OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Fair value measurement on a recurring basis: The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Value | | Fair Value Measurements |
| | September 30, 2022 | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | |
Finance receivables at fair value, excluding accrued interest and fees receivable (1) | | $ | 442,779 | | | $ | — | | | $ | — | | | $ | 442,779 | |
| | | | | | | | |
Financial liabilities: | | | | | | | | |
Warrant liability - Public Warrants (2) | | 2,853 | | | 2,853 | | | — | | | — | |
Warrant liability - Private Placement Warrants (3) | | 1,363 | | | — | | | — | | | 1,363 | |
| | | | | | | | |
| | Carrying Value | | Fair Value Measurements |
| | December 31, 2021 | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | |
Finance receivables at fair value, excluding accrued interest and fees receivable (1) | | $ | 373,253 | | | $ | — | | | $ | — | | | $ | 373,253 | |
| | | | | | | | |
Financial liabilities: | | | | | | | | |
Warrant liability - Public Warrants (2) | | 8,083 | | | 8,083 | | | — | | | — | |
Warrant liability - Private Placement Warrants (3) | | 3,157 | | | — | | | — | | | 3,157 | |
| | | | | | | | |
During the three and nine months ended September 30, 2022 and 2021, there were no transfers of assets or liabilities in or out of Level 3 fair value measurements. |
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(1) The Company primarily estimates the fair value of its installment finance receivables portfolio using discounted cash flow models that have been internally developed. The models use inputs that are unobservable but reflect the Company’s best estimates of the assumptions a market participant would use to calculate fair value. |
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The following table presents quantitative information about the significant unobservable inputs used for the Company’s installment finance receivables fair value measurements as of September 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
Interest rate on finance receivables | | 150.80 | % | | 147.60 | % |
Discount rate | | 25.90 | % | | 21.80 | % |
Servicing cost* | | 5.00 | % | | 5.00 | % |
Remaining life | | 0.59 years | | 0.62 years |
Default rate* | | 19.57 | % | | 17.70 | % |
Accrued interest* | | 3.80 | % | | 3.20 | % |
Prepayment rate* | | 21.20 | % | | 21.00 | % |
| | | | |
*Stated as a percentage of finance receivables | | |
(2) The fair value measurement for the Public Warrants is categorized as Level 1 due to the use of an observable market quote in an active market under the ticker OPFI WS.
(3) The fair value of the Private Placement Warrants is measured using a Monte Carlo simulation; accordingly, the fair value measurement for the Private Placement Warrants is categorized as Level 3.
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The following table presents the significant assumptions used in the simulation at September 30, 2022 and December 31, 2021, the Closing Date: |
| | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
Input | | $11.50 Exercise Price Warrants | | $15 Exercise Price Warrants | | $11.50 Exercise Price Warrants | | $15 Exercise Price Warrants |
Risk-free interest rate | | 2.98 | % | | 2.98 | % | | 1.19 | % | | 1.50 | % |
Expected term (years) | | 5.0 | | 10.0 | | 4.6 | | 9.6 |
Expected volatility | | 60.60 | % | | 60.60 | % | | 48.40 | % | | 48.40 | % |
Exercise price | | $ | 11.50 | | | $ | 15.00 | | | $ | 11.50 | | | $ | 15.00 | |
Fair value of warrants | | $ | 0.26 | | | $ | 0.77 | | | $ | 0.74 | | | $ | 1.40 | |
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | |
The following table presents the changes in the fair value of the warrant liability - Private Placement Warrants (in thousands): |
| | | | | | |
| | $11.50 Exercise Price Warrants | | $15 Exercise Price Warrants | | Total |
Fair value as of December 31, 2021 | | $ | 1,879 | | | $ | 1,278 | | | $ | 3,157 | |
Change in fair value | | (356) | | | (146) | | | (502) | |
Fair value as of March 31, 2022 | | 1,523 | | | 1,132 | | | 2,655 | |
Change in fair value | | (609) | | | (311) | | | (920) | |
Fair value as of June 30, 2022 | | 914 | | | 821 | | | 1,735 | |
Change in fair value | | (254) | | | (118) | | | (372) | |
Fair value as of September 30, 2022 | | $ | 660 | | | $ | 703 | | | $ | 1,363 | |
Financial assets and liabilities not measured at fair value: The following table presents the carrying value and estimated fair values of financial assets and liabilities disclosed but not carried at fair value and the level within the fair value hierarchy as of September 30, 2022 and December 31, 2021 (in thousands):
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| | Carrying Value | | Fair Value Measurements |
| | September 30, 2022 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | |
Cash | | $ | 14,011 | | | $ | 14,011 | | | $ | — | | | $ | — | |
Restricted cash | | 36,458 | | | 36,458 | | | — | | | — | |
Accrued interest and fees receivable | | 15,286 | | | 15,286 | | | — | | | — | |
Finance receivables at amortized cost, net | | 3,858 | | | — | | | — | | | 3,858 | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Secured borrowing payable | | 1,758 | | | — | | | — | | | 1,758 | |
Senior debt, net | | 338,369 | | | — | | | — | | | 338,369 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Value | | Fair Value Measurements |
| | December 31, 2021 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | |
Cash | | $ | 25,064 | | | $ | 25,064 | | | $ | — | | | $ | — | |
Restricted cash | | 37,298 | | | 37,298 | | | — | | | — | |
Accrued interest and fees receivable | | 10,637 | | | 10,637 | | | — | | | — | |
Finance receivables at amortized cost, net | | 4,220 | | | — | | | — | | | 4,220 | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Secured borrowing payable | | 22,443 | | | — | | | — | | | 22,443 | |
Senior debt, net | | 251,578 | | | — | | | — | | | 251,578 | |
Note 14. Commitments, Contingencies and Related Party Transactions
Legal contingencies: Due to the nature of its business activities, the Company is subject to extensive regulations and legal actions and is currently involved in certain legal proceedings, including class action allegations, and regulatory matters, which arise in the normal course of business. In accordance with applicable accounting guidance, the Company establishes an accrued liability for legal proceedings and regulatory matters when those matters present loss contingencies which are both probable and reasonably estimable.
The Company has received inquiries from certain agencies and states on its lending compliance, the validity of the bank partnership model, and its ability to facilitate the servicing of bank originated loans. Management is confident that its lending practices and the bank partnership structure, in addition to the Company’s technologies, services, and overall relationship with its bank partners, complies with state and federal laws. However, the inquiries are still in process and the outcome is unknown at this time.
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
The Company is vigorously defending all legal proceedings and regulatory matters. Except as described below, management does not believe that the resolution of any currently pending legal proceedings and regulatory matters will have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
On November 18, 2021, the Company entered into a Consent Judgement and Order (“Settlement”) with the Attorney General of the District of Columbia (“District”) to resolve all matters in a dispute related to the action previously filed against the Company by the District (“Action”). The Company denies the allegations in the Action and denies that it has violated any law or engaged in any deceptive or unfair practices. The Action was resolved to avoid the expense of protracted litigation. As part of the Settlement, the Company agreed to, among other things, refrain from certain business activities in the District of Columbia, pay $0.3 million to the District of Columbia and provide refunds totaling $1.5 million to certain District of Columbia consumers. As of December 31, 2021, unpaid refunds due to certain District of Columbia consumers totaled $1.5 million, which is included in accrued expenses on the consolidated balance sheet as of such date. During the nine months ended September 30, 2022, the Company distributed refunds totaling $1.5 million to the District of Columbia consumers and there were no unpaid refunds due as of September 30, 2022.
On March 7, 2022, the Company filed a complaint for declaratory and injunctive relief (“Complaint”) against the Commissioner (in her official capacity) of the Department of Financial Protection and Innovation of the State of California (“Defendant”) in the Superior Court of the State of California, County of Los Angeles, Central Division (“Court”). The Complaint seeks a declaration that the interest rate caps set forth in the California Financing Law, as amended by the Fair Access to Credit Act, a/k/a AB 539 (“CFL”), do not apply to loans that are originated by the Company’s federally-insured state-chartered bank partners and serviced through the Company’s technology and service platform pursuant to a contractual arrangement with each such bank (“Program”). The Complaint further seeks injunctive relief against the Defendant, preventing the Defendant from enforcing interest rate caps under the CFL against the Company based on activities related to the Program. On April 8, 2022, the Defendant filed a cross-complaint against the Company attempting to enforce the CFL against the Company and, among other things, void loans that are originated by the Company’s federally-insured state-chartered bank partners through the Program in California and seek financial penalties against the Company. On May 10, 2022, the Company filed a Demurrer to the cross-complaint of the Defendant. On July 7, 2022, the Defendant filed its opposition to the Company’s Demurrer to the cross-complaint of the Defendant. On September 30, 2022, the Court overruled the Company’s Demurrer to the Defendant’s cross-complaint. The Company intends to continue to aggressively prosecute the claims set forth in the Complaint and vigorously defend itself and its position as the matter proceeds through the court process. The Company believes that the Defendant’s position is without merit as explained in the Company’s initial Complaint.
Related party transactions: OppFi-LLC previously had an unsecured line of credit agreement with Schwartz Capital Group (“SCG”) with a maximum available amount of $4.0 million, which was paid in full on March 30, 2021. Interest expense related to this related party transaction was $0.1 million for the nine months ended September 30, 2021.
In August 2020, OppFi-LLC entered into a Management Fee Agreement (“Management Fee Agreement”) with SCG. Pursuant to the terms of the Management Fee Agreement, SCG provided board and advisory services. Effective upon the Closing, OppFi-LLC terminated the Management Fee Agreement. For the nine months ended September 30, 2021, management fees under the Management Fee Agreement totaled $0.4 million.
Severance agreements: The Company entered into Severance Agreements and General Releases (“Severance Agreements”) with the Company’s former Chief Executive Officer and other key employees. In connection with these Severance Agreements, the Company agreed to, among other things, pay certain severance benefits for one year. Severance expense, which is included in salaries and employee benefits in the consolidated statements of operations, totaled negative $6 thousand due to a true-up adjustment and $0.2 million for the three months ended September 30, 2022 and 2021, respectively, and $2.0 million and $0.6 million for the nine months ended September 30, 2022 and 2021, respectively.
Note 15. Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of finance receivables. As of September 30, 2022, consumers living primarily in Texas and Florida made up approximately 14% and 14%, respectively, of the gross amount of the Company’s portfolio of finance receivables. As of September 30, 2022, there were no other states that made up more than 10% or more of the gross amount of the Company’s portfolio of finance receivables. As of December 31, 2021, consumers living primarily in Florida, Texas and California made up approximately 14%, 14% and 11%, respectively, of the gross amount of the Company’s portfolio of finance receivables. Furthermore, such consumers’ ability to honor their installment contracts may be affected by economic conditions in these areas. The Company is also exposed to a concentration of credit risk inherent in providing alternate financing programs to borrowers who cannot obtain traditional bank financing.
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 16. Retirement Plan
The Company sponsors a 401(k) retirement plan (“401(k) Plan”) for its employees. Full time employees (except certain non-resident aliens) who are age 21 and older are eligible to participate in the 401(k) Plan. The 401(k) Plan participants may elect to contribute a portion of their eligible compensation to the 401(k) Plan. The Company has elected a matching contribution up to 4% on eligible employee compensation. The Company’s contribution, which is included in salaries and employee benefits in the consolidated statements of operations, totaled $0.4 million and $0.4 million for the three months ended September 30, 2022 and 2021, respectively, and $1.2 million and $1.1 million for the nine months ended September 30, 2022 and 2021, respectively.
Note 17. (Loss) Earnings Per Share
Prior to the reverse recapitalization in connection with the Closing (“Reverse Recapitalization”), all net income was attributable to the noncontrolling interest. For the periods prior to July 20, 2021, earnings per share was not calculated because net income prior to the Business Combination was attributable entirely to OppFi-LLC.
The following table sets forth the computation of basic and diluted (loss) earnings per share for the three and nine months ended September 30, 2022 and 2021 (in thousands, except share and per share data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | | | |
| 2022 | | 2021 | | 2022 | | 2021 | | |
Numerator: | | | | | | | | | | | |
Net (loss) income attributable to OppFi Inc. | $ | (571) | | | $ | 14,125 | | | $ | 3,963 | | | $ | 14,125 | | | | | |
Net (loss) income available to Class A common stockholders - Basic | (571) | | | 14,125 | | | 3,963 | | | 14,125 | | | | | |
Dilutive effect of warrants on net income to Class A common stockholders | — | | | — | | | — | | | — | | | | | |
Net income attributable to noncontrolling interest | — | | | 13,668 | | | 4,576 | | | 13,668 | | | | | |
Income tax provision | — | | | (3,308) | | | (1,105) | | | (3,308) | | | | | |
Net (loss) income available to Class A common stockholders - Diluted | $ | (571) | | | $ | 24,485 | | | $ | 7,434 | | | $ | 24,485 | | | | | |
Denominator: | | | | | | | | | | | |
Weighted average Class A common stock outstanding - Basic | 13,972,971 | | 13,363,996 | | 13,694,733 | | 13,107,874 | | | | |
Effect of dilutive securities: | | | | | | | | | | | |
Stock options | — | | — | | — | | — | | | | |
Restricted stock units | — | | — | | 123,722 | | — | | | | |
Performance stock units | — | | — | | 11,986 | | — | | | | |
Warrants | — | | — | | — | | — | | | | |
Employee stock purchase plan | — | | — | | — | | — | | | | |
Units, excluding Earnout Units | — | | 71,100,787 | | 70,446,836 | | 71,356,909 | | | | |
Dilutive potential common shares | — | | 71,100,787 | | 70,582,544 | | 71,356,909 | | | | |
Weighted average units outstanding - diluted | 13,972,971 | | 84,464,783 | | 84,277,277 | | 84,464,783 | | | | |
(Loss) earnings per share: | | | | | | | | | | | |
Basic | $ | (0.04) | | | $ | 1.06 | | | $ | 0.29 | | | $ | 1.08 | | | | | |
Diluted | $ | (0.04) | | | $ | 0.29 | | | $ | 0.09 | | | $ | 0.29 | | | | | |
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
The following table presents securities that have been excluded from the calculation of diluted earnings per share as
their effect would have been anti-dilutive for the three and nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Public Warrants | 11,887,500 | | | 11,887,500 | | | 11,887,500 | | | 11,887,500 | |
Private Unit Warrants | 231,250 | | | 231,250 | | | 231,250 | | | 231,250 | |
$11.50 Exercise Price Warrants | 2,248,750 | | | 2,248,750 | | | 2,248,750 | | | 2,248,750 | |
$15 Exercise Price Warrants | 912,500 | | | 912,500 | | | 912,500 | | | 912,500 | |
Underwriter Warrants | 59,437 | | | 59,437 | | | 59,437 | | | 59,437 | |
Stock Options | 1,978,972 | | | 5,600,000 | | | 2,178,347 | | | 5,600,000 | |
Restricted stock units | 2,545,635 | | | — | | | 1,718,129 | | | — | |
Performance stock units | 448,720 | | | — | | | 217,730 | | | — | |
Noncontrolling interest - Earnout Units | 25,500,000 | | | 25,500,000 | | | 25,500,000 | | | 25,500,000 | |
Noncontrolling interest - OppFi Units | 69,659,100 | | | — | | | — | | | — | |
Potential common stock | 115,471,864 | | | 46,439,437 | | | 44,953,643 | | | 46,439,437 | |
Prior Period Financial Statement Revision: The Company has identified adjustments required to correct its previous calculations of diluted earnings per share for the three and nine months ended September 30, 2021. The Company determined that it misapplied the guidance prescribed by FASB ASC 260-10-55-20(b). The misapplication resulted in an overstatement of $0.77 in diluted earnings per share and $0.79 in diluted earnings per share for the three and nine months ended September 30, 2021, respectively.
As a result, the Company assessed the materiality of the revision related to the calculation of diluted earnings per share to prior periods’ financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 99, Materiality (“SAB 99”), and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), codified in FASB ASC 250, Accounting Changes and Error Corrections. The Company determined that the impact of the diluted earnings per share errors was not material to the previously issued annual and interim unaudited consolidated financial statements using the guidance of SAB 99 and 108. Accordingly, the revisions to diluted earnings per share have been reflected in the prior comparative amounts presented in the September 30, 2022 interim financial statements. The revisions had no impact on the Company’s net income or stockholders' equity.
Note 18. Subsequent Events
The Company has evaluated the impact of events that have occurred through the date these financial statements were issued and identified the following event that required disclosure.
Leases: On October 10, 2022, the Company entered into a sublease of approximately 10,481 square feet of its office space in Chicago, Illinois. The sublease will expire on August 31, 2025, the date on which the underlying lease agreement will terminate. The Company will receive approximately $0.9 million of base rent payments over the sublease term.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and related notes thereto included elsewhere in the Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. You should review the sections titled “Cautionary Note Concerning Factors That May Affect Future Results” and “Risk Factors” of this Form 10-Q and our most recently filed Annual Report on Form 10-K for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described or implied by the forward-looking statements contained in the following discussion and analysis.
OVERVIEW
OppFi Inc. (“we”, “our”, or the “Company”) is a leading mission-driven financial technology platform that powers banks to offer accessible financial products to everyday consumers through our proprietary technology and artificial intelligence (“AI”) and a top-rated customer experience. Our primary mission is to facilitate financial inclusion and credit access to the 60 million everyday consumers who lack access to mainstream credit and help them build financial health. Consumers on our platform benefit from higher approval rates and a highly automated, transparent, efficient, and fully digital experience. Our bank partners benefit from our turn-key, outsourced marketing, data science, and proprietary technology to digitally acquire, underwrite and service everyday consumers and increase automation throughout the lending process.
We principally service consumers on our financial platform through OppLoans, which is our bank sponsored installment loan product that is a fully amortizing, simple interest small dollar loan with an average loan size of approximately $1,500 and a term of 11 months. Our SalaryTap and OppFi Card products do not currently represent a significant amount of our business.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization designated the novel coronavirus (“COVID-19”) as a global pandemic. Recently, consumer activity has begun to recover and government mandates to restrict daily activities have been lifted, but the long-term effects of the COVID-19 pandemic globally and in the United States remain unknown. Worker shortages, supply chain issues, inflationary pressures, vaccine and testing requirements, the emergence of new variants, and the reinstatement of restrictions and health and safety related measures in response to the emergence of new variants, such as the Delta and Omicron variants, contributed to the volatility of ongoing recovery. There can be no assurance that economic recovery will continue or that consumer behavior will return to pre-pandemic levels. For further discussion please reference the ‘Risk Factors’ section in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
RECENT REGULATORY DEVELOPMENTS
California AB 539
On March 7, 2022, the Company filed a complaint for declaratory and injunctive relief (“Complaint”) against the Commissioner (in her official capacity) of the Department of Financial Protection and Innovation of the State of California (“Defendant”) in the Superior Court of the State of California, County of Los Angeles, Central Division. The Complaint seeks a declaration that the interest rate caps set forth in the California Financing Law, as amended by the Fair Access to Credit Act, a/k/a AB 539 (“CFL”), do not apply to loans that are originated by the Company’s federally-insured state-chartered bank partners and serviced through the Company’s technology and service platform pursuant to a contractual arrangement with each such bank (“Program”). The Complaint further seeks injunctive relief against the Defendant, preventing the Defendant from enforcing interest rate caps under the CFL against the Company based on activities related to the Program. On April 8, 2022, the Defendant filed a cross-complaint against the Company attempting to enforce the CFL against the Company and, among other things, void loans that are originated by the Company’s federally-insured state-chartered bank partners through the Program in California and seek financial penalties against the Company. On May 10, 2022, the Company filed a Demurrer to the cross-complaint of the Defendant. On July 7, 2022, the Defendant filed its opposition to the Company’s Demurrer to the cross-complaint of the Defendant. On September 30, 2022, the Court overruled the Company’s Demurrer to the Defendant’s cross-complaint. The Company intends to continue to aggressively prosecute the claims set forth in the Complaint and vigorously defend itself and its position as the matter proceeds through the court process. The Company believes that the Defendant’s position is without merit as explained in the Company’s initial Complaint.
HIGHLIGHTS
Our financial results as of and for the three months ended September 30, 2022 are summarized below:
•Basic and diluted loss per share (“EPS”) of $(0.04) and $(0.04), respectively, for the three months ended September 30, 2022;
•Adjusted EPS(1) of $0.01 for the three months ended September 30, 2022;
•Net originations increased 11% to $182.7 million from $164.5 million for the three months ended September 30, 2022 and 2021, respectively;
•Ending receivables increased 39% to $407.7 million from $293.3 million as of September 30, 2022 and 2021, respectively;
•Total revenue increased 35% to $124.2 million from $92.0 million for the three months ended September 30, 2022 and 2021, respectively;
•Net loss of $(0.7) million for the three months ended September 30, 2022 decreased by 102.2% when compared to net income of $30.4 million for the three months ended September 30, 2021; and
•Adjusted net income(1) decreased 96% to $0.8 million from $17.4 million for the three months ended September 30, 2022 and 2021, respectively.
(1) Adjusted EPS and Adjusted Net Income are non-Generally Accepted Accounting Principles (“GAAP”) financial measures. For information regarding our uses and definitions of these measures and for reconciliations to the most directly comparable United States GAAP measures, see“Non-GAAP Financial Measures” below.
KEY PERFORMANCE METRICS
We regularly review the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions, which may also be useful to an investor. The following tables and related discussion set forth key financial and operating metrics for the Company’s operations as of and for the three and nine months ended September 30, 2022 and 2021.
All key performance metrics include the three products on the OppFi platform and are not shown separately as contributions from SalaryTap and OppFi Card were de minimis.
Total Net Originations
We measure originations to assess the growth trajectory and overall size of our loan portfolio. There is a direct correlation between origination growth and revenue growth. We include both bank partner originations as well as those originated by us directly. Loans are considered to be originated when the contract is signed by the prospective borrower. The vast majority of our originations ultimately disburse to a borrower, but disbursement timing lags that of originations. Originations may be useful to an investor because they help understand the growth trajectory of our revenues.
The following tables present total net originations (defined as gross originations net of transferred balance on refinanced loans), percentage of net originations by bank partners, and percentage of net originations by new loans for the three and nine months ended September 30, 2022 and 2021 (in thousands):
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| | Three Months Ended September 30, | | Change |
| | 2022 | | 2021 | | $ | | % |
Total net originations | | $ | 182,724 | | | $ | 164,547 | | | $ | 18,177 | | | 11.0 | % |
Percentage of net originations by bank partners | | 94.2 | % | | 93.4 | % | | N/A | | 0.9 | % |
Percentage of net originations by new loans | | 50.1 | % | | 51.4 | % | | N/A | | (2.5) | % |
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| | Nine Months Ended September 30, | | Change |
| | 2022 | | 2021 | | $ | | % |
Total net originations | | $ | 571,681 | | $ | 408,394 | | $ | 163,287 | | | 40.0 | % |
Percentage of net originations by bank partners | | 94.6 | % | | 89.0 | % | | N/A | | 6.3 | % |
Percentage of net originations by new loans | | 53.2 | % | | 43.6 | % | | N/A | | 22.0 | % |
Net originations increased to $182.7 million and $571.7 million for the three and nine months ended September 30, 2022, from $164.5 million and $408.4 million for the three and nine months ended September 30, 2021. The 11.0% and 40.0% increases were driven by increased demand resulting in higher application volume and an increase in funded rate (defined as funded loans over qualified applications). We saw a decline in net originations from the three months ended June 30, 2022 due to tightening of credit.
Our origination mix continues to shift towards a servicing / facilitation model for bank partners from a direct origination model. Total net originations by our bank partners increased to 94.2% and 94.6% for the three and nine months ended September 30, 2022, from 93.4% and 89.0% for the three and nine months ended September 30, 2021.
Total net originations of new loans as percentage of total loans decreased to 50.1% and increased to 53.2% for the three and nine months ended September 30, 2022 from 51.4% and 43.6% for the three and nine months ended September 30, 2021. The decrease is a result of a pullback on marketing spend and lower qualified rate (defined as qualified applications over total applications) to ensure that new loans originated are of a higher credit quality than previous periods.
Ending Receivables
Ending receivables are defined as the unpaid principal balances of on-balance sheet loans at the end of the reporting period. The following table presents ending receivables as of September 30, 2022 and 2021 (in thousands):
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| | September 30, | | Change |
| | 2022 | | 2021 | | $ | | % |
Ending receivables | | $ | 407,730 | | | $ | 293,279 | | | $ | 114,451 | | | 39.0 | % |
Ending receivables increased to $407.7 million as of September 30, 2022 from $293.3 million as of September 30, 2021. The 39.0% increase was primarily driven by growth in originations.
Average Yield
Average yield represents annualized interest income from the period as a percent of average receivables. Receivables are defined as unpaid principal balances of on-balance sheet loans. The following tables present average yield for the three and nine months ended September 30, 2022 and 2021:
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| | Three Months Ended September 30, | | Change |
| | 2022 | | 2021 | | % |
Average yield | | 119.4 | % | | 131.3 | % | | (9.1) | % |
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| | Nine Months Ended September 30, | | Change |
| | 2022 | | 2021 | | % |
Average yield | | 119.0 | % | | 129.0 | % | | (7.8) | % |
Average yield decreased to 119.4% and 119.0% for the three and nine months ended September 30, 2022, respectively, from 131.3% and 129.0% for the three and nine months ended September 30, 2021, respectively. The 9.1% and 7.8% decreases were driven by an increase in delinquent loans in the portfolio that were not accruing interest and an increase in enrollment in our hardship and assistance programs, which provide payment relief due to natural disasters, loss of income, increase in expenses, or other unpredictable events such as COVID-19.
Net Charge-Offs as a Percentage of Average Receivables
Net charge-offs as a percentage of average receivables represents annualized total charge-offs from the period less recoveries as a percent of average receivables. Receivables are defined as unpaid principal of on-balance sheet loans. Our charge-off policy is based on a review of delinquent finance receivables on a loan by loan basis. Finance receivables are charged off at the earlier of the time when accounts reach 90 days past due on a recency basis, when we receive notification of a customer bankruptcy, or when finance receivables are otherwise deemed uncollectible.
The following tables present net charge-offs as a percentage of average receivables annualized for the three and nine months ended September 30, 2022 and 2021:
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| | Three Months Ended September 30, | | Change |
| | 2022 | | 2021 | | % |
Net charge-offs as % of average receivables | | 66.4 | % | | 35.8 | % | | 85.5 | % |
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| | Nine Months Ended September 30, | | Change |
| | 2022 | | 2021 | | % |
Net charge-offs as % of average receivables | | 58.3 | % | | 31.4 | % | | 85.7 | % |
Net charge-offs as a percentage of average receivables increased to 66.4% and 58.3% for the three and nine months ended September 30, 2022, respectively, from 35.8% and 31.4% for the three and nine months ended September 30, 2021, respectively. The elevated net charge-offs for both three and nine months ended September 30, 2022 are a result of the cumulative effects of inflation and the runoff of lower quality loans originated prior to credit tightening earlier this year. Additionally, credit adjustments have decelerated origination growth and therefore impacted the denominator of the net charge-off rate.
Marketing Cost per Funded Loan
Marketing cost per funded loan represents marketing cost per funded loan for new and refinance loans. This metric is the amount of direct marketing costs incurred during a period divided by the number of loans originated during that same period.
The following tables present marketing cost per funded loan for the three and nine months ended September 30, 2022 and 2021:
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| | Three Months Ended September 30, | | Change |
| | 2022 | | 2021 | | $ | | % |
Marketing cost per funded loan | | $ | 66 | | | $ | 89 | | | $ | (23) | | | (25.8) | % |
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| | Nine Months Ended September 30, | | Change |
| | 2022 | | 2021 | | $ | | % |
Marketing cost per funded loan | | $ | 75 | | | $ | 74 | | | $ | 1 | | | 1.4 | % |
Our marketing cost per funded loan decreased to $66 and increased to $75 for the three and nine months ended September 30, 2022, from $89 and $74 for the three and nine months ended September 30, 2021. The 25.8% decrease for the three months ended September 30, 2022 was driven by the lower mix of new versus refinanced loans year over year as stated in the ‘Total Net Originations’ metric above in addition to a lower marketing cost per new funded loan.
Marketing Cost per New Funded Loan
Marketing cost per new funded loan represents the amount of direct marketing costs incurred during a period divided by the number of new loans originated during that same period. The following tables present marketing cost per new funded loan for the three and nine months ended September 30, 2022 and 2021:
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| | Three Months Ended September 30, | | Change |
| | 2022 | | 2021 | | $ | | % |
Marketing cost per new funded loan | | $ | 188 | | | $ | 255 | | | $ | (67) | | | (26.3) | % |
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| | Nine Months Ended September 30, | | Change |
| | 2022 | | 2021 | | $ | | % |
Marketing cost per new funded loan | | $ | 205 | | | $ | 254 | | | $ | (49) | | | (19.3) | % |
Our marketing cost per new funded loan decreased to $188 and $205 for the three and nine months ended September 30, 2022, respectively, from $255 and $254 for the three and nine months ended September 30, 2021, respectively. The 26.3% and 19.3% decreases for the three and nine months ended September 30, 2022 were driven by growth in low cost marketing channels such as email, referrals, and search engine optimization, improved efficiency in direct mail marketing spend, and shifting volume within our partner channel to lower cost partners.
Auto-Approval Rate
Auto-approval rate is calculated by taking the number of approved loans that are not decisioned by a loan advocate or underwriter (auto-approval) divided by the total number of loans approved. The following table presents auto approval rate for the months ended September 30, 2022 and 2021:
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| | September 30, | | Change |
| | 2022 | | 2021 | | % |
Auto-approval rate | | 69.2 | % | | 58.1 | % | | 19.1 | % |
Auto-approval rate increased by 19.1% for the month ended September 30, 2022 to 69.2%, from 58.1% for the month ended September 30, 2021, driven by the continued application of algorithmic automation projects that streamline frictional steps of the origination process.
Sales and Servicing Cost per Loan
Sales and servicing cost per loan is calculated by taking the total sales and servicing costs, which include customer center salaries, underwriting and reporting costs, and payment processing fees, divided by the average amount of outstanding loans during that period. The following tables present sales and servicing cost per loan for the three and nine months ended September 30, 2022 and 2021:
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| | Three Months Ended September 30, | | Change |
| | 2022 | | 2021 | | $ | | % |
Sales and servicing cost per loan | | $ | 128 | | | $ | 164 | | | $ | (36) | | | (22.0) | % |
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| | Nine Months Ended September 30, | | Change |
| | 2022 | | 2021 | | $ | | % |
Sales and servicing cost per loan | | $ | 141 | | | $ | 162 | | | $ | (21) | | | (13.0) | % |
Our sales and servicing cost per loan decreased by $36 and $21 for the three and nine months ended September 30, 2022, respectively, compared to the three and nine months ended September 30, 2021, due to increased efficiency in our customer center allowing us to service a higher volume of loans with lower proportional headcount.
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2022 and 2021
The following table presents our consolidated results of operations for the three months ended September 30, 2022 and 2021 (in thousands, except number of shares and per share data).
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(in thousands, except share and per share data) | | Three Months Ended September 30, | | Change |
| | 2022 | | 2021 | | $ | | % |
Interest and loan related income | | $ | 123,605 | | | $ | 91,448 | | | $ | 32,157 | | | 35.2 | % |
Other income | | 639 | | | 529 | | | 110 | | | 20.8 | % |
Total revenue | | 124,244 | | | 91,977 | | | 32,267 | | | 35.1 | % |
Provision for credit losses on finance receivables | | (1,017) | | | (143) | | | (874) | | | 611.2 | % |
Change in fair value of finance receivables | | (70,601) | | | (18,940) | | | (51,661) | | | 272.8 | % |
Net revenue | | 52,626 | | | 72,894 | | | (20,268) | | | (27.8) | % |
Expenses: | | | | | | | | |
Sales and marketing | | 11,674 | | | 15,633 | | | (3,959) | | | (25.3) | % |
Customer operations | | 10,591 | | | 10,550 | | | 41 | | | 0.4 | % |
Technology, products, and analytics | | 8,325 | | | 7,329 | | | 996 | | | 13.6 | % |
General, administrative, and other | | 13,909 | | | 21,456 | | | (7,547) | | | (35.2) | % |
Total expenses before interest expense | | 44,499 | | | 54,968 | | | (10,469) | | | (19.0) | % |
Interest expense | | 9,096 | | | 6,414 | | | 2,682 | | | 41.8 | % |
Total expenses | | 53,595 | | | 61,382 | | | (7,787) | | | (12.7) | % |
(Loss) income from operations | | (969) | | | 11,512 | | | (12,481) | | | (108.4) | % |
Gain on forgiveness of PPP loan | | — | | | 6,444 | | | (6,444) | | | — | % |
Change in fair value of warrant liability | | 1,323 | | | 13,139 | | | (11,816) | | | (89.9) | % |
Income before income taxes | | 354 | | | 31,095 | | | (30,741) | | | (98.9) | % |
Provision for income taxes | | 1,015 | | | 703 | | | 312 | | | 44.4 | % |
Net (loss) income | | (661) | | | 30,392 | | | (31,053) | | | (102.2) | % |
Less: net (loss) income attributable to noncontrolling interest | | (90) | | | 16,267 | | | (16,357) | | | (100.6) | % |
Net (loss) income attributable to OppFi Inc. | | $ | (571) | | | $ | 14,125 | | | $ | (14,696) | | | (104.0) | % |
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(Loss) earnings per share attributable to OppFi Inc.: | | | | | | | |
(Loss) earnings per common share: | | | | | | | | |
Basic | | $ | (0.04) | | | $ | 1.06 | | | | | |
Diluted | | $ | (0.04) | | | $ | 0.29 | | | | | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | 13,972,971 | | 13,363,996 | | | | |
Diluted | | 13,972,971 | | 84,464,783 | | | | |
Total Revenue
Total revenue consists mainly of revenue earned from interest on receivables from outstanding loans based only on the interest method. We also earn revenue from referral fees related primarily to our turn-up program, which represented less than 0.2 % of total revenue for the three months ended September 30, 2022.
Total revenue increased by $32.3 million, or 35.1%, to $124.2 million for the three months ended September 30, 2022 from $92.0 million for the three months ended September 30, 2021. The increase was due to higher receivables balances throughout the quarter, which was driven by both higher beginning balances and origination growth.
Change in Fair Value and Total Provision
Commencing on January 1, 2021, we elected the fair value option on the OppLoans installment product. To derive the fair value, we generally utilize discounted cash flow analyses that factor in estimated losses and prepayments over the estimated duration of the underlying assets. Loss and prepayment assumptions are determined using historical loss data and include appropriate consideration of recent trends and anticipated future performance. Future cash flows are discounted using a rate of return that we believe a market participant would require based on the risk characteristics of the loans. We did not elect the fair value option on our SalaryTap and OppFi Card finance receivables as these products launched in November 2020 and August 2021, respectively, and inputs for fair value are not yet determined. Accordingly, the related finance receivables are carried at amortized cost, net of allowance for credit losses.
Change in fair value consists of gross charge-offs incurred in the period on the OppLoans installment product, net of recoveries, plus the change in the fair value on the installment loans portfolio. Change in fair value totaled $70.6 million for the three months ended September 30, 2022, which was comprised of $67.7 million of net charge-offs and a fair market value adjustment of $2.9 million, up from $18.9 million for the three months ended September 30, 2021, which was comprised of $24.9 million of net charge-offs and a fair market value adjustment of $(6.0) million. The fair value adjustment for the three months ended September 30, 2022 had a negative impact due to a decrease in the fair value mark, partially offset by an increase in receivables in the period.
For the three months ended September 30, 2022, total provision consists of gross charge-offs incurred in the period, net of recoveries, plus the change in the allowance for credit losses for our SalaryTap and OppFi Card products. Total provision increased for the three months ended September 30, 2022 due to the increase in gross charge-offs on the SalaryTap and OppFi card products from their launch in 2021.
Net Revenue
Net revenue is equal to total revenue less the change in fair value and total provision costs. Total net revenue decreased by $20.3 million, or 27.8%, to $52.6 million for the three months ended September 30, 2022 from $72.9 million for the three months ended September 30, 2021. This decrease was due to the rise in gross charge-offs, which offset higher total revenues.
Expenses
Expenses includes costs related to salaries and employee benefits, interest expense and amortized debt issuance costs, sales and marketing, customer operations, technology, products, and analytics, and other general and administrative expenses.
Expenses decreased by $7.8 million, or 12.7%, to $53.6 million for the three months ended September 30, 2022, from $61.4 million for the three months ended September 30, 2021. A large portion of the decrease was driven by lower direct marketing spend due to a lower marketing cost per new funded loan. Additionally, professional fees for three months ended September 30, 2021 were elevated as we were incurring expenses associated with becoming a public company. The decrease was partially offset by further investment in technology infrastructure, higher insurance costs associated with being a public company and increased interest expense as a result of increased debt draws to support higher receivables balances. Expenses as a percent of revenue decreased year over year from 66.7% to 43.1% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.
(Loss) Income from Operations
(Loss) income from operations is the difference between net revenue and expenses. Total (loss) income from operations decreased by $12.5 million, or 108.4%, to $(1.0) million for the three months ended September 30, 2022, from $11.5 million for the three months ended September 30, 2021.
Gain on Forgiveness of PPP Loan
Gain on forgiveness of PPP Loan for the three months ended September 30, 2021 included the gain from an unsecured loan of $6.4 million in connection with the U.S. Small Business Administration's (“SBA”) Paycheck Protection Program (the “PPP Loan”).
Change in Fair Value of Warrant Liability
Change in fair value of warrant liability for the three months ended September 30, 2022 included the change in fair value of the warrant liability in the amount of $1.3 million. This warrant liability arose with respect to warrants issued in connection with the initial public offering of FGNA and is subject to re-measurement at each balance sheet date.
Income Before Income Taxes
Income before income taxes is the sum of income from operations, the gain on forgiveness of PPP Loan and the change in fair value of warrant liability. Income before income taxes decreased by $30.7 million, or 98.9%, to $0.4 million for the three months ended September 30, 2022, from $31.1 million for the three months ended September 30, 2021.
Income Taxes
OppFi Inc. recorded a provision for income taxes of $1.0 million for the three months ended September 30, 2022 and $0.7 million for the three months ended September 30, 2021.
Net (Loss) Income
Net (loss) income decreased by $31.1 million, or 102.2%, to $(0.7) million for the three months ended September 30, 2022 from $30.4 million for the three months ended September 30, 2021.
Net (Loss) Income Attributable to OppFi Inc.
Net (loss) income attributable to OppFi Inc. was $(0.6) million for the three months ended September 30, 2022. Net (loss) income attributable to OppFi Inc. represents the (loss) income solely attributable to stockholders of OppFi Inc. for the three months ended September 30, 2022. As a result of the Company’s Up-C structure, the underlying income or expense components that are attributable to OppFi Inc. are generally expense items related to OppFi Inc.’s status as a public company and the income or expense for the change in fair value of warrant liabilities related to the Company’s warrants, as well as the Company’s approximate percentage interest in the non-controlling interest. The underlying income or expense components that are attributable to OppFi Inc. for the three months ended September 30, 2022 are gain on change in fair value of warrant liabilities of approximately $1.3 million, partially offset by tax expense of approximately $1.4 million, payroll and stock compensation expense of approximately $0.2 million, general and administrative expense of approximately $0.2 million and board fees of approximately $0.1 million, for total (loss) attributable to OppFi Inc. of approximately $(0.5) million. The (loss) also includes OppFi Inc.’s percentage interest in the income attributable to non-controlling interest of approximately $(0.1) million, for net (loss) attributable to OppFi Inc. of approximately $(0.6) million.
The underlying income or expense components that are attributable to OppFi Inc. for the three months ended September 30, 2021 are gain on change in fair value of warrant liabilities of approximately $13.1 million, partially offset by tax expense of approximately $0.7 million, general and administrative expense of approximately $0.1 million and board fees of approximately $0.1 million, for total income attributable to OppFi Inc. of approximately $12.2 million. The income also includes OppFi Inc.’s percentage interest in the income attributable to non-controlling interest of approximately $1.9 million, for net income attributable to OppFi Inc. of approximately $14.1 million.
Comparison of the nine months ended September 30, 2022 and 2021
The following table presents our consolidated results of operations for the nine months ended September 30, 2022 and 2021 (in thousands, except number of shares and per share data).
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(in thousands, except share and per share data) | | Nine Months Ended September 30, | | Change |
| | 2022 | | 2021 | | $ | | % |
Interest and loan related income | | $ | 331,814 | | | $ | 253,581 | | | $ | 78,233 | | | 30.9 | % |
Other income | | 1,015 | | | 1,029 | | | (14) | | | (1.4) | % |
Total revenue | | 332,829 | | | 254,610 | | | 78,219 | | | 30.7 | % |
Provision for credit losses on finance receivables | | (2,043) | | | (181) | | | (1,862) | | | 1028.7 | % |
Change in fair value of finance receivables | | (162,280) | | | (52,635) | | | (109,645) | | | 208.3 | % |
Net revenue | | 168,506 | | | 201,794 | | | (33,288) | | | (16.5) | % |
Expenses: | | | | | | | | |
Sales and marketing | | 43,067 | | | 35,114 | | | 7,953 | | | 22.6 | % |
Customer operations | | 31,933 | | | 30,036 | | | 1,897 | | | 6.3 | % |
Technology, products, and analytics | | 24,848 | | | 19,669 | | | 5,179 | | | 26.3 | % |
General, administrative, and other | | 40,965 | | | 45,686 | | | (4,721) | | | (10.3) | % |
Total expenses before interest expense | | 140,813 | | | 130,505 | | | 10,308 | | | 7.9 | % |
Interest expense | | 24,421 | | | 17,406 | | | 7,015 | | | 40.3 | % |
Total expenses | | 165,234 | | | 147,911 | | | 17,323 | | | 11.7 | % |
Income from operations | | 3,272 | | | 53,883 | | | (50,611) | | | (93.9) | % |
Gain on forgiveness of PPP loan | | — | | | 6,444 | | | (6,444) | | | — | % |
Change in fair value of warrant liability | | 7,024 | | | 13,139 | | | (6,115) | | | (46.5) | % |
Income before income taxes | | 10,296 | | | 73,466 | | | (63,170) | | | (86.0) | % |
Provision for income taxes | | 1,757 | | | 703 | | | 1,054 | | | 149.9 | % |
Net income | | 8,539 | | | 72,763 | | | (64,224) | | | (88.3) | % |
Less: net income attributable to noncontrolling interest | | 4,576 | | | 58,638 | | | (54,062) | | | (92.2) | % |
Net income attributable to OppFi Inc. | | $ | 3,963 | | | $ | 14,125 | | | $ | (10,162) | | | (71.9) | % |
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Earnings per share attributable to OppFi Inc.: | | | | | | | | |
Earnings per common share: | | | | | | | | |
Basic | | $ | 0.29 | | | $ | 1.08 | | | | | |
Diluted | | $ | 0.09 | | | $ | 0.29 | | | | | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | 13,694,733 | | 13,107,874 | | | | |
Diluted | | 84,277,277 | | 84,464,783 | | | | |
Total Revenue
Total revenue consists mainly of revenue earned from interest on receivables from outstanding loans based only on the interest method. We also earn revenue from referral fees related primarily to our turn-up program, which represented less than 0.2 % of total revenue for the nine months ended September 30, 2022.
Total revenue increased by $78.2 million, or 30.7%, to $332.8 million for the nine months ended September 30, 2022 from $254.6 million for the nine months ended September 30, 2021. The increase was due to higher receivables balances throughout the period, which was driven by both higher beginning balances and origination growth.
Change in Fair Value and Total Provision
Commencing on January 1, 2021, we elected the fair value option on the OppLoans installment product. To derive the fair value, we utilize a discounted cash flow analyses that factors in estimated losses and prepayments over the estimated duration of the underlying assets. Loss and prepayment assumptions are determined using historical loss data and include appropriate consideration of recent trends and anticipated future performance. Future cash flows are discounted using a rate of return that we believe a market participant would require based on the risk characteristics of the loans. We did not elect the fair value option on our SalaryTap and OppFi Card finance receivables as these products launched in November 2020 and August 2021, respectively, and inputs for fair value are not yet determined. Accordingly, the related finance receivables are carried at amortized cost, net of allowance for credit losses.
Change in fair value consists of gross charge-offs incurred in the period on the OppLoans installment product, net of recoveries, plus the change in the fair value on the installment loans portfolio. Change in fair value totaled $162.3 million for the nine months ended September 30, 2022, which was comprised of $161.5 million of net charge-offs and a fair market value adjustment of $0.8 million, up from $52.6 million for the nine months ended September 30, 2021, which was comprised of $62.1 million of net charge-offs and a fair market value adjustment of $(9.4) million. The fair value adjustment for the nine months ended September 30, 2022 had a negative impact due to a decrease in the fair value mark, partially offset by the increase in receivables in the period.
For the nine months ended September 30, 2022, total provision consists of gross charge-offs incurred in the period, net of recoveries, plus the change in the allowance for credit losses for our SalaryTap and OppFi Card products. Total provision increased for the nine months ended September 30, 2022 due to the increase in gross charge-offs on the SalaryTap and OppFi card products from their launch in 2021.
Net Revenue
Net revenue is equal to total revenue less the change in fair value and less total provision costs. Total net revenue decreased by $33.3 million, or 16.5%, to $168.5 million for the nine months ended September 30, 2022 from $201.8 million for the nine months ended September 30, 2021. This decrease was due to the rise in gross charge-offs, which offset higher total revenues.
Expenses
Expenses includes costs related to salaries and employee benefits, interest expense and amortized debt issuance costs, sales and marketing, customer operations, technology, products, and analytics, and other general and administrative expenses.
Expenses increased by $17.3 million, or 11.7%, to $165.2 million for the nine months ended September 30, 2022, from $147.9 million for the nine months ended September 30, 2021. A large portion of the increase was related to higher direct marketing costs to drive higher new originations throughout the first half of the year, an increase in professional fees related to tax and legal guidance, further investment in technology infrastructure, higher insurance costs associated with being a public company and increased interest expense as a result of increased debt draws to support higher receivables balances. Due to headcount reductions and vendor savings implemented in the first half of 2022, expenses as a percent of revenue decreased year over year from 58% to 50% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.
Income from Operations
Income from operations is the difference between net revenue and expenses. Total income from operations decreased by $50.6 million, or 93.9%, to $3.3 million for the nine months ended September 30, 2022, from $53.9 million for the nine months ended September 30, 2021.
Gain on Forgiveness of PPP Loan
Gain on forgiveness of PPP Loan for the nine months ended September 30, 2021 included the $6.4 million gain from the PPP Loan.
Change in Fair Value of Warrant Liability
Change in fair value of warrant liability for the nine months ended September 30, 2022 included the change in fair value of the warrant liability in the amount of $7.0 million. This warrant liability arose with respect to warrants issued in connection with the initial public offering of FGNA and is subject to re-measurement at each balance sheet date.
Income Before Income Taxes
Income before income taxes is the sum of income from operations, the gain on forgiveness of PPP Loan and the change in fair value of warrant liability. Income before income taxes decreased by $63.2 million, or 86.0%, to $10.3 million for the nine months ended September 30, 2022, from $73.5 million for the nine months ended September 30, 2021.
Income Taxes
OppFi Inc. recorded a provision for income taxes of $1.8 million for the nine months ended September 30, 2022 and $0.7 million for the nine months ended September 30, 2021. As noted above, OppFi-LLC is treated as a partnership and is not subject to income taxes. Prior to the consummation of the Business Combination on July 20, 2021, there were no taxes attributable to OppFi Inc. as OppFi-LLC was the only reportable entity.
Net Income
Net income decreased by $64.2 million, or 88.3%, to $8.5 million for the nine months ended September 30, 2022 from $72.8 million for the nine months ended September 30, 2021.
Net Income Attributable to OppFi Inc.
Net income attributable to OppFi Inc. was $4.0 million for the nine months ended September 30, 2022. Net income attributable to OppFi Inc. represents the income solely attributable to stockholders of OppFi Inc. for the nine months ended September 30, 2022. As a result of the Company’s Up-C structure, the underlying income or expense components that are attributable to OppFi Inc. are generally expense items related to OppFi Inc.’s status as a public company and the income or expense for the change in fair value of warrant liabilities related to the Company’s warrants, as well as the Company’s approximate percentage interest in the non-controlling interest. The underlying income or expense components that are attributable to OppFi Inc. for the nine months ended September 30, 2022 are gain on change in fair value of warrant liabilities of approximately $7.0 million, partially offset by tax expense of approximately $2.3 million, payroll and stock compensation expense of approximately $0.6 million, general and administrative expense of approximately $0.5 million and board fees of approximately $0.3 million, for total income attributable to OppFi Inc. of approximately $3.3 million. The income also includes OppFi Inc.’s percentage interest in the income attributable to non-controlling interest of approximately $0.6 million, for net income attributable to OppFi Inc. of approximately $4.0 million.
The underlying income or expense components that are attributable to OppFi Inc. for the nine months ended September 30, 2021 are gain on change in fair value of warrant liabilities of approximately $13.1 million, partially offset by tax expense of approximately $0.7 million, general and administrative expense of approximately $0.1 million and board fees of approximately $0.1 million, for total income attributable to OppFi Inc. of approximately $12.2 million. The income also includes OppFi Inc.’s percentage interest in the income attributable to non-controlling interest of approximately $1.9 million, for net income attributable to OppFi Inc. of approximately $14.1 million.
CONDENSED BALANCE SHEETS
Comparison of the periods ended September 30, 2022 and December 31, 2021
The following table presents our condensed balance sheet as of September 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 | | Change |
| | | | $ | | % |
Assets | | | | | | | | |
Cash and restricted cash | | $ | 50,469 | | | $ | 62,362 | | | $ | (11,893) | | | (19.1) | % |
Finance receivables at fair value | | 458,065 | | | 383,890 | | | 74,175 | | | 19.3 | |
Finance receivables at amortized cost, net | | 3,858 | | | 4,220 | | | (362) | | | (8.6) | |
Other assets | | 67,578 | | | 51,634 | | | 15,944 | | | 30.9 | |
Total assets | | $ | 579,970 | | | $ | 502,106 | | | $ | 77,864 | | | 15.5 | % |
Liabilities and stockholders’ equity | | | | | | | | |
Current liabilities | | $ | 67,668 | | | $ | 58,967 | | | $ | 8,701 | | | 14.8 | % |
Total debt | | 342,636 | | | 274,021 | | | 68,615 | | | 25.0 | |
Warrant liabilities | | 4,216 | | | 11,240 | | | (7,024) | | | (62.5) | |
Total liabilities | | 414,520 | | | 344,228 | | | 70,292 | | | 20.4 | |
Total stockholders’ equity | | 165,450 | | | 157,878 | | | 7,572 | | | 4.8 | |
Total liabilities and stockholders' equity | | $ | 579,970 | | | $ | 502,106 | | | $ | 77,864 | | | 15.5 | % |
Total cash and restricted cash decreased by $11.9 million as of September 30, 2022 compared to December 31, 2021, driven by an increase in originated loans relative to the timing of received payments. Finance receivables as of September 30, 2022 increased compared to December 31, 2021 due to high demand and record origination volume for the nine months ended September 30, 2022. Other assets as of September 30, 2022 increased by $15.9 million compared to December 31, 2021, driven by the addition of an operating lease right of use asset of $14.4 million related to the Company’s headquarters due to the adoption of a new accounting standard and an increase in tax receivable of $1.2 million.
Current liabilities increased by $8.7 million driven by the addition of an operating lease liability of $16.9 million and an increase in accounts payable of $0.6 million. These increases were partially offset by a decrease of accrued expenses by $9.4 million as of September 30, 2022. Total debt increased by $68.6 million driven by an increase in utilization of revolving lines of credit of $86.8 million, which was offset by lower secured borrowing payables by $20.7 million. Total equity increased by $7.6 million, driven by net income and stock-based compensation, partially offset by treasury stock as a result of the Repurchase Program.
NON-GAAP FINANCIAL MEASURES
Comparison of the three and nine months ended September 30, 2022 and 2021
We believe that the provision of non-GAAP financial measures in this report, including Adjusted EPS, Adjusted EBITDA, and Adjusted Net Income can provide useful measures for period-to-period comparisons of our business and useful information to investors and others in understanding and evaluating our operating results. However, non-GAAP financial measures are not calculated in accordance with GAAP measures, should not be considered an alternative to any measure of financial performance calculated and presented in accordance with GAAP, and may not be comparable to the non-GAAP financial measures of other companies.
Adjusted Net Income and Adjusted EBITDA
Adjusted Net Income is a non-GAAP measure defined as our GAAP net income adjusted to eliminate the effect of certain items as shown below, including debt issuance cost amortization and other addbacks and one-time expenses, as well as adjusting taxes for comparison purposes. We believe that Adjusted Net Income is an important measure because it allows management, investors, and our board of directors to evaluate and compare our operating results from period-to-period by making the adjustments described below.
Adjusted EBITDA is a non-GAAP measure defined as our Adjusted Net Income adjusted for the items as shown below including taxes, depreciation and amortization and interest expense. We believe that Adjusted EBITDA is an important measure
because it allows management, investors, and our board of directors to evaluate and compare our operating results from period-to-period by making the adjustments described below. In addition, it provides a useful measure for period-to-period comparisons of our business, as it removes the effect of taxes, certain non-cash items, variable charges, and timing differences.
Adjusted EBITDA excludes certain expenses that are required in accordance with GAAP because they are non-recurring items (such as transaction-related costs with respect to our business combination), non-cash expenditures (such as, in the case of depreciation and amortization, changes in the fair value of warrant liabilities and expenses related to stock compensation), or are not related to our underlying business performance (such as interest expense). We believe these adjustments provide investors with a comparative view of expenses that the Company expects to incur on an ongoing basis.
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Variance |
(in thousands, except share and per share data) Unaudited | | 2022 | | 2021 | | % |
Net (loss) income | | $ | (661) | | | $ | 30,392 | | | (102.2) | % |
Provision for income taxes | | 1,015 | | | 703 | | | 44.4 | % |
Debt issuance cost amortization | | 582 | | | 572 | | | 1.7 | % |
Other addbacks and one-time expenses, net(a) | | 76 | | | (8,825) | | | (100.9) | % |
Adjusted EBT1 | | 1,012 | | | 22,842 | | | (95.6) | % |
Less: pro forma taxes(b) | | (244) | | | (5,480) | | | (95.5) | % |
Adjusted net income1 | | 768 | | | 17,362 | | | (95.6) | % |
Pro forma taxes(b) | | 244 | | | 5,480 | | | (95.5) | % |
Depreciation and amortization | | 3,452 | | | 2,712 | | | 27.3 | % |
Interest expense | | 8,513 | | | 5,841 | | | 45.7 | % |
Business (non-income) taxes | | 238 | | | 383 | | | (37.9) | % |
Adjusted EBITDA1 | | $ | 13,215 | | | $ | 31,778 | | | (58.4) | % |
| | | | | | |
Adjusted EPS1: | | $ | 0.01 | | | $ | 0.21 | | | |
Weighted average diluted shares outstanding | | 84,080,808 | | 84,464,783 | | |
(a) For the three months ended September 30, 2022, other addbacks and one-time expenses of $0.1 million included a $(1.3) million addback due to the change in fair value of the warrant liabilities, a $(0.1) million recruiting related addback, a $0.8 million expense related to severance and retention bonuses, and $0.8 million in expenses related to stock compensation. For the three months ended September 30, 2021, other addbacks and one-time expenses of $(8.8) million included a $(13.1) million addback due to the change in fair value of the warrant liabilities, a $(6.4) million addback due to the gain on forgiveness of the PPP Loan, $6.6 million in public company readiness costs prior to the Business Combination, $1.0 million in accounting and legal costs related to the Business Combination, a $0.9 million expense related to warrant valuation, a $0.2 million expense related to severance, a $0.1 million expense related to board fees, a $1.0 million recruiting and salary expense, and a $0.9 million expense related to stock compensation.
(b) Assumes a tax rate of 23.99% for the three months ended September 30, 2021 and a 24.14% tax rate for the three months ended September 30, 2022, reflecting the U.S. federal statutory rate of 21% and a blended statutory rate for state income taxes.
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Variance |
(in thousands, except share and per share data) Unaudited | | 2022 | | 2021 | | % |
Net income | | $ | 8,539 | | | $ | 72,763 | | | (88.3) | % |
Provision for income taxes | | 1,757 | | | 703 | | | 149.9 | % |
Debt issuance cost amortization | | 1,626 | | | 1,735 | | | (6.3) | % |
Other addbacks and one-time expenses, net(a) | | (1,656) | | | (2,923) | | | (43.3) | % |
Adjusted EBT1 | | 10,266 | | | 72,278 | | | (85.8) | % |
Less: pro forma taxes(b) | | (2,473) | | | (17,839) | | | (86.1) | % |
Adjusted net income1 | | 7,793 | | | 54,439 | | | (85.7) | % |
Pro forma taxes(b) | | 2,473 | | | 17,839 | | | (86.1) | % |
Depreciation and amortization | | 10,056 | | | 7,289 | | | 38.0 | % |
Interest expense | | 22,795 | | | 15,671 | | | 45.5 | % |
Business (non-income) taxes | | 826 | | | 1,175 | | | (29.7) | % |
Adjusted EBITDA1 | | $ | 43,943 | | | $ | 96,413 | | | (54.4) | % |
| | | | | | |
Adjusted EPS1: | | $ | 0.09 | | | $ | 0.64 | | | |
Weighted average diluted shares outstanding | | 84,277,277 | | 84,464,783 | | |
(a) For the nine months ended September 30, 2022, other addbacks and one-time expenses of $(1.7) million included a $(7.0) million addback due to the change in fair value of the warrant liabilities, $2.9 million in expenses related to severance and retention bonuses, $2.4 million in expenses related to stock compensation, and $0.1 million in one-time legal expenses. For the nine months ended September 30, 2021, other addbacks and one-time expenses of $(2.9) million included a $(13.1) million addback due to the change in fair value of the warrant liabilities, a $(6.4) million addback due to the gain on forgiveness of the PPP Loan, $6.6 million in public company readiness costs prior to the Business Combination, $2.6 million in expenses related to one-time legal, accounting, and other costs related to the Business Combination, $4.2 million in expenses related to warrant valuation, $0.6 million in expenses related to severance, $0.4 million in management and board fees, a $1.0 million recruiting and salary expense, and a $1.2 million expense related to stock compensation.
(b) Assumes a tax rate of 24.68% for the nine months ended September 30, 2021 and a 24.09% tax rate for the nine months ended September 30, 2022, reflecting the U.S. federal statutory rate of 21% and a blended statutory rate for state income taxes.
Adjusted Earnings Per Share
Adjusted EPS is defined as adjusted net income divided by weighted average diluted shares outstanding, which represent shares of both classes of common stock outstanding, excluding 25,500,000 shares related to earnout obligations and including the impact of restricted stock units and performance stock units. We believe that presenting Adjusted EPS is useful to investors and others because, due to the Company’s Up-C structure, Basic EPS calculated on a GAAP basis excludes a large percentage of the Company’s outstanding shares of common stock, which are Class V voting stock, while Diluted EPS calculated on a GAAP basis includes the Class V voting stock. Shares of the Company’s Class V voting stock may be exchanged, together with units of the Company’s subsidiary OppFi-LLC, into shares of the Company’s Class A common stock. We believe that presenting Adjusted EPS is useful to investors and others because it presents the Company’s Adjusted Net Income on a per share basis based on the shares of the Company’s common stock that would be issued but for, and can be issued as a result of, the Company’s Up-C structure, excluding the forfeitable earnout shares from the Company’s Business Combination. The earnout shares issued in the Business Combination are excluded from the calculation of Adjusted EPS because such earnout shares are subject to potential forfeiture pending the achievement (if any) of certain earnout targets pursuant to the terms of the Business Combination, and we believe that, until such shares are forfeited or no longer subject to forfeiture, it is useful to investors and others to provide per share earnings information based only on those shares that are not subject to forfeiture.
| | | | | | | | | | | |
| Three Months Ended September 30, |
(unaudited) | 2022 | | 2021 |
Weighted average Class A common stock outstanding | 13,972,971 | | 13,363,996 |
Weighted average Class V voting stock outstanding | 95,397,996 | | 96,600,787 |
Elimination of earnouts at period end | (25,500,000) | | (25,500,000) |
Dilutive impact of restricted stock units | 192,127 | | — |
Dilutive impact of performance stock units | 17,714 | | — |
Weighted average diluted shares outstanding | 84,080,808 | | 84,464,783 |
| | | | | | | | | | | |
| Three Months Ended September 30, |
(unaudited) | 2022 | | 2021 |
Adjusted net income (in thousands)1 | $ | 768 | | | $ | 17,362 | |
Weighted average diluted shares outstanding | 84,080,808 | | | 84,464,783 | |
Adjusted EPS:1 | $ | 0.01 | | | $ | 0.21 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, |
(unaudited) | 2022 | | 2021 |
Weighted average Class A common stock outstanding | 13,694,733 | | 13,107,874 |
Weighted average Class V voting stock outstanding | 95,946,836 | | 96,856,909 |
Elimination of earnouts at period end | (25,500,000) | | (25,500,000) |
Dilutive impact of restricted stock units | 123,722 | | — |
Dilutive impact of performance stock units | 11,986 | | — |
Weighted average diluted shares outstanding | 84,277,277 | | 84,464,783 |
| | | | | | | | | | | |
| Nine Months Ended September 30, |
(unaudited) | 2022 | | 2021 |
Adjusted net income (in thousands)1 | $ | 7,793 | | | $ | 54,439 | |
Weighted average diluted shares outstanding | 84,277,277 | | 84,464,783 |
Adjusted EPS:1 | $ | 0.09 | | | $ | 0.64 | |
(1) Non-GAAP Financial Measures: Adjusted Net Income, Adjusted EBT, Adjusted EPS and Adjusted EBITDA are financial measures that have not been prepared in accordance with GAAP. See the “Note Regarding Non-GAAP Financial Measures” for a detailed description and reconciliation of such Non-GAAP financial measures to their most directly comparable GAAP financial measures.
LIQUIDITY AND CAPITAL RESOURCES
To date, the funds received from operating income and our ability to obtain lending commitments have provided the liquidity necessary for us to fund our operations.
Maturities of our financing facilities are staggered over three years to help minimize refinance risk.
The following table presents our unrestricted cash and undrawn debt as of September 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
Unrestricted cash | | $ | 14,011 | | | $ | 25,064 | |
Undrawn debt | | $ | 168,036 | | | $ | 158,100 | |
As of September 30, 2022, we had $14.0 million in unrestricted cash, a decrease of $11.1 million from December 31, 2021. As of September 30, 2022, we had an additional $168.0 million of unused debt capacity under our financing facilities for future availability, representing a 33 % overall undrawn capacity, an increase from $158.1 million as of December 31, 2021. The increase in undrawn debt was due to an amendment to one of our revolving lines of credit, which increased the size of the facility from $75 million to $200 million. Including total financing commitments of $507.5 million, and cash on the balance sheet of $50.5 million, we had approximately $558.0 million in funding capacity as of September 30, 2022.
We believe that our unrestricted cash, undrawn debt and funds from operating income will be sufficient to meet our liquidity needs for at least the next 12 months from the date of this Quarterly Report. Our future capital requirements will depend on multiple factors, including our revenue growth, aggregate receivables balance, interest expense, working capital requirements, cash provided by and used in operating, investing and financing activities and capital expenditures.
To the extent our unrestricted cash balances, funds from operating income and funds from undrawn debt are insufficient to satisfy our liquidity needs in the future, we may need to raise additional capital through equity or debt financing and may not be able to do so on terms acceptable to us, if at all. If we are unable to raise additional capital when needed, our results of operations and financial condition could be materially and adversely impacted.
CASH FLOWS
The following table presents cash provided by (used in) operating, investing and financing activities during the nine months ended September 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except % change) | | Nine Months Ended September 30, | | Change |
| | 2022 | | 2021 | | $ | | % |
Net cash provided by operating activities | | $ | 172,263 | | | $ | 120,090 | | | $ | 52,173 | | | 43.4 | % |
Net cash used in investing activities | | (243,445) | | | (109,979) | | | (133,466) | | | (121.4) | |
Net cash provided by financing activities | | 59,289 | | | 1,034 | | | 58,255 | | | (5633.9) | |
Net (decrease) increase in cash and restricted cash | | $ | (11,893) | | | $ | 11,145 | | | $ | (23,037) | | | (206.7) | % |
Operating Activities
Net cash provided by operating activities was $172.3 million for the nine months ended September 30, 2022. This was an increase of $52.2 million when compared to net cash provided by operating activities of $120.1 million for the nine months ended September 30, 2021. Cash provided by operating activities increased due to additional interest and loan related income generated from higher receivables balances compared to the prior year.
Investing Activities
Net cash used in investing activities was $243.4 million for the nine months ended September 30, 2022. This was an increase of $133.5 million when compared to net cash used in investing activities of $110.0 million for the nine months ended September 30, 2021, due to higher finance receivables originated and acquired, partially offset by higher finance receivables repaid and recovered.
Financing Activities
Net cash provided by financing activities was $59.3 million for the nine months ended September 30, 2022. This was an increase of $58.3 million when compared to net cash provided by financing activities of $1.0 million for the nine months ended September 30, 2021, primarily due to an increase in net advances in senior debt and a decrease in member distributions and payment of capitalized transaction costs related to the Business Combination, partially offset by an increase in net payments of secured borrowing payable.
FINANCING ARRANGEMENTS1
Our corporate credit facilities consist of term loans and revolving loan facilities that we have drawn on to finance our operations and for other corporate purposes. These borrowings are generally secured by all the assets of OppFi-LLC that have not otherwise been sold or pledged to secure our structured finance facilities, such as assets belonging to certain of the special purpose entity subsidiaries of OppFi-LLC (“SPEs”). In addition, we, through our SPEs, have entered into warehouse credit facilities to partially finance the origination of loans by us on our platform or the purchase of participation rights in loans originated by our bank partners through our platform, which credit facilities are secured by the loans or participation rights. The following is a summary of OppFi’s outstanding borrowings as of September 30, 2022 and December 31, 2021, including borrowing capacity as of September 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Borrowing | | September 30, | | December 31, | | Interest Rate as of | | Maturity | |
Purpose | | Borrower(s) | | Capacity | | 2022 | | 2021 | | September 30, 2022 | | Date | |
Secured borrowing payable | | Opportunity Funding SPE II, LLC | | $ | 1,758 | | | $ | 1,758 | | | $ | 22,443 | | | 15.00% | | — | (2) |
Senior debt | | | | | | | | | | | | | |
Revolving line of credit | | Opportunity Funding SPE III, LLC | | $ | 175,000 | | | $ | 127,159 | | | $ | 119,000 | | | LIBOR plus 6.00% | | January 2024 | |
Revolving line of credit | | Opportunity Funding SPE V, LLC; Opportunity Funding SPE VII, LLC (Tranche A) | | 75,000 | | | 37,500 | | | 45,900 | | | SOFR plus 7.36% | | June 2025 | |
Revolving line of credit | | Opportunity Funding SPE V, LLC; Opportunity Funding SPE VII, LLC (Tranche B) | | 125,000 | | | 84,750 | | | — | | | SOFR plus 6.75% | | June 2025 | |
Revolving line of credit | | Opportunity Funding SPE VI, LLC | | — | | | — | | | 30,600 | | | LIBOR plus 7.25% | | April 2023 | |
Revolving line of credit | | Opportunity Funding SPE IV, LLC; SalaryTap Funding SPE, LLC | | 45,000 | | | — | | | 7,500 | | SOFR plus 0.11% plus 3.85% | | February 2024 | |
Revolving line of credit | | Gray Rock SPV, LLC | | 75,000 | | | 40,055 | | | — | | | SOFR plus 7.25% | | April 2025 | |
Total revolving lines of credit | | | | 495,000 | | | 289,464 | | | 203,000 | | | | | | |
Term loan, net | | OppFi-LLC | | 50,000 | | | 48,905 | | | 48,578 | | | LIBOR plus 10.00% | | March 2025 | |
Total senior debt | | | | $ | 545,000 | | | $ | 338,369 | | | $ | 251,578 | | | | | | |
| | | | | | | | | | | | | |
Financed insurance premium | | OppFi-LLC | | $ | 84 | | | $ | 84 | | | $ | — | | | 4.59 | % | | December 2022 | |
Financed insurance premium | | OppFi-LLC | | 2,424 | | | 2,424 | | | — | | | 7.07 | % | | July 2023 | |
Note payable | | | | $ | 2,508 | | | $ | 2,508 | | | $ | — | | | | | | |
(1) For a detailed discussion on financing arrangements refer to Part I, Note 7 of this Quarterly Report on Form 10-Q.
(2) Maturity date extended indefinitely until borrowing capacity is depleted.
LIBOR Transition
In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced its intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021. On December 31, 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced plans to cease publication for all USD LIBOR tenors (except the one- and two-week tenors, which ceased on December 31, 2021) on June 30, 2023. The Federal Reserve Board and the Federal Reserve Bank of New York have identified the SOFR as its preferred alternative to LIBOR in derivatives and other financial contracts. Each of our credit facilities provides for the replacement of LIBOR as discussed above in “Financing Arrangements.” We do not expect the replacement of LIBOR to have any effect on our liquidity or the financial terms of our credit facilities
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to the information on critical accounting estimates in our Annual Report on Form 10-K for the year ended December 31, 2021.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2022 (“Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective and provide reasonable assurance (i) to ensure that information required to be disclosed in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.