, we are executing against a clear long-term strategy, investing in our platform capabilities and customer experience with the goal of driving sustainable returns in the future. This commitment to future growth is reflected in our investment of more than $150 million this year.

This includes LOLA, the acquisition of BNC and its planned integration with OppFi and the strategic dissolution of our Up-C structure. Even as management navigates a challenging current environment, characterized by historically low consumer sentiment, inflationary pressures and higher average tax refunds that have temporarily limited loan demand, these investments are designed to ensure we are building a superior technology-enabled banking organization ready to lead the digital finance platform space for years to come.

The announced acquisition of BNC is expected to be financially transformative. We expect significant revenue synergies in 2027 and beyond by expanding our ability to deliver a comprehensive suite of financial products in more states. OppFi expects to generate adjusted EPS accretion from synergies of at least $60 million in the first year post closing, $90 million in the second year post closing and over $115 million in the third year post closing.

Synergies are based on our views of achievable geographic expansion, marketing opportunities and funding optimization.

The combination of OppFi and BNC will create a banking organization that will be well capitalized with significant liquidity and is expected to generate returns on assets on an equity of plus 10% and plus 35%, respectively, by 2028. We expect to maintain capital ratios well in excess of market standards. OppFi has also taken proactive steps to simplify our corporate structure. With our announced reorganization moving from an Up-C structure to a traditional C corp, OppFi terminated the tax receivable agreement. OppFi recorded tax amortizable goodwill of approximately $466 million. This tax amortizable goodwill is expected to result in approximately $111 million in future cash tax savings for OppFi, subject to tax changes and other conditions with no associated ongoing tax receivable agreement liability.

Transitioning to the existing business, we started 2026 on a positive note, generating revenue of $152 million, an 8% increase over Q1 '25. Revenue growth was fueled largely by higher receivables, which ended the quarter 9% higher at $445 million. First quarter 2026 originations decreased 7% to $176 million compared to the prior year quarter. The year-over-year decrease in originations primarily reflects a tightening of credit for certain consumer segments as we began rationalizing new loan issuance to specific segments beginning in Q2 2025. Furthermore, the first quarter of 2026 had reduced demand due to higher average tax refunds, which naturally reduced the immediate need for loans.

We have previously discussed that one of the benefits of OppFi shorter duration loans is that the loans move through the system relatively quickly. So the loans originated last summer had higher expected delinquencies as we had discussed, but this was partially offset by our recoveries, which were up 38% from the prior year quarter, helping mitigate the impact of higher default rates. Overall, net charge-offs as a percentage of revenue increased to 42% for the quarter, up from 35% in the prior year quarter, and net charge-offs as a percentage of receivables increased to 55%, up from 47% in the prior year quarter. Due to higher defaults, the revenue yield decreased to 131%, down from 136% in Q1 '25.

OppFi continues to maintain tight control over operating expenses. Total expenses as a percentage of total revenue were 34% in the first quarter, flat with the prior year. As a result of our revenue growth, offset by higher net charge-offs, adjusted net income decreased 11% in the first quarter to $30 million, and adjusted earnings per share decreased to $0.35 from $0.38 last year. Looking at the balance sheet, we continue to maintain a robust financial position, ending the quarter with approximately $100 million in cash, cash equivalents and restricted cash, alongside $284 million in total debt and $343 million in total stockholders' equity.

Our total funding capacity is strong at $625 million at quarter's end, including $241 million in unused debt capacity. This robust balance sheet serves as the foundation for our capital allocation strategy. OppFi has built a very strong cash generation engine with its existing business. In the first quarter of 2026, the company generated $69 million in free cash flow. We plan to put this cash to work through a combination of buybacks, dividends and strategic M&A.

During the first quarter, the company repurchased 1 million shares of Class A common stock for $9.9 million. Additionally, as Todd mentioned, the Board has authorized $40 million for a new share repurchase program because at current share prices, the Board and management believe this is an attractive use of cash to generate positive returns for stockholders. Also, we will continue to explore strategic M&A opportunities in addition to our plan to acquire BNC. Given our solid start to the year, current economic uncertainties and ongoing OppFi investments and restructuring, we are maintaining our 2026 guidance. With that, I would now like to turn the call over to the operator for Q&A. Operator?

[Operator Instructions] We'll move first to David Scharf with Citizens Capital Markets.

This is Zach on for David. I wanted to dig in a little bit on the SMB side, especially with the acquisition of BNC and kind of see if we can get some more details on how the average customer compares to the average SBA customer in the legacy BNC business? And what kind of -- any more details on what that combined SMB customer base might look like?

Yes. Thanks for the question. So BNC has a well-established SBA and commercial lending program, and that will continue through their community bank. The area that OppFi is specifically focused on is working capital SMB originations in the neighborhood of below $150,000. We think there's a real supply-demand imbalance, and that's something through different products like revenue-based finance, installment line of credit. We plan to have a full suite of products across the risk segments. And that's something that we've been working with Bitty on to develop and are excited about the potential, especially becoming a bank.

We'll move next to Dave Storms with Stonegate Capital Markets.

This is Max Smith. I'll be asking questions for Dave today. I just wanted to start off with the recent acquisition opening up the opportunity for new states, we were just curious about if you guys can just apply the current playbook that you guys had prior to the acquisition, if this is a copy and paste. Specifically, like any changes to your risk-based pricing model or customer acquisition strategy?

Yes. Thanks for the question. We think that there's a geographical expansion that will happen to allow us to operate in more states. We will continue to offer our core product, which is our installment product. And we already are risk-based pricing. We've introduced lower prices, higher prices across the risk spectrum and seen a lot of success there. So that will continue. But we think that there's a lot more geographical expansion. There's also potential to even further lower prices for consumers and our commitment to credit access with the operational and revenue synergies that we're going to receive from becoming a bank.

Awesome. And if you guys were able to walk through the main puts and takes and the outlook for the rest of 2026, particularly loan originations, receivables and revenue.

Yes. I mean I think like -- I mean you read the news, the consumer sentiment because of some of the inflationary pressures with the war. We're being thoughtful about it. I mean it's not to say though, our origination -- new originations were up 8%, receivables were up 9.4% year-over-year. We're continuing to find ways to grow. We're also being thoughtful. We're about long-term sustainable growth. And we want customers to be successful. We're not just going to do short-term originations to show revenue spikes or growth. That really doesn't do a lot for us long term. So we're really focused on long-term value creation and being careful.

Our Model 6.1 launch in the quarter, which we're really excited about is our refit. And we're actively building our most powerful model ever Model 7, which will factor a new way of building models where we're using more AI. So we're very excited about that. That should launch in fall, which will allow us to propel us to grow with lower losses. So I think we're positioned really, really well with our pricing, our balance sheet is strong. And we're just going to -- we're waiting and seeing a little bit on some of the inflation and macro events, but we feel really, really confident we can continue to grow profitably in this environment.

We'll take our final question from Mike Grondahl with Northland Securities.

A couple of questions here. But first, are you guys able to drill down a little bit into those revenue synergies $60 million is a lot. And I know the three, I think I wrote down was, one, more states; two, some marketing benefits, and three, some funding efficiency. Could you kind of just go through each one and talk through those like more states? Is that a couple of states? What kind of lift do you expect to get there? I don't know, if you could just help on those three revenue synergies, that would be great.

Yes. Yes. No, good question. So we believe that with the national banking platform, we're currently in 40 states. It opens up the full 50. Obviously, we have to -- we're going to work with our regulatory council to make sure that we're doing everything federally and state applicable laws. But we do think there's definitely more than -- I think we said two states. We think there's more expansion. We also have the line of credit product, which we'll be expanding as well through that National Bank charter, which we're excited about. I think when it comes to some of the revenue synergies, it's the structure of the bank partnership program. Doing it directly yields fields a lot of synergies that accrued to us and it is favorable in the funding structure, and we're doing a lot of volume. So if you look at it over a year, it's pretty significant.

Got it. And then secondly, the LOC product, can you kind of describe like will the customer apply for a loan from you guys and then it will just automatically offer that if it's the best fit? Like I guess, what will the customer see and how will they apply for that product? And then what are your kind of goals for it? Is that going to be 5%, 10% of the mix in a year? Just a little bit of color on the LOC.

Yes. So it's going to be done through the OpLoans brand. We're going to be offering two products under the OpLoans brand, an installment and a line of credit product. What's being contemplated for the summer launch is we're going to be picking up in three new geographies with the line of credit product. So originally, it's going to be offered in one -- in certain states and installment will be offered another. Soon after launch and once we get the early data read, we will provide customers with optionality to select between the two products, what they -- what best suits them and fits them. And so we're excited to have another product option for our customers. And some customers prefer line of credit over installment. They feel that it provides them a little bit more control. It changes a little bit of how refinances happen versus the line of credit.

There's no refinances. So we're excited to provide another high-quality option. It will have all the same features as our installment. There's going to be no draw fee on the original origination. There's going to be no late fees, no prepayment. So we're excited to offer a largely similar product, but just another option for customers. It also allows us to better compete. We know that a lot of our competition uses line of credit in various ways to serve their customers. So we think it's merited and it will be a good high-quality option for our customers.

Got it. And then just lastly, I wanted to ask about credit quality. I think there was a little cleanup in 4Q. Would you guys say there was also a little bit cleanup in 1Q? And do you see that continuing? Or just where are we in credit quality and how you guys are viewing it and thinking about it?

Yes. I mean just to point out, our charge-offs receivables was elevated from last year. Last year was an exceptional year. We were kind of in a growth. We were extending term a little bit. So we had a really, really strong Q1 last year. This year is more of a normalization. If you go back to '24 and '23, it's still better than those months. We were able to grow receivables, like I said, 9.4% in new originations. It's elevated. There's elevated. I think customers are being a little cautious here. on the demand side and then also on the payments, you got to be a little cautious when there's inflationary pressures that we're seeing.

We're hopeful that this Iran conflict and gas prices will get resolved quickly. And we feel like in the second half, we have a lot of growth levers. Our pricing, our Model 6 are already in market. They're doing really, really well. And then this line of credit product is going to add new geography expansion, which will add a lot of growth. So we're able now with our risk-based pricing to be able to operate in different credit environments and cycles. It's much different kind of than in '22, we had a single price product. And so we feel like we're much, much better prepared to be able to operate with a little bit of a higher past dues coming in.

Fair. That's helpful. Best of luck the rest of '26 and with the acquisition.

I'm sorry, Mike, could you just repeat the question?

No, I just said best of luck in 2026 and with the acquisition.

We have a follow-up question from David Scharf with Citizens Capital Markets.

I just wanted to squeeze one more question in here. So obviously, seeing good things from the LOLA platform. I wanted to see if we can possibly get some KPIs or quantitative metrics around that to kind of show kind of the upside that's providing.

Yes. I mean we're starting the migration literally this month, which we're very excited about. It's going to reduce cycle times. We were already really, really doing well, like our auto approval rate went from 78.6% last year in Q1 to 79.2%. So we're still even on our old system, making progress on auto approvals. But this is structurally going to allow us to reduce processing times and to approval for customers. So customers are going to get approved faster. We're going to continue to push up the auto approval rates. This allows us to launch products. So we started talking about line of credit product. In the beginning of the year, and we're going to be able to launch it 4 months later, not even. That's all due to having a clean architecture and a modular infrastructure from our loan servicing system that will allow us to launch. So we're excited.

I mean from a corporate standpoint, better corporate integrations into our accounting systems. Our data was all retagged and cleaned up. So we're going to have the ability to deploy AI tools to better read out data and have better information faster. And I think from like product enhancements from a risk perspective, from a credit perspective, because of the clean architecture, we think cycle time, so meaning we have an idea to enhance our installment product for us to get that to market will be a 50% reduction in cycle time to get something to market by having that architecture. So there's tremendous benefits, and we'll continue to report out on those benefits in our quarterly earnings call and how the company is using it to its benefit going forward.

Congratulations on the strong quarter again.

It appears we have no further questions, and this concludes today's program. Thank you for your participation, and you may disconnect your line at any time.

Good morning, and welcome to OppFi's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] 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's Fourth Quarter 2025 Earnings Call. Today, our Executive Chairman and CEO, Todd Schwartz. and CFO Pam Johnson will present our financial results followed by question and answer session. You can access the earnings presentation on our website at investors.oppfi.com. During this call, OppFi may discuss certain forward-looking information. The company's filings with the SEC described 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 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.

Great, Mike, and good morning, everyone. Thank you for joining us today. I'm looking forward to discussing another year of record-breaking performance at OppFi. 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 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% and which allowed more customers to be approved without human interaction and helped increase originations in Q4 8% year-over-year.

In conjunction with our lending partners, we plan to release Model 6.1 in the first half of 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 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 operations.

The building 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. The early indicators give us confidence that LOLA will help continue to improve funnel metrics, increase automated approvals, enhance efficiency and 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 the summer of 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 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 up for another year of potentially double-digit revenue and earnings growth. With that, I'll 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 million, an impressive 17% increase over Q4 '24. 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 credit worthy individuals helping fuel record originations and receivables balances.

In the fourth quarter, originations increased by 8% to $230 million compared to the prior year quarter. Factoring in loan repayments, origination growth increased our ending receivables by 16% to $493 million 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 continue 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 '26, 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's important to note that 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 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 million, an increase from $20 million 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 million, reflecting our higher revenues, lower expenses and a $12 million noncash 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 noncash income. However, as we have consistently stated that this is a noncash 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 million in cash, cash equivalents and restricted cash, alongside $321 million in total debt and $309 million in total stockholders' equity.

Our total funding capacity stood at a strong $618 million at quarter's end, including $204 million in unused debt capacity. During the fourth quarter, OppFi strategically repurchased 515,000 shares of Class A common stock for $5 million. Now looking at the full year results. Total revenue increased to $597 million, up 14% compared with 2024. Driving this strong growth was a 12% increase in originations to $899 million in 2025, which contributed to a 16% increase in ending receivables to $493 million. This also translates to an average yield of 133%, up from 131% in 2024.

As we discussed, we experienced a 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 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 million, up from $84 million 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 million compared with $83 million 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 million to $675 million, an increase of 9% to 13% over 2025. Adjusted net income is expected to be $153 million to $160 million, an increase of 9% to 14% over 2025. Based on an anticipated diluted weighted average share count of 87 million 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?

[Operator Instructions]

And we'll take our first question from David Scharf with Citizens Capital Markets.

Great. 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, like how quickly loss emergence like in weeks or months typically occurs and specifically, whether it's 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 were 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, taking those dive during the summer and what followed was some higher -- lower repayments, I should say. And we of 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 it helps our unit economics tremendously.

So we are still able to grow into the fourth quarter. And the good news is we've definitely seen some improvement on those in December and in January on those early indicators. It's giving us confidence to allow for double-digit growth on top and bottom lines for 2026.

Got it.

And the second question yes, sorry, about the cost to get. Yes, there's no doubt. Inflation is -- it's a tax on our customer. It hits their discretionary income and ability to repay. It's something we're watching closely. We're hoping it's temporary, but it's anytime prices of major items like gas go up rapidly like it just has over the last week, it's something that we're going to watch. Also going to continue to watch the customer sentiment index and just make sure that the customer is in a good place, it's definitely going to be top of mind here kind of in the first half of 2026.

Got it. Understood. And maybe just staying on credit, I know you don't provide specific loss guidance for '26. And as you mentioned, it's 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 in the second half?

Yes. I mean there was some tightening that was done in response to some of the summer vintages. However, it's stable, and we're starting to feel more confident. Obviously, it's a wait and see here through the first quarter, but we think there's also some strategic initiatives that we're working on in the business that are going to unlock some more growth.

We're 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'll point to the -- we're getting more yield. We're getting more yield to price the risk properly across the segments. So back -- in '22, when there was some credit spikes due to rapid inflation, we didn't have risk-based pricing. So we weren't able -- it wasn't a lever in our toolkit to be able to properly price risk across the segments. So we feel like with our model, with our new product line of credit and with some of the risk-based pricing initiatives, we're well positioned to continue to grow profitably and keep strong unit economics.

Got it. Maybe just one more follow-up and then I'll get back in queue. You noted in your presentation that your bank partners had increased the sort of the percentage of their retention. I'm 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 I guess, more importantly, is this something that usually cycles up and down that maybe we hadn't paid attention to or if there's anything else that we should take away from that?

Yes. I mean it's 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. But -- 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.

We'll move next to Mike Grondahl with Northland Securities.

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

Yes, that's a great question. And 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 repayments. So you can't get better data than that. There's nothing actually 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 was -- is and has been is customer sentiment and index has been something that we've started to look at as being a way to -- obviously, not decision on credit, but as an early indicator of kind of how the customer is, how the customer is feeling and there is some ability to see that when the customer is feeling or not feeling financially secure or they don't feel like the direction of their financial path is upward, some lower repayments.

But there's nothing to decision on. But yes, we looked across the spectrum at a lot of different data points, and there was nothing that stood out as, oh, that's the reason for this happening. But that is why we monitor this on a daily basis. And it's something that we have really good reporting to be able to read and react, and something that you have to in this world, in this world, it's not kind of set and forget it anymore on credit. That's why we're doing the refit. That's why we're building Model 7. The pace of model building and change is rapid now in this world. And I think we're 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 the second half of '26? You're just...

Model 6 1 is going to go first half, we're going to be launching, it as a refit, a refit. So it's taking a Model 6 and improving on it. And we do see early indicators of boost in originations and better credit performance across the board. It really has a benefit on the origination side, too, which we're excited about. We've been testing it all throughout the fourth quarter and into the first quarter. So our confidence level is getting higher. And then we're 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's 1 or 2 things to call out in 6.1, which you're relaunching now? What advantages or what benefits, is it a certain data cohort? Or what would you say you're getting an edge from there?

Yes. It's looking at repayment data and reweighting our variables to have the model be more predictive. That's really what it is. So 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's a reweighting. We have really good tools. Our credit team does a great job at constantly back testing and finding areas for improvement. And so 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 just lastly, '24 had $95 million of free cash flow; '25 had $94 million. You know what I mean, like low to mid-90s each year. I would assume '26 is going to be in a similar ballpark, maybe adjusted for a little bit of growth. But how are you thinking about capital allocation? It is, do you have a chunk of [ Bitty ] to buy in '26? I'm just trying to think about sort of uses for another large year for free cash flow.

Yes. Well, 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've had and the consistency of that was not being valued properly. So we did buy back some shares with some of our capital. I'm happy to support the stock at those prices for sure.

Listen, I think I've kind of always say this, but it's a menu of options. We like to be well capitalized to read and react to the broader markets and see what's going on. I think that we're still active in the M&A space looking at stuff. We're exploring different strategic initiatives that would need capital. We've 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 will allow us to plug into AI tools. So we're investing in that.

So we -- there is a menu of options. In the past, we've done a special dividend as well. But yes, we'll -- and we do anticipate free cash flow to continue to increase this year. But it's our -- we're paying down debt, as you can see and getting the benefit there as well. So yes, we're kind of 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.

We'll move next to Dave Storms with Stonegate.

I wanted to start by maybe pivoting back to the macro question from earlier. You mentioned that in the summer, you guys course credit corrected pretty quickly. You'd expect to do the same thing again should gas prices run. I was hoping if you could maybe 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 -- maybe what does that look like?

Yes, absolutely. And that is something that we have successfully been able to do is targeting lower-risk customers and even adjust pricing to accommodate more growth in the lower risk segments. We've been launching that in the fourth quarter, and we'll continue that throughout the year. Yes. I mean, the lower risk segments are more predictable on payback and repayment rates. We're not seeing as much degradation in those segments, and we'll continue to market and target.

We think that also the line of credit product that we're building when we launch will potentially open up some new geographies for us with our bank partners. We're excited about that. It will give us some new geographies to provide credit access for customers. But yes, I mean, inflation is something we're watching and seeing, obviously, gas being shooting up that quickly is concerning, but we're ready to respond if needed. And right now, it appears to be a temporary surge. Hopefully, it will come back down in line and won't impact our customer repayment rates.

That's very helpful. Turning to the new model rollouts that you have this year. Maybe could you spend a little time talking about what's changed between, not maybe the models themselves, but the process of putting a model together. I got to imagine you guys have a lot of tools in your exposure disposal to create better, faster, stronger models with the advent of AI and such. Are we just going to see that turn into faster model rollouts? Or should we expect like a step change in the quality of the models?

Yes. I mean, first of all, you're absolutely right. The AI tools and the tools that we're now to deploy, the pace of change has -- 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 mean I don't remember a time where gas went from $80 a barrel to $120 in 1 week. So you have to -- I mean, that's table stakes now, right? You have to 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. But yes, you will continue to see more rapid model development, reduced cycle times and better, more predictive data as we continue to operate.

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

Yes. No, I mean we're encouraged by some of the early vintage metrics of December and January. We're seeing a normal to strong tax refund season. I think 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. And 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.

[Operator Instructions]

And it does appear that there are no further questions at this time. This does conclude the Q&A portion of today's call, and this also concludes today's meeting. We appreciate your time and you may now disconnect.

Good morning, and welcome to OppFi's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions]

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's Third 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 investors.oppfi.com.

During this call, OppFi may discuss certain forward-looking information. The company's filings with the SEC described 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 statements 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 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. OppFi achieved another record quarter of revenue, profitability, originations and ending receivables. In addition, we are happy to report that we have renewed our credit agreement with Castlelake, improving operating leverage, pricing and capacity. Given our continued outperformance in Q3, we are raising earnings guidance for the third time this year. I will discuss growth, credit our Loan Origination Lending Application, LOLA migration and Bitty, our SMB investment on the call.

In the quarter, we achieved a 12.5% growth in net originations and a 13.5% increase in revenue year-over-year, with almost 50% of originations coming from new customers. Auto approval rates increased to 79% year-over-year, and customers continue to be approved at higher rate than in prior quarters with no human interaction. We continue to see increased scale in our partnerships and direct response programs. We started testing Connected TV in Q4 and believe that this could contribute to growth in 2026 and beyond. This strong top line growth, combined with prudent expense management, led OppFi to generate a record $41 million of adjusted net income for the quarter, representing 41% year-over-year growth.

Regarding credit, Model 6 continues to perform well and better segment customers across risk segments. Throughout the quarter, we saw higher charge-offs in new loan vintages. However, by tightening higher risk segments and applying our risk-based pricing approach, we maintain strong unit economics while sustaining growth. The team leveraged AI tools, customer attributes and repayment data to refit Model 6 into what we believe is the most reliable model to date, Model 6.1. This Model 6.1 refit is designed to identify riskier borrower populations better while incrementally improving volume. The model is also designed to enhance risk pricing across segments accounting for behavioral and seasonal volatility. In conjunction with our lending partners, we plan to roll out Model 6.1 refit in Q4 and fully implemented in Q1 2026.

With LOLA, OppFi is building the origination system of the future. This will give us a clean architecture that is designed to take advantage of rapidly developing AI tools in originations, servicing and corporate operations. The product and tech teams have been working hard and have officially begun the testing phase of our migration. We plan to continue testing LOLA throughout the fourth quarter and migrate in Q1 2026. Early indicators give us confidence that LOLA will help continue to improve funnel metrics, increased automated approvals enhance efficiency in servicing and recoveries, better integrate major systems and deliver reduced cycle times and greater throughput for our product, tech and risk teams.

Our investment in Bitty continues to perform well. In the third quarter of 2025, Bitty generated $1.4 million in equity income for OppFi. Bitty is a great partner that we have enjoyed working with and learning from in the SMB space. The company shares OppFi's business principles and corporate values and consistently uses technology to enhance operations and the customer experience. Bitty has identified significant additional growth opportunities and continues to capitalize on the ongoing supply-demand imbalance in the small business revenue-based finance space.

Overall, OppFi delivered another strong quarter, both financially and operationally, outperforming expectations and allowing us to raise guidance for the third time this year. Looking ahead, we anticipate continued double-digit revenue and adjusted net income growth throughout the remainder of 2025 and into 2026. We believe OppFi is well on its way to executing its vision of becoming the leading tech-enabled digital finance platform that partners with banks to offer essential 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 achieved another record quarter, generating revenues of $155 million, an impressive 14% increase over third quarter 2024. Model 6 has been a significant contributor to this growth, empowering OppFi to expand its reach and grow its business effectively. It's enhanced predictive power has enabled us to better manage our loan economics through risk-based pricing and allow our bank partners to underwrite larger loan amounts for creditworthy individuals, helping fuel robust growth in originations and receivables balances.

As Todd noted, in the third quarter of 2025, we observed an increase in net charge-offs as a percentage of revenue at 35%, up from 34% in third quarter '24. It's important to note that we believe this risk is appropriately priced into these loans. This strategy also contributed to our net revenue growth, reaching a quarterly record of $105 million, a 15% increase over third quarter '24, though the yield decreased slightly to 133% from 134% in third quarter '24.

Our scale and focus on cost discipline also played a pivotal role in our strong performance. Continued operational improvements contributed to notably lower total expenses before interest expense, which declined significantly to 30% of revenue in the third quarter, a substantial improvement compared to 33% in the same quarter last year.

As we noted previously, earlier this year, we proactively paid down our corporate debt and successfully upsized one of our main credit facilities at more attractive interest rates. These strategic moves helped reduce interest expense to 6% of total revenue, down from 8% in the prior year.

Additionally, in early October, we announced the signing of another $150 million credit facility with lower interest rates than the previous one, positioning us to realize even lower interest expenses as a percentage of revenue in the future. As a direct result of increased revenue and strategic reductions in expenses, adjusted net income surged 41% to a quarterly record of $41 million, marking a significant increase from $29 million last year. Concurrently, adjusted earnings per share grew to $0.46 from $0.33 last year.

On a GAAP basis, net income increased by 137% to $76 million, reflecting our higher revenues lower expenses and a $32 million noncash 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 noncash income. However, as we have consistently stated, this is a noncash item and does not impact the underlying profitability of the company.

Looking at the balance sheet. We continue to maintain a robust financial position, ending the quarter with $75 million in cash, cash equivalents and restricted cash, alongside $321 million in total debt and $277 million in total stockholders' equity. Our total funding capacity stood at a strong $600 million at quarter's end, including $204 million in unused debt capacity.

During the third quarter, OppFi strategically repurchased 710,000 shares of Class A common stock for $7.4 million. Additionally, since the third quarter, OppFi has repurchased 317,000 shares of Class A common stock for $3.2 million as management continues to believe the share price does not reflect our underlying cash generation or our return on capital opportunity.

Given our strong operating performance, driven by growth in net originations, revenues and adjusted net income, we are pleased to provide the following updated full year guidance. We are once again increasing our guidance. For total revenues, we are raising the bottom of the range to $590 million while leaving the top of the range of $605 million, up from the prior guidance of $578 million to $605 million. Adjusted net income is expected to be $137 million to $142 million up from our prior guidance of $125 million to $130 million. Based on an anticipated diluted weighted average share count of 89 million shares, adjusted earnings per share are expected to be $1.54 to $1.60, up from our prior guidance of $1.39 to $1.44 per share.

With that, I would now like to turn the call over to the operator for Q&A. Operator?

[Operator Instructions] We'll take our first question from David Scharf with Citizens Capital Markets.

Maybe I'll start off with credit since it's been so topical this reporting season. Just curious, obviously, you spoke to a strong performance. Just curious, are there any early indicators or metrics such as, first, any defaults or the like? I mean anything that gives you a sense that households that you're catering to are becoming a little more stressed than three months ago? Or is it pretty much the loss rates you reported speak for themselves?

Yes. David, good question. Thank you. We constantly are surveying -- looking at different data points, not only from the data that we received from customers, bank accounts and the macroeconomic data. I mean the backdrop from a macroeconomic standpoint still remains largely unchanged. We are hearing about different products like auto loan delinquencies and all this, but we really focus on how it affects our customers. In our bank data, we're not seeing anything that would cause alarm. However, we did see some higher early payment stats in the quarter that caused us to tighten slightly.

I will remind you, though, that back in '22 without risk-based pricing, not being able to price risk properly in these environments is something that we were not able to do. Also our recovery lines. We feel really good about keeping unit economics strong with pricing and strong recoveries in this environment and feel like we can operate in any environment with Model 6, and it's kind of a dynamic modeling environment. It's not set it, forget it anymore. We're really of the mindset that we're going to meet the customer where they are and we're going to price it properly and have a product for them. So yes, we may incur some higher charge-offs coming through in the fourth. But let's not lose sight of as a percentage of revenue, year-over-year, we expect our charge-offs as a percentage of revenue to go down year-over-year. So that's just kind of how the environment is now. You've got to -- you can't set it forget it, you have to be constantly watching it and constantly updating your pricing per segments and your pricing for risk.

Got it. No, that's helpful. You kind of delved into maybe my follow-up, which was maybe to get a little better context for risk-based pricing that Model 6 is going to enable more of.

I guess at a high level, should we think about more risk-based pricing as you're currently leading yields on the table? Or is it you're leaving volume on the table that there are maybe consumers that are applying, not accepting the loan? Maybe give us a little context.

It's both. I think in times of volatility and economic environment, it allows us to properly price risk so that gives us that lever. But it also allows us to target with potentially lower prices for our lowest risk customers. It allows us to better target them and so we use it for both. We use it for credit and losses. We also are using it for targeting and growth. And it's a switch that you can toggle depending on the environment. And that's kind of why I spoke a little bit before about the dynamic nature of it. It's something that we're reading in real time on a weekly basis and kind of assessing especially in an environment like this where there's a lot of news and a lot going on. We do -- the Fed's meeting soon. We're waiting and seeing on that from a unit economic standpoint, if we do get some relief on interest rate. But right now, we're just in an environment like that where we're just going to continue to watch credit, but we still think we can grow in this environment with strong unit economics.

Got it. Great. I apologize. Maybe just one quick follow-up on credit because obviously, you had mentioned auto, it's been sort of dominating the headlines of a lot of company-specific events out there. But at auto subprime delinquencies have gone up. I'm curious, since you're capturing bank data, are you -- do you monitor what percentage of household budgets are being attributed to auto payments since affordability is still sort of plaguing the auto sector for both new and used?

Yes. I mean something -- we're very -- ability to repay is very prevalent in our modeling, not specifically necessarily auto but it is factored into the equation of ability to repay. The customers have to have the discretionary income to make the monthly payments. And so it's something that is top of mind in our model. We have not seen in our bank data, significant reductions in income or balances or anything that would cause alarm here and so that's why we've tightened where it made a lot of sense and then also use the model to better target lower risk customers in this environment. But we're watching it just like everybody else right now. I'm not going to not say that credit isn't worse. It is worse than it was last year in the new segments, especially the new, but something that we can operate in now with our current pricing structure and how we operate.

Our next question comes from Mike Grondahl with Northland Securities.

On the origination side, could you talk a little bit about direct mail and then some of your thoughts on Connected TV that you mentioned?

Yes. Thanks, Mike. Listen, I think direct mail is a highly scalable lever for us that we're just starting. We're just in the early innings of it. It was 4.2% of our originations, that can easily be in the double digits if we wanted. We're going slow and being pretty methodical and strategic. We're making sure we have the creative right and making sure that the modeling is right. It's something that -- it's a powerful funnel -- top of funnel, if you can get a lot of assets consistent it's something that we're prioritizing and focusing on.

And then Connected TV? I think you...

And the Connected TV. Yes, so we're really early innings of that, but it's something that we think it's controllable, scalable and it's also reaching a lot of our customers in a targeted fashion. So we're excited about it. It also allows us to get our brand out there and are creative. So our marketing team has been working hard on that, and we're going to be testing that throughout the quarter. But we'll have more to report on that in our Q4 earnings. But we think it's promising, and it's something that can help us scale and continue to grow next year.

Got it. And then you've been really disciplined on OpEx. I would call OpEx sort of basically flattish to up a tad, how much can you grow originations in the book without having a step function lift in OpEx? Like you've kind of done this now for 2-plus years, if not longer, bolted on more revenue and more loans on your existing platform and then really efficient, the throughput has been great. But how long can you continue to do that?

Yes. Good question. We feel really confident in our ability to scale. I mean this is where things get highly incremental at this scale as far as originations and growth go. We don't anticipate -- I mean, LOLA is that. That's why I keep talking kind of about LOLA on these calls and introduced it last quarter. We made significant R&D and software development initiatives in the company over the last year to allow us to continue to scale and then also allow us to essentially, as I said, building the lending origination system in the future, but it really allows us to install and integrate some of these new AI tools that are coming. Some of them are more developed than others, and some of them are more ready to use today versus a year from now. But it was all about having a clean architecture on your tech stack and not have a lot of technical debt built up so that we can take advantage of some of these tools and also to better integrate our corporate systems.

So we really don't anticipate having to add much fixed overhead. It's more going to just be variable cost of the growth and think that this can continue and definitely into next year.

Got it. And then one last question. I think in your prepared remarks, you said double-digit revenue and adjusted net income growth for the rest of 2025, obviously, implied by your guidance. But I think you also said and into 2026, is there anything you want to say about 2026? Are you sort of striving for double-digit top line? Anything there would be helpful.

Yes. I mean listen, it's something that it is credit dependent. I'll caveat that. But I will say that we have the levers, and I'm pretty confident within our wells, we have the levers to grow in double digits and feel confident we can do that. The only thing that would prevent us from doing that is we're not going to chase growth if credit is not there, it's just not something we're going to do. You know us now, we're very disciplined. So we won't chase growth to take on higher losses, but we do have the levers if that's what you're asking for next year for double-digit growth, absolutely.

We'll take our next question from Kyle Joseph with Stephens.

Just given everything going on with the portfolio in terms of new customer mix, the risk-based pricing. Just wanted to get your -- kind of your thoughts in terms of yield trends we should expect going forward?

Yes. We feel good that our yield's stable. It came down a little bit in Q3. It's due to -- that is typical this time of year, Q3, you're going to see some of your lower yields as you start to see some losses kind of come into the past dues when they drop out of accrual. We do hope that we'll see a nice rebound in Q4, and it's also been stable throughout the year, but we anticipate stability and an elevated yield coming through the book. And that is part of the risk-based pricing, right? We're better pricing risk across the segments. So we feel good about where we are with that.

Got it. Helpful. And then moving to the balance sheet and capital. Obviously, you guys have done a lot of work on the balance sheet year-to-date, and it's in a really good place, and then you guys are still generating strong cash flows despite portfolio growth, but just give us a sense for kind of your capital allocation priorities now that you have the balance sheet in a really good position.

Yes. Well, Pam, I think Pam talked about it, we've been buying back stock in open windows and with predetermined programs. We'll continue to defend our share price, and we think it's undervalued. It's something that we were -- we feel like we're not trading. Hopefully, the third time is the arm here, Kyle, with us raising guidance again. But listen, it's -- that's top of mind right now is obviously defending our share price and making sure that we're properly valued in the marketplace. We're continually actively looking at M&A opportunities, looking at -- we're using it as a way for growth. The menu of options is open. So we're actively looking at those different scenarios and best and highest use of our cash.

Got it. And just one last one for me. Apologies if I missed it, but just in terms of the marketing spend, we saw a return to growth this year. I think you mentioned that was maybe TV in direct mail. But yes, if you can walk us through what you're seeing in terms of customer acquisition costs and how you expect marketing expenses to go going forward and how that -- versus portfolio growth. Obviously, they go hand in hand.

Yes. I think I stated back in Q2, you should expect the acquisition cost to kind of creep up here as we go into growth mode here in the second half. And that's -- it's consistent with what's happened. We're probably up $20 to $30 per -- we feel very comfortable there. And I think there's even probably some more room, especially for lower risk segment customers to be able to pay the CPS and feel really strong about the unit economics and the incremental growth it provides.

Our last question comes from Robert Lynch with Stonegate Capital Partners.

Just have a few here. With net charge-offs as a percentage of revenue saw a slight increase in Q3, is this typical seasonality or mix? And could you get this back up to the 45% in Q4 that we saw last year? Seasonality and early indications for the holiday season coming up.

Yes. I mean there is seasonality to the business. And you're going to see your lowest charge-offs as a percentage of revenue kind of in Q2 and Q3 and then it elevates. Year-over-year, it is slightly elevated. We do anticipate, though for annualized -- a reduction as a percentage of revenue overall. We didn't tighten -- we were very conservative in '24, even tightening probably a little too conservative maybe in Q2, which caused really strong revenue as a percentage charge-off numbers. I mean we didn't -- we don't need to be -- we're at a level now where we feel really comfortable that the unit economics are strong. So it's going to flatten out here. And incrementally, every quarter, it could be a little bit less, it could be a little bit more, but we feel really good at these numbers where we're at and think that we can generate really strong returns within this band.

Okay. Great. Really appreciate the color there. I've got maybe two more here, but you highlighted stronger recoveries from operational changes. Is the second half recovery run rate now above plan? And how confident are you that this level is sustainable into 2026?

I mean we've now achieved a strong -- as a percentage of gross charge-offs, a really strong recovery right now for two years. We think it's very sustainable, it's performing at or above plan every quarter. We have a great process team and strategy behind it. So we feel is sustainable. And in the first year when we were achieving those results, it was something that was hard to bake into the unit economics because we weren't sure if the stability of it was going to last, but it has. And we feel really good that we're going to continue to achieve that percentage of recovery on charge-off. And obviously our unit economic model and how we price and how we target on the front end. And so it's been a great story for us.

Awesome. And I've got just one more kind of unique question here. But on the recent shutdown, what impact did it have on any of the data you see coming in as well as your models with customer behavior, more for them and yourself as well? And how are you monitoring the situation and mitigating any of the effects going forward in real time?

Yes. I thought we were prepared for this question because I thought I was going to get it sooner, but no, it's something that we're activating. We have a very, very fair hardship program for customers that have been impacted by the federal government shutdown. We do have some exposure. It's something we're currently watching. It's pretty de minimis at this point on the number of hardships this time of year because of weather events, it is our largest hardship program offering for this quarter in terms of the Q3 and the weather events that happen usually typically in this time of year. But incrementally, there are some more coming from the federal government shut down, nothing that we've caused alarm or causes to really change how we operate at this point or credit -- from a credit perspective, but definitely something we're watching very closely as it unfolds, and we'll continue to.

It appears we have no further questions at this time. This does conclude today's program. Thank you for your participation, and you may disconnect at any time.

Good morning, and welcome to OppFi's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] 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'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 investors.oppfi.com.

During this call, OppFi 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 statements 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 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 OppFi. The business achieved record quarterly revenue, adjusted net income and operating margin. Our Q2 results reinforce our belief that OppFi 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 continued to perform well. In the second quarter of 2025, OppFi'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.

OppFi 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 up 16% year-over-year. OppLoans remains one of the highest-rated products in the industry, posting a 79 NPS score and a CSAT score of 89% throughout the quarter.

We are proud to announce our new loan origination lending application named LOLA. Our product, tech and operation 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 6 months, OppFi plans to migrate to LOLA. Our investment in Bitty continued to perform well in the second quarter of 2025. The business continued to add accretive profitability and cash flow to OppFi. Bitty is doing a great job utilizing technology to improve operations and the customer experience, identifying additional growth opportunities in new credit segments and capitalizing on the continued supply-demand imbalance in the small business lending space.

Overall, OppFi 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 OppFi 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 for creditworthy individuals. This ability to increase the average loan size while maintaining rigorous risk standards directly fueled the growth in originations, which Todd mentioned.

The impact of Model 6 extends beyond just loan size. We have also seen an improvement in the auto approval rates. 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 into Model 6, which helps underwrite better performing loans and increased finance 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 result of these positive effects was a 130 basis point improvement in the average yield to a quarterly record 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 $39 million, up from $25 million.

At the same time, adjusted earnings per share grew significantly to $0.45 from $0.29 last year. On a GAAP basis, our net income decreased by 59% to $11 million, primarily due to a $33 million noncash 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 noncash expense.

Moving to the balance sheet. We maintained a strong position, ending 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 in 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 per 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?

[Operator Instructions] And our first question will come from David Scharf with Citizens Capital Markets.

First one, a little more high level 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 future guidance. But is there a long-term margin structure or operating model we ought to think about? Or maybe more specifically, is there a target ROE or net margin over the next 3, 5 years that you have in mind for the business based on all the changes you've made?

Yes. Thanks, David. Thanks for the question. I think we -- when we went on this journey, when I come back as CEO back in 2022, we had laid out 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. When -- I think we're very satisfied where we're at today. We think that the business is performing incredibly well. Now it does ebb and flow, right, depending on some macro factors. There's some clouds out there that we're looking at with tariffs and stuff like that with the consumer on inflation and unemployment. But we -- if we can bump that, if we're achieving a 20% margin, that is a very healthy margin, and that is probably exceeding our expectations, and we feel really, really good there.

One of the things this year, we wanted to return to growth, and that was a big priority for us. And I think the team has done a really great job executing on that. It's a combination of not only recruiting 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 kind of combination right now of growth and profitability that we will look to continue to achieve here throughout '25 and beyond.

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

Yes. I mean, I think the way we're thinking about it is, you've had significant inflation. Obviously, 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. 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 allows for the updating of prices and inflation in today's economy. And then also incremental term. But these are all incremental things that we're doing. So it's probably 10% increase in size. And so it's not like we're only relying on just raising the amount of the origination. It's a combination of doing that and then also making sure that our current customers are paying us and they're staying current. And then also there's a large population of customers that have been successful in our product and paid in full that are coming back to us at great rates as well. So it's a combination of things.

So David, our average -- our average loan size, David, has increased by about $100 for the year-over-year. But again, these 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 size right now is about $100 more than it was during the 6 months last year.

Just -- sorry, if I can squeeze in just one more on originations. I see 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 was contractual? Or is it concentrated with one partner? Is it just kind of the demand they just want to retain more? Can you maybe provide a little more context?

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

Our next question will come from Kyle Joseph with Stephens.

Congrats on a nice quarter. Just want to dive into credit a little bit more. Obviously, your charge-offs are heading in the right direction, and you saw a good expansion in your net revenue margin. But I just want to get your thoughts on the macro, the health of the underlying consumer, kind of any trends you're seeing on the DQ or first payment default trends and then layer that in with kind of some of the commentary around larger originations and how you expect that to impact credit going forward?

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

Got it. Really helpful. And then just shifting to expenses a bit. Obviously, the quarter really highlighted the operational leverage in the model. But you're seeing kind of accelerating origination growth that has far outpaced at least marketing expense growth. To me, that signals a relatively healthy market. But how you're thinking about the market overall, how you're thinking about marketing expenses given kind of competitive factors in the market?

Yes. I mean if you look at 2024 and '23, we averaged right around $200 MCPF, and that has increased. And I kind of talked about it in the first quarter that there were some marketing initiatives that we were going to be unlocking this year [ in direct ] response partnerships and some investment in some of our organic search methods as well. So we've started to roll that out. Our cost for the quarter was 220. So we're definitely making those investments, but we're being smart about it. But those -- we think that there's continued investment for Q3 and Q4 that we'll see in MCPF. But the good news is, so far, we've been happy with the results and continuing to learn and find new methods and channels that we work -- that work for us on a scalable way.

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

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

Our next question will come from Mike Grondahl with Northland Securities.

Another very nice quarter. Pam, maybe the first one for you. You guys had mentioned 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 of quarters?

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

Not huge, but -- got it. Got it. Nothing's changed materially in terms of your average loan size, but it's creeping up a little bit. And I think Todd said, hey, adjust -- we're kind of adjusting it for inflation, I think, 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, June, July. Did you guys see that at all? Like did that cause you guys to rethink a little bit about leaning into growth? I'm just curious kind of how you feel about the macro right now?

Yes. I mean, listen, the job numbers get revised every month later and then -- and they're not even what they -- so if they get worse, and it's something we watch. It's a macro indicator that we watch unemployment, we watch inflation. Those are the 2 big ones for us that we kind of -- it's not something we're going to like dynamically change a model because of some macro indicator that may not even be fully accurate. But it is definitely something we're watching here going into the growth months of the year.

I think you have to always be careful in watching what's going on in the economy. 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, we have very, very good early data to kind of see cracks or see problems kind of well before any economists or anyone due to the repayment rates kind of and the default frequencies we see so we can read and react as needed.

Got it. And does that data still look really good?

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

Perfect. And then can you guys call out what the collection amount was in 2Q? I know 2 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 recoveries like post charge-offs?

Yes, yes.

I've got that handy, Mike. Last year, Q2, our recoveries were $8.4 million. And this year, they're $10.692 million. So 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. How do we think about the growth there going forward? Should it track revenues? Should it be half of revenue growth? Any -- how do you guys think about it?

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 -- there's a need for it. And I think I mentioned for the first time, our LOLA system, our lending application, LOLA. We think that's a great investment and something that is going to propel us into the future, allows us to seamlessly integrate with AI tools. It also better integrates all our major systems and is like -- is really going to set us up really nicely here once we migrate for the next 10, 5, 10 years, if not beyond.

So I think as far as like the corporate and our servicing. We think that with the team in place, we can definitely continue to scale without having to add maybe some incremental cost, but without having to add major costs. But our response to scaling and continuing to grow is to really, really focus on delivering value to our customers and really getting our -- all the technical debt and all the software that had been built in the past really cleaned up to give us a clean footprint going into this new world where we know that there's these cool AI tools that can benefit not only us operationally, but also our customer experience.

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

Yes. We're continuing to explore opportunities and investment opportunities. And our goal, Mike, is to be a multiproduct platform for the alternative credit space to be the leader in that. And we're seeing some interesting stuff out there. Nothing to report, but we're really happy with the Bitty investment that's continuing to perform really well in the SMB space. We're continuing to look at adjacent spaces in point of sale continuing to look at the Earned Wage Access space is obviously a very, very hot space. The valuations are very full there, but they're getting a lot of credit. It seems like consumers really like the product, right? A lot of the product market fit there for consumers. So we're definitely active looking where it can make sense. It's going to be something that 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 footprint and our vision for being a multiproduct platform. But we're definitely looking at that closely.

Mike, I'd like to add that we would be considering stock repurchases if we feel like there's a mismatch between the value of the enterprise and the stock price.

Yes. Well, I would go ahead and say we do think it is disconnected. But yes, we think it's been very disconnected. That is another menu option for us as well to protect our share price when we think it's not valued correctly as well. So...

Our last question today will come from Dave Storms with Stonegate.

Just wanted to circle back to the LOLA initiative. How should we be thinking about that rollout over the next 6 months? And I guess what does success look like for that? Is it measured in costs or auto approval rates, the number of clicks to originate a loan? Just any more there would be great.

Yes. 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 -- it's 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 being able to seamlessly integrate them. It also really improves our data analysis and connects better into 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, even better for compliance and financials as well and data. So it really just helps us clean up a lot of the tech footprint we had over the last 10 years that we've built and improve on it.

That's perfect. And then just one more for me. Your guidance takes into account the second half being seasonally softer. Are you seeing anything in the macro that would throw off the seasonal distribution between 3Q and 4Q?

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

Yes, of course. So your guidance takes into account the second half being seasonally softer as it normally is. Should we expect 3Q and 4Q to be seasonally in line with the typical seasonal trends? Or are you seeing anything in the macro picture that might throw that off?

Yes. No, I think -- I mean, listen, I think as you start to grow more, there's costs associated with that. And obviously, charge-offs build a little bit until you kind of reset them next year. So I mean, I think we're seeing a pretty standard process there, but nothing to call out, out of the ordinary.

Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.