OppFi Inc Stock

Good morning, and welcome to the OppFi Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions]

I am pleased to introduce your host, Jared Pollack. You may begin.

Thank you, operator. Good morning, and welcome to OppFi's Third Quarter 2026 Earnings Call. Today, our Executive Chairman and CEO, Todd Schwartz; and CFO, Pam Johnson, will present our financial results, followed by a question-and-answer session. You can access the earnings presentation on our website at investors.oppfi.com.

During this call, OppFi may discuss certain forward-looking information. The company's filings with the SEC describe essential factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements. Please refer to Slide 2 of the earnings presentation and press release for our disclaimer statement covering forward-looking statements and references to information about non-GAAP financial measures, which will be discussed throughout today's call. Reconciliations of those measures to GAAP measures can be found in the appendix to our earnings presentation and press release.

In addition, certain important information related to the BNCC transaction will be included in the registration statement on Form S-4 filed by OppFi in conjunction with the transaction. Investors are encouraged to read the Form S-4 and other documents filed with the SEC in conjunction with the transaction. Please refer to the disclaimer information included in our earnings release.

With that, I would like to turn the call over to Todd.

Thanks, Jared, and good morning, everyone. Thank you for joining us today. I'll begin with a business update, and then Pam will walk through our strategic investments and third quarter financial results in detail.

Q3 was one of the most productive quarters in our company's history in executing across key strategic initiatives. At the same time, we believe our current share price does not reflect the long-term intrinsic value of the business. Our stock trades well below peer multiples on both a trailing and forward basis. When the market is not giving us credit for our investment and long-term earnings potential, we intend to utilize our Board-authorized $40 million repurchase program when we believe repurchases represent an attractive use of capital.

First, an update on our pending acquisition of BNCC. On September 17, BNCC Corp. stockholders overwhelmingly approved the transaction, leaving regulatory approval as the final step. We continue to work constructively with regulators on our bank merger applications, and we remain confident the combination will benefit our customers through a broader product set and lower costs and BNCC's customers through enhanced digital banking capabilities.

Next, I'm pleased to share that we launched our new line of credit product with our bank partners in Q3. LOC expands credit access while responding to consumers' growing preference for more flexible products. We are beginning to scale it in new geographies, and we'll test it in existing markets to give customers more flexible options. We believe the product will also open new marketing funnel opportunities, which we plan to test in Q4. We see considerable growth potential for LOC in 2027.

We built and launched the technology behind LOC in less than 6 months, thanks to our new LOLA platform. Its clean, modular architecture lets our product and technology teams move faster, shortening development cycle times for new products and other initiatives across originations, servicing and risk. The increased agility allows us to deliver more road map priorities and innovations at a faster pace.

In our core installment business, we continue to focus on affordability and supporting our programs' reach. Our latest pricing initiative, Pricing Test 5, represents our most significant rate and payment reduction opportunity to date. Alongside flexibility, customers want more affordable payments and lower APRs, and we are responding by lowering monthly payments and rates for a large portion of customers.

This initiative reflects a combination of macro conditions and competitive dynamics as well as insights from our customer data, which suggests that offering more affordable monthly payments over longer durations can lead to improvement across key loss indicators. Early indicators are positive, and we expect this to support origination growth in Q4 and into 2027.

The LOLA migration for our installment business is progressing well. Substantially all new customers now run on the new system. The next step is migrating existing customers and data, which we expect to be substantially complete heading into 2027. LOLA has meaningfully strengthened our ability to launch and service multiple products, shorten cycle times for product enhancements, compliance and other workflows, and the LOLA platform now enables us to embed AI agents across originations and servicing workflows over time. We expect development of these capabilities to begin in 2027 and look forward to sharing updates as we progress.

In Q4, we expect to launch Model 7, our most powerful underwriting and targeting model yet. Early results show a 20% improvement in aligning marketing prescreening scores with our bank partners' established underwriting criteria, enabling us to make more accurate and better targeted offers to potential customers, particularly on partner sites. When customers receive offers that more closely match the loan amount they ultimately qualify for, application-to-funded rates are significantly higher. By improving our accuracy, we expect to drive higher conversion and application-to-funded rates. The model is currently in validation, and we look forward to launching it this quarter.

Lastly, Bitty, our small business funding investment, recently surpassed $1 billion in total funding since 2021, marking a significant milestone in its growth. During the quarter, Bitty launched a new premier funding product as part of its strategy to become a full spectrum small business funder. The offering expands Bitty's competitive reach into the near-prime segment, providing larger funding amounts, more attractive pricing and longer repayment terms, allowing Bitty to compete more effectively across a broader range of small business customers.

Bitty is also advancing its AI and automation strategy across the entire funding cycle, from underwriting and credit decisioning to funding and servicing. These initiatives are designed to streamline the customer experience, accelerate decision-making, enhance portfolio performance and create a more efficient, scalable operating platform. Early results are encouraging, and we believe the combination of expanded market reach, AI-driven innovation and a scalable operating platform creates a compelling opportunity for Bitty to accelerate growth in 2027 and beyond.

Taken together, this was an important quarter of progress in building the foundation of OppFi's next phase of growth. We are well underway in strategically transforming the business, investing more than $150 million this year to support continued growth on our path to our objective of $500 million in adjusted net income within 5 years. We remain focused on our vision of becoming a leading technology-enabled bank platform that provides essential credit access and community banking services to everyday Americans and businesses.

With that, I'll turn the call over to Pam.

Thanks, Todd, and good morning, everyone. I want to build on Todd's comments regarding the quarter. Higher-for-longer inflation and subdued consumer sentiment continue to affect our customer base, which tends to be disproportionately impacted relative to the broader population. Against this backdrop, we remain focused on maintaining a strong balance sheet with healthy profit margins over shorter-term volume growth. OppFi has repeatedly demonstrated throughout its history that disciplined underwriting, strong credit performance, superior unit economics and sustainable profitability create more long-term value than pursuing growth at any cost in the near term.

Turning to our financial performance for the third quarter. We generated revenue of $149 million, a 3.8% decrease from Q3 2025. Originations for the quarter decreased by approximately 7% to $229 million compared to the prior year quarter, primarily driven by tightened marketing partner screening criteria. We expect the introduction of Model 7 to help improve future performance.

While credit losses are elevated compared with the prior year period, net charge-offs as a percentage of average receivables remain broadly in line with historical averages, driven in part by our strong recoveries. Net charge-offs as a percentage of revenue during the quarter increased to approximately 40% from 35% in the prior year period, and net charge-offs as a percentage of receivables increased to approximately 53% from 47% in the prior year period. Given the denominator effect, these charge-off metrics appear inflated in times of slower growth. Moreover, we saw a reversion to the mean in credit, but note, we believe it is overall stable.

Importantly, these charge-offs are partially offset by a meaningful improvement in recoveries, an area where we believe we maintain a distinct competitive advantage. Recoveries increased to approximately $15 million from $11 million in the prior year period. We continue to closely monitor consumer payment behavior and adjust our underwriting posture with agility as conditions evolve, and we remain confident that the actions we have taken position the portfolio for stronger performance over time.

Operating expenses remain well controlled as we continue to balance investment in strategic initiatives with disciplined expense management. Total adjusted operating expenses were approximately $52 million, or 35% of revenue, compared with 34% in the prior year period. On an unadjusted basis, including onetime expenses related to the BNCC transaction, expenses were 37% of revenue compared with 36% of revenue in the prior period.

While we continue investing in strategic initiatives, particularly those related to the BNCC transaction and platform development, we maintained disciplined expense management across the rest of the organization. Taken together, adjusted net income decreased by 23% in the third quarter to approximately $32 million compared to the prior year period, and adjusted earnings per share decreased to $0.37 from $0.46 in the prior year period.

Looking at the balance sheet, we continue to maintain a robust financial position, ending the quarter with approximately $141 million in cash, cash equivalents and restricted cash, alongside $350 million in total debt and $443 million in total stockholders' equity. Our total funding capacity was $691 million at quarter end, including $199 million of unused debt capacity. The strong liquidity position and balance sheet flexibility continues to provide a solid foundation for our capital allocation strategy and long-term growth objectives.

On capital allocation, our balance sheet remains a significant source of strength. Our business continues to generate meaningful free cash flow, allowing us to invest in growth initiatives while simultaneously returning capital to shareholders. During the quarter, we began repurchasing shares under the Board-authorized $40 million repurchase program, reflecting our belief that the current valuation does not appropriately reflect the long-term earnings potential of the company. As Todd mentioned, we intend to remain active in repurchasing our shares when we believe they are undervalued.

With greater visibility into the remainder of the year, we are refining our full year 2026 guidance by adjusting the top end of the range. We now expect total revenue of $600 million to $610 million, adjusted net income of $115 million to $120 million and adjusted EPS of $1.34 to $1.40.

Moreover, our confidence in the long-term earnings potential of the company remains unchanged. Our expectations for 2027 and 2028 remain intact, and we continue to believe OppFi is building a stronger, more diversified and more valuable platform. We remain confident in our path toward achieving our long-term objective of approximately $3 of earnings per share by the end of 2028.

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

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

Todd, maybe to start, just kind of a high-level, broad question. It sounds like both the actual results of the quarter as well as the commentary was very similar to what we heard 3 months ago. And I'm just wondering, is there any -- as you've done more research into maybe just some of the headwinds in volumes, is there anything incremental from a quarter ago that you feel more comfortable getting your arms around as it relates either to the consumer, consumer preference, competitive products? Just -- anything that you can potentially add?

Yes. I mean, I think the fact that we launched our line of credit product, we're very excited about it. We're seeing in the competitive landscape, a lot of growth in the line of credit product. From -- we're going to -- it opens up new geographies, but also some of the marketing capabilities of it.

Customers -- there's a subset of customers that prefer the flexibility, especially in this environment, over the more stringent nature of the installment product, provides customers the ability to draw more frequently. And we're very encouraged by the early testing, and now it's fully launched so that we're going to have that as a growth lever for next year. So that's pretty considerable.

We're also -- we're on -- the product road map for next year. I didn't really talk about it much on this earnings call, but we were encouraged by some of the product road map initiatives we have. We're looking at earned wage access as another complement to the line of credit product for next year and figuring out the best way for us to get that in market next year. So we're encouraged by that.

We're also being cautious. I just -- a little bit more cautious probably than most. We're undergoing a significant strategic transaction with banks. We want to keep our balance sheet. We have about $140 million of cash we're sitting on. So -- and I think that the stock is trading at a really unfair multiple for the amount of strategic initiatives and the growth potential that the company has. But we're positioned really well with a lot of optionality for growth in 2027.

And I think -- listen, I mean, credit for the quarter, although slightly elevated on the growth side, if you look at our recoveries, it's a really strong story, so we're very encouraged by that. When looking at the unit P&L and looking at growth going ahead for the future, our recovery stream has really been dependable and growing, and it gives us confidence to grow in 2027.

Got it. And maybe just as a follow-up, is there any, I guess, granularity you can provide on how we should be thinking about modeling yields, either in the fourth quarter or going forward, in lieu of the pricing adjustments you discussed?

I think one thing that -- we're comfortable, we have a very high margin. We run at a higher margin than most of our peers and feel that, obviously, new product initiatives and marketing are part of getting back to some of the growth on units and originations. But it's also product marketing, right, offering customers, meeting them with a price and term that matches their risk profiles, right?

And so I think we would be comfortable reducing yield for higher-quality customers to be able to recruit them and win, especially in some of these partnership sites. But it's not going to largely be impacted. And Q4 was flat year-over-year. But it is something we're looking at in addition to acquisition costs. We know that in our peer set, a lot of competitors are paying, in some cases, almost double as a percentage of principal that we pay. So we've been very disciplined on keeping yields strong and our acquisition costs. But it is something we're looking at in addition to, like I said, new products and finding new ways to grow.

We'll take our next question from Dave Storms with Stonegate.

Todd, I wanted to start with the line of credit product. Maybe just any more you could tell us about what you learned from the initial rollout, anything around customer demand? And then also maybe more specifically, the learnings that they might apply to that earned wage product, any other products going forward? Just would love to hear more about that.

Yes. I mean, the rollout has gone as expected. We're starting to add additional marketing sources. And we're also starting to plan for offering it in existing states as well, as I mentioned. So we're excited about starting to scale that in the next 2 months of the year, and it will give us a lot of good data and learnings going into 2027 as we start to put our forecast together, so encouraged. And the team did a great job. I think it was -- we announced it was slightly delayed. But after that slight delay, the team came together and got it launched in Q3, which was a big milestone for us.

EWA is something that is -- we think it's not only a product that has a lot of product market fit, we're seeing a lot of customers using it in their daily lives to manage cash flows. But we think that it also just has a lot of marketing capabilities that some of our installment product is not eligible for. So we're excited about that more mainstream opportunities on the marketing side.

Right now, we're thinking that's probably going to be enough for us next year, getting line of credit scaled and adding an earned wage access product. There are other products out there that we'll be looking at and considering, but nothing to report as of now.

That's great. I really appreciate that. And then just looking into 2027, I know you're obviously not giving guidance at this point. But with Model 7 hopefully being up in Q4, is there anything you can see either from a macro standpoint or from an OppFi-specific standpoint that might throw a wrench in the typical seasonality that you tend to see?

No. I mean, like one of the benefits of the Model 7, the ability to more accurately target customers or for the -- what they call in and kind of target the loan or advance amount on the line of credit that they're looking for. We found that the targeting customers more provides for higher conversion. So we're excited to get that validated and rolled out. That will be included, obviously, in our forecast for 2027.

But now there's -- we're continuing to believe that a lot of these strategic initiatives, including the LOLA migration, which is -- we're originating 100% of our net new volume through the system now. And we'll soon -- we'll be finishing up the migration substantially this year, which will give us a lot of opportunities in our product road map initiatives going into next year. So we feel confident we're going to get back to our growth trends on a unit and origination basis for '27.

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

So I'm looking at Slide 6, and it's kind of titled, investment in key strategic initiatives. Can you kind of talk through the dollar amount you're investing in those initiatives? And is there anything to call out that's sort of one-off? Or is this sort of just part of running the business?

I'm not -- I don't have Slide 6 in front of me, but I can kind of talk about it at a high level. What's the dollar amount it's referencing?

Yes. The investments that you're making in strategic initiatives.

Yes, the $150 million, yes. Well, starting -- the company has almost bought back almost $18 million this year so far. We had a $42 million TRA, which collapsed the Up-C structure. The contemplated -- the system, the LOLA system is another $35 million of investment to rebuild our whole operating and servicing system.

We have -- we made an investment into Bitty, which -- we have a call option coming in 2027, and then also the bank transaction. So if you kind of add it all together, it probably even might be over $150 million when all is said and done.

Got it. And then on the bank transaction, I think last quarter and when you announced it, you kind of thought you would have this sort of nailed down by year-end. Any updates to that timing? Or does that still feel good?

Yes. I mean, listen, we're continuing to respond to regulators promptly, qualitatively and quantitatively. And we're ready to continue to respond and work with them. We're hopeful that we can get this resolved by Q4. If it does leak or bleed into Q1 of 2027, we'll provide those updates when they come available. But we continue to work on the application and feel like our app from -- on a merit basis, it remains strong and continue to feel like we're giving really solid qualitative and quantitative answers to our regulators.

Got it. And then the $75 million drawn from that Castlelake facility, can you remind us the interest rate on that and kind of the flexibility? If you end up not needing it, can you pay it back right away? How does that fit into your plans?

Yes. I mean, that's more of just a financing to allow for more flexibility in our capital structure and balance sheet. The interest rate is somewhere around 12%, but we were more focused on allowing for a lot of flexibility of payback to allow for flexibility in our capital structure for 2027 and beyond. So it's something that positions us in our balance sheet very well going into 2027 to provide that optionality.

Got it. Okay.

And another thing to mention is we've been paying debt down over the years, and this was just kind of replenishing it. If you look at actually the last couple of years, we've been on a trend of delevering the business from a debt-to-equity ratio. So this is really just kind of replenishing it.

Okay. And then maybe just one more. I think the purchase price of the bank is about $130 million. Would you use all cash for that? Or is there some other financing you would take on? Can you talk about how you envision that?

Yes. I mean, currently, the deal that was announced is 50% stock, 50% cash. So there's no financing needed. We have ample amount of cash to fulfill the transaction.

Thank you. There are no further questions, and this brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Thank you. Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero. and a member of our team will be happy to help you. Thanks for watching! Good afternoon and welcome to OpFi's second quarter 2026 earnings conference call. As a reminder, this conference is being recorded. I am pleased to introduce your host, Jared Polak. You may begin.

Thank you, Operator. Good afternoon, and welcome to OPFI's second quarter 2026 earnings call. Today, our Executive Chairman and CEO, Todd Schwartz, and CFO, Pam Johnson, will present our financial results, followed by a question and answer session. You can access the earnings presentation on our website at investors.opfi. During this call, OPFI may discuss certain forward-looking information. The company's filings with the SEC describe factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements. Please refer to slide two of the earnings presentation and press release for our disclaimer statement covering forward-looking statements and references to information about non-GAAP financial measures, which will be discussed throughout today's call. Reconciliations of those measures to GAAP measures can be found in the appendix to our earnings presentation and press release.

In addition, certain important information related to the BNCC transaction is included in the registration statement on Form S-4 filed by OPFI in conjunction with the transaction. Investors are encouraged to read the form S-4 and other documents filed with the SEC in conjunction with the transaction. Additionally, OpFi and BNCC and their directors and officers may be deemed to be participating in a solicitation of proxies in favor of the proposed merger. please refer to the disclaimer information included in our earnings release. With that, I'd like to turn the call over to Todd.

Thanks, Jared, and good afternoon, everyone. Thank you for joining us today. I'll first share a business update, and then Pam will review our strategic investments and Q2 financial performance in detail. While Q2 fell short of our original financial expectations, we believe it was one of our most productive quarters from a strategic standpoint. We invested meaningfully in testing new products and improving existing products with the goal of strengthening our competitive positioning. We also took the additional time to refine our Lola system, laying what we believe to be a strong foundation for future growth and efficiency. That worked push back rollout by a few months, but we're encouraged by the results and remain confident in our ability to hit our long term financial targets. more detail on new product initiatives later in my remarks.

First, I'd like to provide an update on our pending acquisition of BNC National Bank. We're pleased to announce that we've officially submitted our regulatory applications to the OCC and other governing agencies. We look forward to working with regulators throughout the approval process and aim to transaction in Q4 of this year. We're excited to work with the BNC team to integrate and build the strongest possible strategic footprint, expanding product offerings, consumer choice, and credit access, while reducing costs for our customers and extending community banking access to more of them. We'll provide further updates on this throughout the year. Next, I'd like to highlight an important development at OPFY. upcoming line of credit launch with one of our bank partners. During the second quarter, we completed extensive testing around pricing, term structure, and customer behavior, and we are very encouraged with the results.

The testing reinforced our belief that the line of credit product fills an important need for consumers, particularly during macro periods when a 401k affordability and monthly payment flexibility become increasingly important. Customers are increasingly gravitating towards products with lower monthly payments but longer repayment terms, as these options offer greater affordability and cash flow flexibility on a month-to-month basis. That preference was reflected in our testing results and reinforces why the line of credit product is such an important addition to the system. to our platform. The testing demonstrated meaningful opportunities to drive additional growth from both new and existing customers while diversifying our product offerings. We expect to launch the line of credit product next month. That timing was intentional and reflects a deliberate measure twice, cut once approach. Before its launch, we wanted to be fully confident in its pricing structure, customer experience, conversion dynamics, and expected performance.

With testing now complete, we feel good about its readiness. The technical aspects of this product will have been developed and brought to market in under six months, a relatively short period of time. This is made possible by our new modular technology platform. Beyond enabling this launch, the modular platform creates a scalable foundation for future product innovation, allowing us to develop and introduce new offerings more efficiently. As a result of the slight timing shift in both the line of credit launch and Lola migration completion, originations came in below our original expectations during the quarter. Accordingly, we are revising our 2026 guidance. Our expectations for 2027 and 2028 remain unchanged, and we continue to believe we are on a path towards achieving approximately $3 of earnings per share by the end of 2028.

Taken together, this has been an important quarter of progress for OpFi in laying the foundation for growth. We are well underway in our effort to strategically transform the business, investing more than $150 million this year to enable continued growth on our path to achieve $500 million of adjusted net income in the next five years. We remain focused on executing our shared vision of becoming a leading technology-enabled bank platform that offers essential credit access and community banking services to everyday Americans and businesses.

With that, I'll turn the call over to Pam. Pamela Haynes Thanks, Todd, and good afternoon, everyone. I want to build on Todd's comments regarding the quarter and our updated outlook. While we continue to see some variability in consumer credit trends, we are prioritizing balance sheet strength, unit economics, and margin stability over shorter-term volume growth. Shopify has demonstrated throughout its history that disciplined underwriting, strong credit performance, and sustainable profitability create more long-term value than pursuing growth at any cost in the near term. Importantly, we continue to direct our focus toward building the foundation to unlock new long-term growth, and our planned acquisition of BMC is expected to be financially transformative. We anticipate significant revenue synergies beginning in 2027 as we expand our ability to deliver a broader suite of financial products across the larger geographic footprint.

These synergies are expected to be driven primarily by geographic expansion and cross-selling opportunities. In addition, we believe OpFi will be able to leverage BNC's capabilities and relationships to further grow our existing business lines. The combination of OPFY and BNC is expected to create a banking organization with capital levels well in excess of regulatory and market standards. Looking ahead to 2028, we expect the combined company to generate return on assets at least 10% and returns on equity of at least 35%. Turning to our financial performance for the second quarter, we generated revenue of 145 million, a 1.9% increase over Q2 2025, and a company record for any second quarter. Originations for the quarter decreased by approximately 9% to $212 million compared to the prior year quarter, as we tightened underwriting in segments where we believe risk-adjusted returns were less attractive. These actions were designed to help preserve portfolio quality and support long-term profitability.

Net charge-offs as a percentage of revenue during the quarter increased to approximately 40% from 32% in the prior year period. And net charge-offs as a percentage of receivables increased to approximately 52% from 43% in the prior year period. Given the denominator effect, these charge-off metrics appear inflated in times of slower growth. Importantly, these charge-offs are partially offset by a meaningful improvement in recoveries, an area where we believe we maintain a distinct competitive advantage. Recoveries increased to approximately $15 million from $11 million in the prior year period. We continue to closely monitor consumer payment behavior and adjust our underwriting posture with agility as conditions evolve. And we remain confident that the actions we have taken position the portfolio for stronger performance over time.

Operating expenses remained well controlled as we continued to balance investment and strategic initiatives with disciplined expense management. Total adjusted operating expenses were approximately $49 million or 34% of revenue, down slightly from 35% in the prior year period. On an unadjusted basis, given one-time expenses related to the BMC transaction and corporate simplification, expenses were 43% of revenue compared with 39% of revenue in the prior year period. While we continued investing in strategic initiatives, particularly those related to the BNC transaction and platform development, we maintained disciplined expense management across the rest of the organization. Taken together, adjusted net income decreased by 27% in the second quarter to approximately $29 million compared to the prior year period. And adjusted earnings per share decreased to 33 cents from 45 cents in the prior year period. like that, our adjusted net income margin remains strong at 19.8%. Looking at the balance sheet, we continue to maintain a robust financial position, ending the quarter with approximately $92 million in cash, cash equivalents, and restricted cash, alongside $277 million in total debt and $414 million in total stockholders' equity.

Our total funding capacity was $541.8 million at quarter end, including $173.5 million of unused debt capacity. With strong liquidity position and balance sheet flexibility, continues to provide a solid foundation for our capital allocation strategy and long-term growth objectives. objectives. On capital allocation, our balance sheet remains a significant source of strength. business continues to generate meaningful free cash flow, allowing us to invest in growth initiatives while simultaneously returning capital to shareholders. During the quarter, we began repurchasing shares under the Board-authorized $40 million repurchase program, reflecting our belief that the current valuation does not appropriately reflect the long-term earnings potential of the company. Given the timing shift in our launch of the line of credit product and completion of Lola system migration, we are revising our full 2026 guidance to total revenue of 600 million to 625 million, adjusted net income of 115 million to 130 million, and adjusted EPS of about $1.5 billion. dollar 34 to a dollar 51. While we are reducing our near-term outlook, our confidence in the long-term earnings potential of the company remains unchanged. Our expectations for 2027 and 2028 remain intact, but we continue to believe OpFi is building a stronger, more diversified, and more valuable platform.

We remain confident in our path toward achieving our long-term objective of approximately $3 of earnings per share by the end of 2028. With that, I will now turn the call over to the operator for Q&A. Operator?.

Thank you. At this time, we will open the floor for questions. If you'd like to ask a question, you may press star 1 on your telephone keypad. remove yourself from the queue, you may press star 2. Again, that is star 1 to ask a question. And we'll take our first question from David Scharf from Citizens Capital Markets. Please go ahead. Your line is open.

All right, thank you. Good afternoon. Thanks for taking my questions. Todd, wondering if you can provide just a little more color on sort of your assessment of what you're seeing from your consumers vis-a-vis credit and what led to the tightening. Obviously, it's been another earning season where there's been some pretty – broad-based constructive commentary from most lenders about about consumer resiliency in the face of inflation and whatnot. And maybe if you can just share a little more on what led to.

with some of the tightening that you enacted in the quarter? Yes, I mean, we actually, it actually started last summer when we saw some consumer sentiment. You know, listen, I think if you look at the average in the last four years, you know, the charge-offs are, you know, we had a really strong two-year window there and we're seeing some... reversion on that, you know, back to, but with our risk-based pricing, And with some of the term testing we're doing, one of the things I mentioned in my remarks is that the affordability is becoming very, very important for the consumer. So consumers are opting for more total costs to keep their monthly payments affordable. And we need to be responsive to competition and to what others are providing in the market. marketplace. And I think that's why we're so excited about the line of credit product. There's also things we can be doing on installment better to better serve our customers. I think if you're getting the payment to income wrong with customers, that is the fundamental rule of underwriting.

You're going to cause, you know, more customer delinquency or less I think with our risk-based pricing and some of our term and some of our new marketing initiatives, we feel like really, really good for the second half that we're going to start to grow again and start to get that back on track. There were some head fakes with the war and everything going on, but we We feel like from our business standpoint, we can operate in any environment. And I think that if you look at our margin and our balance sheet, that was prioritized with everything going on with the transformation and the bank acquisition, it was prioritized, but we're getting back to growth now. And we think that there's a lot of opportunity. We're seeing some competitors provide some more affordability on the payments to allow for more growth. And so we think we can be very competitive and bring something to market that customers are going to be successful with.

Got it. Understood. And maybe as a follow-up, as we think about the second half outlook, and the guidance reduction, is there a way to give us a sense for, you know, how much of that is related to the sort of a lower starting point and balances, you know, that you're exiting Q2 with in the delayed, in maybe a one-month delay in rolling out kind of Lola and... in line of credit, you know, that being sort of one bucket and maybe the other could just be everything else, whether it be changes in, you know, lost rate assumptions, fair value, how much of it's just kind of the.

the Q2 tightening and lower jumping off point versus are there any other factors that we should be aware of that's behind the guidance? Yes, I mean, we we've been we've been operating in this credit environment now for over a year, so we're comfortable with where we're at there and see stability. It's really it's really geared towards the late onset of some of the gross initiatives that we've had you know in the second quarter we we're making great progress. I mean, you know, from a financial growth perspective, the way it reports out to you guys in the street in this small three-month window, It shows that we're growing. But when I think about what we're doing on a daily basis with the teams and the product initiatives, the migration, everything's going very well. And we think that we're just – the business is going to – we're trying to retool the business to set this thing up for a much larger scale. multi-product platform. And so, you know, it is definitely kind of more of a late onset situation where, you know, we're not getting the line of credit in market as soon as we thought we would. And then also some of the migration things with data that we're working through to make sure that, you know, we're taking, I think I said it in my commentary measure twice, cut once approach and making sure, you know, and while keeping the balance sheet strong.

Got it. Got it. Great. Thank you. Thank you. We'll take our next question from Dave Storms with Stonegate Capital Partners. Please go ahead. Your line is open.

Hello, good afternoon. This is Maximus. I'll be asking questions for Daystorms today. I just wanted to start off on Lola as, you know, the platform gets further rolled out in the second half of the year. I'm just wondering where you think the biggest benefit will be first. Is it better conversion, servicing efficiencies, recoveries, or if you have any other color, that'd be great.

Yes, we think it, you know, I think one of the benefits you're going to be seeing here is we have a new product coming to market in less than six months. And that's because it was completely built on the new system, which took advantage of our modular architecture and all the benefits of it. We didn't have to go into the legacy system. at all to be able to develop it as a new product. And so that's one of the biggest things I'm excited about is cycle time for development and bringing things to market. And from a product standpoint, being able to work on things in a much faster clip. Our goal is to reduce our cycle times by 70% over the next year. And so that is also, it will allow us to push on some of these automated, you know, we actually made progress in the quarter.

Our automated approval rate was up into the 80s, first time the company's achieved that. So we're continuing to make progress even on the legacy system. but this will unlock us to our ability to start to move those metrics higher. and better service our customer. We think that the cycle time from app to fund for some of the more manual applications is going to go down significantly. So that's another benefit of the new system.

I appreciate that. And then lastly, wanted to get a little bit more color on the line of credit as well. You had mentioned the testing that happened this past quarter, and I just wanted to see if you could dive in deeper into more of the findings or the discoveries that you can share with us. guys have found out. And also wanted to see if... the lock, the line of credit is more going to be more specifically for, you know, new customers or as well, current customers as well. Thank you.

Yes, good question. Well, first of all, I think the way customers can draw on their lines and the flexibility of when they draw, as opposed to kind of the installment right now is done at a refinance or if someone's paid in full, they would reloan out. So that ability to draw smaller increments over time and give the customer the flexibility of when they choose to do that, also coupled with the payment stream being more a little bit longer dated to allow for more affordability of monthly payment. So we feel like those two aspects of this are really going to do a great job to respond to kind of some of the market dynamics we're seeing. One of the things we will be testing is what customers select in a market where we're going to offer both. That isn't in the original launch plan. The original launch plan will allow for three new geographies for us to offer a line of credit to customers, so net new customers. But soon after, we will be... in market with where customers can choose which product they desire and what best fits their financial needs.

And so we'll, as we run those tests, we'll be updating everyone with the results and kind of see where we think that the new product fits best in the market.

Great. Thank you. That's all from me. Good luck next quarter. Thank you.

Thank you. We'll take our next question from Mike Grondahl with Northland Securities. Please go ahead. Your line is open.

Hey, guys. Thanks. You know, with the reduced outlook, Just trying to understand between the line of credit product and the Lola migration. Are those both about a month delayed? Trying to understand that a little bit better, and then... revenue outlook down probably $40 million to $50 million. adjusted EPS about 40 cents at the midpoint. Is that more LOC versus Lola? Just trying to understand the breakdown there because it's kind of... kind of big numbers for these two delays. Yes, I mean, we, you know,.

So the line of credit, like I said, opens up to three new geographies. And, you know, we think there's meaningful volume to come out of it. So every month that it gets delayed obviously impacts our origination targets. I do think though that on the Lola side, less, it's less about that. It has delayed some of our product initiatives. So the way it would hurt originations for the Lola is we are originating new loans into the Lola system. It's the legacy products and it's the product initiatives that we have scheduled, but we're not able to enact because of the delay in the system.

And so those are high ROI initiatives that we know will result in boosts in origination growth. So when you couple that with the LOC and the delays, that is the reason for bringing down some of the origination targets. I do however feel though that we are hitting on some things now and I do feel like, we're going to be able to return to growth in the second half. with some of the things we've been working on throughout the quarter and the testing.

with our customer intelligence. Got it. And in... Are you characterizing it as a one-month delay, or...

How would you describe the LOC delay in terms of time? Yes, our goal is to get this in market in September. that would have effectively be a two-month delay from where we originally planned. But we feel pretty confident now. We're getting a lot closer now. and feel that there's a high likelihood that we can get this thing launched in September, which is exciting.

Got it. And then lastly, you know, net charge-offs, on-the-spot. On average receivables, 52% from 43%. On revenue, 40 versus 32, I mean – despite that, I think you're kind of saying the credit environment's pretty stable. It's nothing that you're worried about. But, you know, those increases seem... kind of significant. Could you just reconcile that for us? Yes, I mean, listen, I think –.

of all our recoveries are doing you know from from a percentage um not only on a dollar basis you know collecting more but as a percentage as well so the net the net number um Those are real, the recoveries. But what I will say is if we were growing at 9, 10%, those numbers come down to about 500 basis points. So the 40% comes down to 35. So there is some elevation. We acknowledge that. have talked about that, you know, over the last two quarters from the lows of early 25. But I do think it's a little bit exacerbated because of our, you know, on the origination side, a little bit of slower growth. So it exacerbates those numbers a little bit from our standpoint. But we are very happy to see this strong performance. and recoveries, which always is welcome when looking at the total picture.

Lastly, I guess any update on the bank merger? Yes, I mean, all I can say, you know, we're in the middle. of our comment periods, all I can really say is we've submitted our application and are working with the regulatory agencies at this time. As soon as we have updates to provide, we will. the coming quarters. But as of now, we can't really comment on it more to say than we've submitted our business application and are working with the regulatory agencies. Got it. Is it reasonable to still think by year end? Has that timeline changed in your guys' view at all? Yes, I mean, I would like to think so. We're ready to fulfill on that timeline. Obviously, it's a little bit out of our control, but that would be our plan as of now is Q4.

Okay. Hey, thank you. Thank you. This concludes our question and answer session and brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good morning, and welcome to OppFi's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.[Operator Instructions] I am pleased to introduce your host, Mike Gallentine, Head of Investor Relations. You may begin.

Thank you, operator. Good morning, and welcome to OppFi's First Quarter 2026 Earnings Call. Today, our Executive Chairman and CEO, Todd Schwartz; and CFO, Pam Johnson, will present our financial results, followed by a question-and-answer session. You can access the earnings presentation on our website at investors.oppfi.com.

During this call, OppFi may discuss certain forward-looking information. The company's filings with the SEC describe essential factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements. Please refer to Slide 2 of the earnings presentation and press release for our disclaimer statement covering forward-looking statements and references to information about non-GAAP financial measures, which will be discussed throughout today's call.

Reconciliations of those measures to GAAP measures can be found in the appendix to our earnings presentation and press release. In addition, certain important information related to the BNCC transaction will be included in the registration statement on Form S-4 that will be filed by OppFi in conjunction with the transaction. Investors are encouraged to read the Form S-4 and other documents filed with the SEC in conjunction with the transaction. Additionally, OppFi and BNCC and their directors and officers may be deemed to be participating in a solicitation of proxies in favor of the proposed merger. Please refer to the disclaimer information included in our earnings release. With that, I'd like to turn the call over to Todd.

Thanks, Mike, and good morning, everyone. Thank you for joining us today. Pam will review our strategic investments and our Q1 financial performance and metrics. But first, I'd like to share a little bit more about OppFi's recently announced plans to acquire BNCC Corp and BNC National Bank in a cash and stock transaction valued at approximately $130 million. OppFi's goal has always been to be the leading digital finance platform, offering essential financial products and services to everyday Americans. This acquisition, in addition to our previous investment in Bitty, our LOLA lending system and our new line of credit product is a pivotal step toward fulfilling that promise.

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

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

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

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

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

LOLA provides a clean architecture designed to leverage rapidly evolving AI tools across origination, servicing and corporate operations. The building phase and test phase is complete, and we are actively finalizing the quality assurance phase of the project. Initial migration is planned for this month with substantial completion to our new software system expected in the third quarter of 2026. Early indicators give us confidence in our belief that LOLA will help continue to improve funnel metrics, increase automated approvals, enhance efficiency in servicing and recoveries, better integrate major systems, deliver reduced cycle times and greater throughput for our product, tech and risk teams.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Congratulations on the strong quarter again.

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

Good morning, and welcome to OppFi's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] I am pleased to introduce your host, Mike Gallentine, Head of Investor Relations. You may begin.

Thank you, operator. Good morning, and welcome to OppFi's Fourth Quarter 2025 Earnings Call. Today, our Executive Chairman and CEO, Todd Schwartz. and CFO Pam Johnson will present our financial results followed by question and answer session. You can access the earnings presentation on our website at investors.oppfi.com. During this call, OppFi may discuss certain forward-looking information. The company's filings with the SEC described essential factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements.

Please refer to Slide 2 of the earnings presentation and press release for our disclaimer statement covering forward-looking statements and references to information about non-GAAP financial measures, which will be discussed throughout today's call.

Reconciliations of those measures to GAAP measures can be found in the appendix to our earnings presentation and press release. With that, I'd like to turn the call over to Todd.

Great, Mike, and good morning, everyone. Thank you for joining us today. I'm looking forward to discussing another year of record-breaking performance at OppFi. For 2025, total revenue increased 13.5% year-over-year and adjusted net income increased 69% year-over-year, while keeping our industry-leading 78 Net Promoter Score. We continue to find benefits from underwriting Model 6, which is designed to identify riskier borrowers and properly price risk across segments. Despite higher delinquencies on our summer vintages, OppFi maintained strong unit economics and adjusted in real time to support continued growth into the fourth quarter. The auto approval rate in the fourth quarter was 79% and which allowed more customers to be approved without human interaction and helped increase originations in Q4 8% year-over-year.

In conjunction with our lending partners, we plan to release Model 6.1 in the first half of 2026, which we anticipate will boost originations and reduce risk. We believe Model 6.1 better weights attributes in the model and enables more accurate segmentation of risk when identifying borrowers. The credit team is actively working on Model 7.0 with our bank partners and early indicators are promising on both origination and risk fronts.

We plan to launch Model 7.0 in Q3 of this year. We are encouraged to see improving vintage metrics in December and January, coupled with strong recovery metrics in Q4, which we believe will enable us to grow the top and bottom line in the double digits in 2026. OppFi continues to make great progress on building LOLA, the origination and servicing system of the future. LOLA is designed with a clean architecture to leverage rapidly evolving AI tools across origination, servicing and corporate operations.

The building and test phase is complete, and we are actively finishing up the QA phase of the project. We plan to substantially migrate to our new software system in Q3 2026. The early indicators give us confidence that LOLA will help continue to improve funnel metrics, increase automated approvals, enhance efficiency and servicing and recoveries, better integrate major systems, deliver reduced cycle times and provide greater throughput for our product, tech and risk teams. We believe our LOLA system and architecture will allow us to rapidly deploy and build new products to respond to our customers' needs and market dynamics. To that end, we are excited to announce a new line of credit product. We expect this product to launch with our bank partners in the summer of 2026.

We believe this exciting product will not only serve as another high-quality credit access option for customers in the states where we operate, but also enable us to serve new geographies. This product is designed to have fair, transparent features that the OppLoans installment product has provided to millions of customers. 2025 was a great year for OppFi as we executed on our vision of being the leading technology-enabled platform that facilitates essential credit access and community services to everyday American businesses. We believe the strong foundation of performance sets OppFi up for another year of potentially double-digit revenue and earnings growth. With that, I'll turn the call over to Pam.

Thanks, Todd, and good morning, everyone. As Todd noted, we achieved another record year, and we finished with a strong fourth quarter, generating revenues of $159 million, an impressive 17% increase over Q4 '24. Model 6 has been a significant contributor to this growth. Its enhanced predictive power has enabled us to better manage our loan economics through risk-based pricing and to underwrite larger loan amounts for credit worthy individuals helping fuel record originations and receivables balances.

In the fourth quarter, originations increased by 8% to $230 million compared to the prior year quarter. Factoring in loan repayments, origination growth increased our ending receivables by 16% to $493 million for the quarter. The growth in revenue was fueled by these originations and receivables growth, generating a stable revenue yield of 130%. As Todd noted, for the loans originated in the summer, we continue to see higher default rates. However, one of the benefits of short duration loans is that loans work through the system relatively quickly. That means that by first quarter '26, the majority of the higher default rate loans should be reflected in our earnings. As a result of the higher defaults, net charge-offs as a percentage of revenue increased to 45% for the quarter, up from 42% in the prior year quarter, and net charge-offs as a percentage of receivables increased to 59%, up from 54% in the prior year quarter.

It's important to note that we believe that much of the higher risk associated with these loans was appropriately priced into them through higher interest rates. Our scale and focus on cost discipline contributed to our strong financial performance in the quarter. Continued operational improvements drove notably lower total expenses before interest expense which declined to 28% of revenue in the fourth quarter, a substantial improvement compared to 33% in the same quarter last year.

Additionally, by paying down our corporate debt and successfully upsizing our main credit facilities at more attractive interest rates earlier in the year, we reduced interest expense to 6% of total revenue down from 8% in the prior year. As a result of strong revenue growth and improvements in our operating expense structure, adjusted net income increased 27% to a fourth quarter record of $26 million, an increase from $20 million last year, and adjusted earnings per share grew 28% to $0.30 from $0.23 last year.

On a GAAP basis, Net income increased by 175% to $38 million, reflecting our higher revenues, lower expenses and a $12 million noncash gain related to the change in the fair value of our outstanding warrants. Because our Class A common stock price decreased during the quarter, the estimated value of the warrants issued when we went public decreased, driving this noncash income. However, as we have consistently stated that this is a noncash item and does not affect the company's underlying profitability. Looking at the balance sheet, we continue to maintain a robust financial position, ending the quarter with $93 million in cash, cash equivalents and restricted cash, alongside $321 million in total debt and $309 million in total stockholders' equity.

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

As we discussed, we experienced a growth in originations, ending receivables and yield from the improvements from Model 6, but we also saw a decrease in net charge-offs as a percentage of total revenue down to 37% from 39% and a decrease in net charge-offs as a percentage of average receivables to 49%, down from 51% in 2024, respectively.

While OppFi generated record revenues, the company maintained tight control over expenses, excluding interest, driving a sharp decrease in expenses as a percentage of revenue to 29% from 35% in 2024. As a result of the record revenues, coupled with the decreases in expenses, GAAP net income increased significantly to $146 million, up from $84 million in 2024 and diluted EPS for the full year was $0.99, up significantly compared with $0.36 in 2024. Adjusted net income increased to $140 million compared with $83 million in 2024. Adjusted EPS was $1.59, also up significantly compared with $0.95 in 2024.

The company delivered strong full year results, exceeding guidance and Street estimates, driven by the successful implementation of numerous strategic initiatives and operational improvements throughout the year. These efforts enhanced efficiency, expanded market opportunities and strengthened financial performance, underscoring the company's ability to execute its long-term strategy and deliver stockholder value.

Given our strong operating performance, driven by growth in net originations, revenue and adjusted net income, we are pleased to provide the following 2026 full year guidance. For total revenues, we expect $650 million to $675 million, an increase of 9% to 13% over 2025. Adjusted net income is expected to be $153 million to $160 million, an increase of 9% to 14% over 2025. Based on an anticipated diluted weighted average share count of 87 million shares, adjusted earnings per share are expected to be $1.76 to $1.84, an increase of 11% to 16% from 2025.

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

[Operator Instructions]

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

Great. Todd, maybe to start more on the macro side and given the events going on right now geopolitically, can you remind us since these are such short duration loans, like how quickly loss emergence like in weeks or months typically occurs and specifically, whether it's far too early to be talking about the impact of gas prices on some of your borrowers?

Yes. David, thank you for the question. We see early indicators very early within the month of when they were originated, looking at first payments 28 days, 42 days out. So we get earlier indicators. And in the summer, what was interesting was we saw consumer sentiment index, taking those dive during the summer and what followed was some higher -- lower repayments, I should say. And we of course corrected pretty quickly. Also, the business is structured with risk-based pricing now, which better prices risk for customers throughout the risk segments and it helps our unit economics tremendously.

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

Got it.

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

Got it. Understood. And maybe just staying on credit, I know you don't provide specific loss guidance for '26. And as you mentioned, it's obviously risk-based pricing has to be factored in for total returns. But is there anything we should think about in terms of the cadence of losses coming out of in the second half?

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

We're very bullish on our model refit 6.1, which factors in more recent data to allow us to give us confidence to grow. And then I'll point to the -- we're getting more yield. We're getting more yield to price the risk properly across the segments. So back -- in '22, when there was some credit spikes due to rapid inflation, we didn't have risk-based pricing. So we weren't able -- it wasn't a lever in our toolkit to be able to properly price risk across the segments. So we feel like with our model, with our new product line of credit and with some of the risk-based pricing initiatives, we're well positioned to continue to grow profitably and keep strong unit economics.

Got it. Maybe just one more follow-up and then I'll get back in queue. You noted in your presentation that your bank partners had increased the sort of the percentage of their retention. I'm assuming it was notable enough for it to be included in the deck. Can you give us some color on both order of magnitude, but I guess, more importantly, is this something that usually cycles up and down that maybe we hadn't paid attention to or if there's anything else that we should take away from that?

Yes. I mean it's really just in some states, every state is a little bit different because we abide by all federal and state laws. Banks do take higher percentages in some states of originations. But -- and so obviously, our gross to net comes down a little. But I think what gives us comfort is the banks are very comfortable with our servicing and underwriting capabilities and are willing to put their equity into the originations, which is our interest alignment and builds confidence for us. And so we view it as a good thing long term and think that it shows the confidence that the banks have in us.

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

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

Yes, that's a great question. And we did look at. We have extensive data, banking data, cash flow data in addition to a lot of customer level data to look at and the repayment, the actual repayments. So you can't get better data than that. There's nothing actually that stood out to us as being the sole reason as to why we started to see some strain and some lower repayment rates.

One thing that was -- is and has been is customer sentiment and index has been something that we've started to look at as being a way to -- obviously, not decision on credit, but as an early indicator of kind of how the customer is, how the customer is feeling and there is some ability to see that when the customer is feeling or not feeling financially secure or they don't feel like the direction of their financial path is upward, some lower repayments.

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

Got it. And then -- just to clarify, is it Model 6.1 goes live in the second half of '26? You're just...

Model 6 1 is going to go first half, we're going to be launching, it as a refit, a refit. So it's taking a Model 6 and improving on it. And we do see early indicators of boost in originations and better credit performance across the board. It really has a benefit on the origination side, too, which we're excited about. We've been testing it all throughout the fourth quarter and into the first quarter. So our confidence level is getting higher. And then we're also already starting to work on building Model 7, which is a brand-new model, which will take in a lot of the data from last year and the most current data and be able to build our strongest model ever.

Got it. And if there's 1 or 2 things to call out in 6.1, which you're relaunching now? What advantages or what benefits, is it a certain data cohort? Or what would you say you're getting an edge from there?

Yes. It's looking at repayment data and reweighting our variables to have the model be more predictive. That's really what it is. So we look at a lot of different data points throughout the application process to determine creditworthiness. And when you actually have repayment data to support it, it becomes extremely powerful. So it's a reweighting. We have really good tools. Our credit team does a great job at constantly back testing and finding areas for improvement. And so once they go to work and they start to run the regression analysis, we found some things where we could better weight different variables and produce a more accurate score.

Got it. Then just lastly, '24 had $95 million of free cash flow; '25 had $94 million. You know what I mean, like low to mid-90s each year. I would assume '26 is going to be in a similar ballpark, maybe adjusted for a little bit of growth. But how are you thinking about capital allocation? It is, do you have a chunk of [ Bitty ] to buy in '26? I'm just trying to think about sort of uses for another large year for free cash flow.

Yes. Well, in the fourth quarter, we did buy back some shares. We thought that the long-term value of our stock price and the record performance that we've had and the consistency of that was not being valued properly. So we did buy back some shares with some of our capital. I'm happy to support the stock at those prices for sure.

Listen, I think I've kind of always say this, but it's a menu of options. We like to be well capitalized to read and react to the broader markets and see what's going on. I think that we're still active in the M&A space looking at stuff. We're exploring different strategic initiatives that would need capital. We've been investing in our tech systems. We believe that LOLA, when launched, will be the most cutting-edge tech-enabled lending system out there and will allow us to plug into AI tools. So we're investing in that.

So we -- there is a menu of options. In the past, we've done a special dividend as well. But yes, we'll -- and we do anticipate free cash flow to continue to increase this year. But it's our -- we're paying down debt, as you can see and getting the benefit there as well. So yes, we're kind of using our cash wisely and strategically and like to be well capitalized to take advantage of situations that come up and continue to build the business.

We'll move next to Dave Storms with Stonegate.

I wanted to start by maybe pivoting back to the macro question from earlier. You mentioned that in the summer, you guys course credit corrected pretty quickly. You'd expect to do the same thing again should gas prices run. I was hoping if you could maybe illuminate a little more about what the playbook would be here. Is that targeting higher-quality segments? Is that adjusting your pricing a little more aggressively? What -- maybe what does that look like?

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

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

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

Yes. I mean, first of all, you're absolutely right. The AI tools and the tools that we're now to deploy, the pace of change has -- the cycle times of developing refits and developing new models has significantly reduced, which is a huge benefit to read and react. But the world is also changing at a much faster pace. I mean I don't remember a time where gas went from $80 a barrel to $120 in 1 week. So you have to -- I mean, that's table stakes now, right? You have to be able to read and react and be out in front of any macro noise that may affect repayment rates and be ready to make changes as needed. But yes, you will continue to see more rapid model development, reduced cycle times and better, more predictive data as we continue to operate.

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

Yes. No, I mean we're encouraged by some of the early vintage metrics of December and January. We're seeing a normal to strong tax refund season. I think it was well documented from the IRS that the average return would increase this year, which is also very beneficial for us from a credit perspective. And we see growth. We feel like we have some good growth initiatives and feel good throughout the year that we can achieve double-digit revenue and profit growth.

[Operator Instructions]

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

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

I am pleased to introduce your host, Mike Gallentine, Head of Investor Relations. You may begin.

Thank you, operator. Good morning, and welcome to OppFi's Third Quarter 2025 Earnings Call. Today, our Executive Chairman and CEO, Todd Schwartz; and CFO, Pam Johnson will present our financial results, followed by a question-and-answer session. You can access the earnings presentation on our website at investors.oppfi.com.

During this call, OppFi may discuss certain forward-looking information. The company's filings with the SEC described essential factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements.

Please refer to Slide 2 of the earnings presentation and press release for our disclaimer statements covering forward-looking statements and references to information about non-GAAP financial measures which will be discussed throughout today's call. Reconciliations of those measures to GAAP measures can be found in the appendix to our earnings presentation and press release.

With that, I'd like to turn the call over to Todd.

Thanks, Mike, and good morning, everyone. Thank you for joining us today. OppFi achieved another record quarter of revenue, profitability, originations and ending receivables. In addition, we are happy to report that we have renewed our credit agreement with Castlelake, improving operating leverage, pricing and capacity. Given our continued outperformance in Q3, we are raising earnings guidance for the third time this year. I will discuss growth, credit our Loan Origination Lending Application, LOLA migration and Bitty, our SMB investment on the call.

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

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

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

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

Overall, OppFi delivered another strong quarter, both financially and operationally, outperforming expectations and allowing us to raise guidance for the third time this year. Looking ahead, we anticipate continued double-digit revenue and adjusted net income growth throughout the remainder of 2025 and into 2026. We believe OppFi is well on its way to executing its vision of becoming the leading tech-enabled digital finance platform that partners with banks to offer essential financial products and services to everyday Americans.

With that, I'll turn the call over to Pam.

Thanks, Todd, and good morning, everyone. As Todd noted, we achieved another record quarter, generating revenues of $155 million, an impressive 14% increase over third quarter 2024. Model 6 has been a significant contributor to this growth, empowering OppFi to expand its reach and grow its business effectively. It's enhanced predictive power has enabled us to better manage our loan economics through risk-based pricing and allow our bank partners to underwrite larger loan amounts for creditworthy individuals, helping fuel robust growth in originations and receivables balances.

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

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

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

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

On a GAAP basis, net income increased by 137% to $76 million, reflecting our higher revenues lower expenses and a $32 million noncash gain related to the change in the fair value of our outstanding warrants. Because our Class A common stock price decreased during the quarter, the estimated value of the warrants issued when we went public decreased, driving this noncash income. However, as we have consistently stated, this is a noncash item and does not impact the underlying profitability of the company.

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

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

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

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

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

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

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

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

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

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

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

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

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

Our next question comes from Mike Grondahl with Northland Securities.

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

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

And then Connected TV? I think you...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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