OppFi (OPFI) - 2023 Q4 - Annual Report

Part I Business OppFi is a technology-enabled specialty finance platform providing credit access to underserved Americans via bank partnerships and its core OppLoans product Financial Performance (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenue | $509 million | $453 million | | Net Income | $39 million | $3 million | - OppFi's mission is to facilitate financial inclusion for the 63 million credit-marginalized Americans through its specialty finance platform[24] - The company's primary product, OppLoans, facilitates installment loans averaging $1,500 with an 11-month term, and payments are reported to the three major credit bureaus[24][30] - In 2023, approximately 98% of net originations were generated from loans originated by bank partners (FinWise Bank, First Electronic Bank, and Capital Community Bank) using the OppFi platform, a shift from 95% in 2022[47][50] - The company has discontinued accepting new applications for its SalaryTap and OppFi Card products to focus on its core OppLoans platform[32] Company Overview - OppFi operates as a tech-enabled specialty finance platform, connecting community banks with everyday American consumers who are often turned away by mainstream financial institutions[24] - Since its inception through December 31, 2023, the company has facilitated over $5.8 billion in gross loan issuance across more than 3.4 million loans[25] - The platform features a highly automated underwriting process, with approximately 89% of decisions automated in 2023, allowing for same-day or next-day funding for most approved applicants[29] - OppFi maintains high customer satisfaction, evidenced by a Net Promoter Score (NPS) of 79 for 2023, an A- rating from the Better Business Bureau (BBB), and a 4.5/5.0 star rating on Trustpilot[33] OppFi's Competitive Advantages - OppFi leverages a fully digital, scalable technology stack for cost efficiency and a superior customer experience, which it believes is a durable advantage over traditional banks with legacy systems[43] - The company's bank partner model allows it to facilitate credit access in 38 states as of December 31, 2023, leveraging its partners' federal charters for a national product offering[46][50] - Proprietary, data-driven decisioning models use alternative data and machine learning to evaluate creditworthiness, ignoring traditional FICO scores to better assess repayment ability[52] Government Regulation - OppFi and its bank partners are subject to extensive and complex rules and regulations from federal, state, and local authorities, including the CFPB, FTC, and federal banking agencies like the FDIC[62][63] - Key federal laws applicable to the business include the Truth in Lending Act (TILA), Equal Credit Opportunity Act (ECOA), Fair Credit Reporting Act (FCRA), and Fair Debt Collection Practices Act (FDCPA)[65][67][68][70] - The company's bank partners rely on federal law to "export" interest rates from their home state to borrowers nationwide, a practice that is subject to legal and regulatory challenges[90] - OppFi holds necessary licenses and registrations to conduct its business, including servicing and collection activities, in all states where such licensure is required[93] Risk Factors The company faces significant business, regulatory, and financial risks, including product dependency, legal challenges, and internal control weaknesses - Business & Operational Risks: The company's rapid growth and limited operating history make future performance difficult to evaluate; it is highly dependent on its OppLoans product and its relationships with a few key bank partners, which originated 98% of loans in 2023[108][121][137] - Credit & Economic Risks: The machine learning models used for underwriting have not been extensively tested in a down-cycle economy, which could lead to higher-than-expected loan losses, and the business is susceptible to macroeconomic conditions affecting borrower repayment ability[136][126] - Regulatory & Legal Risks: The company faces significant legal and regulatory challenges, including litigation with the California Department of Financial Protection and Innovation (DFPI) over interest rate caps and the "true lender" doctrine, which could render loans unenforceable or subject the company to fines[243][250] - Financial Reporting & Funding Risks: A material weakness in internal control over financial reporting related to IT general controls has been identified, and the company relies on warehouse credit facilities for funding, with any inability to access this capital adversely affecting operations[189][281] - Structural & Tax Risks: As a holding company in an "Up-C" structure, OppFi's only asset is its interest in OppFi-LLC, and it is obligated under a Tax Receivable Agreement to pay 90% of certain tax savings to original members, which could result in substantial payments[341][346] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[366] Cybersecurity OppFi has established a cybersecurity program based on industry frameworks like NIST to manage risks associated with its complex technology systems and third-party dependencies - The company's cybersecurity program is guided by industry frameworks such as NIST and includes regular risk assessments, an incident response plan, and technical safeguards[369][370] - Cybersecurity governance involves oversight from the Board of Directors' Audit Committee and day-to-day management by a corporate information security organization led by the CISO, who has over 20 years of experience[375][379] - The company has not identified any cybersecurity breaches that have materially affected or are reasonably likely to materially affect its business, operations, or financial condition to date[374] Properties OppFi's corporate headquarters is located in Chicago, Illinois, where it leases approximately 79,928 square feet of office space under a lease that expires in 2030 - The company's headquarters is a leased space of approximately 79,928 sq. ft. in Chicago, IL, with the lease expiring in 2030[380] Legal Proceedings Information regarding legal proceedings is detailed in Note 14 to the Consolidated Financial Statements - Refer to "Legal contingencies" of Note 14 to the Consolidated Financial Statements for details on legal proceedings[381] Mine Safety Disclosures This item is not applicable to the company - Not applicable[382] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities OppFi's Class A Common Stock trades on the NYSE under the symbol "OPFI", and the company has never paid cash dividends nor plans to in the foreseeable future - The company's Class A Common Stock is traded on the New York Stock Exchange under the symbol "OPFI"[384] - OppFi has never declared or paid cash dividends and does not intend to in the foreseeable future[385] - A share repurchase program authorized in January 2022 expired in December 2023, with no repurchases made in the fourth quarter of 2023[388] Management's Discussion and Analysis of Financial Condition and Results of Operations OppFi's 2023 financial performance showed revenue growth and increased net income, driven by improved receivables and credit quality, supported by strong liquidity Key Financial Results (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenue | $508.9 million | $452.9 million | | Net Income | $39.5 million | $3.3 million | | Adjusted Net Income | $43.3 million | $5.0 million | | Adjusted EPS | $0.51 | $0.06 | Key Performance Metrics (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Net Originations | $747.8 million | $752.9 million | | Ending Receivables | $416.5 million | $402.2 million | | Average Yield | 127.3% | 120.0% | | Net Charge-Offs % of Avg. Receivables | 55.4% | 61.9% | - The 12.4% increase in total revenue was primarily due to higher average receivables balances and improved yield from stronger payment activity[412] - Net charge-offs as a percentage of average receivables decreased by 10.5% year-over-year, reflecting the charge-off of lower quality loans from pre-mid-2022 and the origination of higher quality loans following credit adjustments[406] Results of Operations Consolidated Results of Operations (in thousands) | Line Item | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenue | $508,949 | $452,859 | | Net Revenue | $273,182 | $216,960 | | Total Expenses | $226,827 | $223,302 | | Income from Operations | $46,355 | ($6,342) | | Net Income | $39,479 | $3,340 | - Net revenue increased by 25.9% to $273.2 million in 2023, driven by the growth in total revenue[416] - Total expenses increased by a modest 1.6% to $226.8 million, primarily due to higher interest expense from increased debt and rising rates, partially offset by lower direct marketing costs[418] - The company reported income from operations of $46.4 million in 2023, a significant turnaround from a loss of $6.3 million in 2022, due to higher net revenue outpacing the slight increase in total expenses[419] Liquidity and Capital Resources Liquidity Position (as of Dec 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Unrestricted Cash | $31.8 million | $16.2 million | | Undrawn Debt | $192.3 million | $136.8 million | | Total Funding Capacity | $598.9 million | N/A | - Net cash provided by operating activities increased by 21.7% to $296.1 million in 2023, mainly due to higher net income[444][445] - Net cash used in financing activities was $27.6 million in 2023, compared to net cash provided by financing activities of $61.3 million in 2022, primarily due to an increase in member distributions and net payments on debt[444][447] Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," OppFi is not required to provide this information - The company is not required to provide this information as it qualifies as a "smaller reporting company"[458] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for the years ended December 31, 2023, 2022, and 2021, along with accompanying notes Consolidated Balance Sheets Consolidated Balance Sheet Highlights (as of Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total Assets | $601,543 | $579,839 | | Finance receivables at fair value | $463,320 | $457,296 | | Total Liabilities | $407,514 | $420,689 | | Total Debt | $334,116 | $347,060 | | Total Stockholders' Equity | $194,029 | $159,150 | Consolidated Statements of Operations Consolidated Statement of Operations Highlights (Year Ended Dec 31) | (in thousands) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total Revenue | $508,949 | $452,859 | $350,568 | | Net Revenue | $273,182 | $216,960 | $263,679 | | Income from Operations | $46,355 | ($6,342) | $57,257 | | Net Income | $39,479 | $3,340 | $89,795 | Notes to Consolidated Financial Statements - The company elected the fair value option for its installment finance receivables effective January 1, 2021, which are carried at fair value determined using discounted cash flow analyses[527] - The company is involved in legal proceedings, including a complaint filed against the California DFPI regarding the applicability of state interest rate caps to loans originated by its bank partners[709] - As of December 31, 2023, the company had total borrowing capacity of $525.0 million under its senior debt facilities, with $332.7 million outstanding[605] - In connection with its 2021 business combination, the company entered into a Tax Receivable Agreement (TRA), obligating it to pay members 90% of realized tax savings from basis step-ups, with the TRA liability at $25.0 million as of December 31, 2023[544][549] Changes in and Disagreements With Accountants on Accounting and Financial Disclosures The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[727] Controls and Procedures Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were not effective due to a material weakness in IT general controls - Management concluded that disclosure controls and procedures were not effective as of December 31, 2023[728] - A material weakness exists in internal control over financial reporting related to IT general controls (ITGCs), specifically concerning ineffective design and operation of user access controls for segregation of duties and privileged access[731] - A remediation plan is in progress, focusing on implementing new access control protocols and enhancing segregation of duties, but the material weakness will not be considered fully remediated until the new controls operate effectively for a sufficient period[732] Other Information On November 16, 2023, a Board member adopted a Rule 10b5-1 trading plan for the sale of up to 32,488 shares of Class A Common Stock - Director Jocelyn Moore adopted a Rule 10b5-1 trading plan on November 16, 2023, for the potential sale of up to 32,488 shares of Class A Common Stock[735] Disclosure Regarding Foreign Jurisdiction that Prevent Inspections. This item is not applicable to the company - Not applicable[737] Part III Directors, Executive Officers and Corporate Governance Information for this item will be incorporated by reference from the company's Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the forthcoming Definitive Proxy Statement[739] Executive Compensation Information for this item will be incorporated by reference from the company's Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the forthcoming Definitive Proxy Statement[740] Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters Information for this item will be incorporated by reference from the company's Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the forthcoming Definitive Proxy Statement[741] Certain Relationships and Related Transactions, and Director Independence Information for this item will be incorporated by reference from the company's Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the forthcoming Definitive Proxy Statement[742] Principal Accounting Fees and Services Information for this item will be incorporated by reference from the company's Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the forthcoming Definitive Proxy Statement[743] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the Form 10-K, including key corporate and credit agreements - Lists all financial statements and exhibits filed with the annual report[745] Form 10-K Summary The company reports that there is no Form 10-K summary - None[753]