Unless the context otherwise requires, all references in Items 2, 3 and 4 of Part I and all Items of Part II of this quarterly report on form 10-Q (this "Quarterly Report") to "we," "us," or the "Company" refer toOppFi Inc. ("OppFi"), aDelaware corporation formerly known asFG New America Acquisition Corp. ("FGNA"), collectively withOpportunity Financial, LLC , aDelaware limited liability company ("OppFi-LLC "), andOppFi-LLC's subsidiaries. You should read the following discussion and analysis of the Company's financial condition and results of operations together with the consolidated financial statements and the related notes thereto contained elsewhere in this Quarterly Report, andOppFi-LLC's audited consolidated financial statements and related noted thereto for the year endedDecember 31, 2020 , filed as a part ofOppFi's Registration Statement on Form S-1, filed with theU.S. Securities and Exchange Commission (the "SEC") onAugust 11, 2021 (File No. 333-258698) (the "Registration Statement").
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as "expect," "believe," "anticipate," "intend," "estimate," "seek" and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management's current beliefs, based on information currently available and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. Factors that may cause such differences include, but are not limited to, the impact of COVID-19 on our business, the impact of stimulus or other government programs, the risk that the business combination disrupts current plans and operations, the ability to recognize the anticipated benefits of the business combination, which may be affected by, among other things, competition, our ability to grow and manage growth profitably and retain our key employees, costs related to the business combination, changes in applicable laws or regulations, the possibility that we may be adversely affected by other economic, business, and/or competitive factors and other risks contained in the section captioned "Risk Factors" in the Registration Statement. The Company's securities filings can be accessed on the EDGAR section of theSEC's website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. OVERVIEW We are a leading mission-driven financial technology platform that powers banks to offer accessible financial products to everyday consumers through our proprietary technology and artificial intelligence ("AI") and a top-rated customer experience. Our primary mission is to facilitate financial inclusion and credit access to the 150 million everyday consumerswho lack access to mainstream credit and help them build financial health. Consumers on our platform benefit from higher approval rates and a highly automated, transparent, efficient, and fully digital experience. Our bank partners benefit from our turn-key, outsourced marketing, data science, and proprietary technology to digitally acquire, underwrite and service everyday consumers and increase automation throughout the lending process. We service consumers on our financial platform through our three products: 1.OppLoans: Our bank sponsored installment loan product is a fully amortizing, simple interest small dollar loan with an average loan size of$1,500 and a term of 11 months. 2.SalaryTap: Payroll deductible installment loan with amounts starting at$2,000 with a 24 month term, and interest rates of 30%. The key product value proposition is the ability to secure repayment directly through a consumer's payroll deduction. 3.OppFi Card: A mobile-first credit card, issued byFirst Electronic Bank , Member FDIC, featuring Mastercard as the exclusive card network and Deserve's technology platform. 42
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RECENT DEVELOPMENTS
Key recent events impacting our business are as follows: •Business Combination - OnJuly 20, 2021 (the "Closing Date"), we completed the transactions contemplated by that certain Business Combination Agreement, dated as ofFebruary 9, 2021 (the "Business Combination Agreement"), by and among FGNA,OppFi-LLC ,OppFi Shares, LLC , aDelaware limited liability company ("OFS"), and the member's representative of the members ofOppFi (the "Members") immediately prior to the closing (the "Closing") of the transactions contemplated by the Business Combination Agreement ("Business Combination"). Upon the Closing, FGNA as the registrant changed its name to "OppFi Inc. "OppFi's Class A common stock, par value$0.0001 per share (Class A Common Stock"), and warrants are listed on theNew York Stock Exchange (the "NYSE") under the symbols "OPFI" and "OPFI WS," respectively. Following the Closing, the combined Company is organized in an "Up-C" structure in which substantially all of the assets and the business of the combined Company are held byOppFi-LLC and its subsidiaries, and the Company's only direct assets consist of units inOppFi-LLC .OppFi controlsOppFi-LLC as the sole manager ofOppFi-LLC . •COVID-19 - InMarch 2020 , theWorld Health Organization recognized a global pandemic known as the coronavirus or COVID-19. Due to the economic uncertainty that this has caused, and can continue to cause, there is added risk to our overall future outlook. We have implemented cost containment and cash management initiatives to mitigate the potential impact of the COVID-19 pandemic on our business and liquidity. The full extent of any impact cannot be determined at this time. We did see a slowdown in growth during the year endedDecember 31, 2020 and the nine months endedSeptember 30, 2021 due to government stimulus programs, which also had a positive impact on our credit performance, even while the credit risk of our loan applicants remained flat during this period. We will continue to monitor any changes to the business as the pandemic continues throughout 2021. •OnSeptember 30, 2021 ,OppFi-LLC and its wholly-owned subsidiariesOpportunity Funding SPE IV, LLC ("SPE IV") andSalaryTap Funding SPE, LLC ("STF Borrower"), and the other credit parties and guarantors thereto, entered into Amendment No.6 (the "BMO Amendment") to the Revolving Credit Agreement (the "BMO Credit Agreement"), dated as ofAugust 19, 2019 , by and amongOppFi-LLC , SPE IV, the other credit parties and guarantors thereto,BMO Harris Bank N.A . as administrative agent and collateral agent, and the lenders party thereto. The BMO Amendment amends the BMO Credit Agreement to, among other things, add STF Borrower as an additional borrower, permit the pledge of SalaryTap receivables, increase the facility size to$45.0 million , increase the accordion feature from$20 million to$30 million and extend the revolving period toAugust 2023 . We plan to use the expanded facility in part to support the growth and expansion of its SalaryTap product, an employer payroll-linked loan product, that is currently available in 33 states. •OnOctober 13, 2021 ,OppFi-LLC and its wholly-owned subsidiariesOpportunity Financial SPE V, LLC ("SPE V") andOpportunity Funding SPE VII, LLC ("SPE VII"), and the other credit parties and guarantors thereto, entered into Amendment No. 6 to Revolving Credit Agreement and Other Credit Documents (the "Atalaya Amendment"), which amends the OppFi-LLC Midtown Credit Agreement. The Atalaya Amendment amends the OppFi-LLC Midtown Credit Agreement to, among other things, add SPE VII as an additional borrower under the OppFi-LLCMidtown Credit Agreement, permit the pledge of OppFi Card receivables under theOppFi-LLC Midtown Credit Agreement and extend the final maturity of the OppFi-LLC Midtown Credit Agreement toApril 2024 .OppFi plans to use the amended OppFi-LLC Midtown Credit Agreement to support the growth of the newly launched OppFi Card, issued byFirst Electronic Bank , Member FDIC. We recently launched OppFi Card, our first-ever credit card designed to enable the company to serve a segment of the$21 billion non-prime credit card market.
STRONG POINTS
Our financial results as of and for the three months ended
are summarized below:
•Basic and diluted earnings per share ("EPS") of $1.06 for the third quarter of
2021 and $1.08 for the first nine months of 2021;
•Adjusted basic and diluted EPS(1) of $0.21 for the third quarter of 2021 and
$0.64 for the first nine months of 2021;
•Net originations increased 25% to $164.5 million from $131.2 million for the
three months ended September 30, 2021 and 2020, respectively;
•Ending receivables increased 22% to $293.3 million from $240.3 million as of
September 30, 2021 and 2020, respectively;
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•Total revenue increased 47% to$92.0 million from$62.8 million for the three months endedSeptember 30, 2021 and 2020, respectively; •Adjusted revenue(1) increased 25% to$92.0 million from$73.6 million for the three months endedSeptember 30, 2021 and 2020, respectively; •Net income was$30.4 million and$72.8 million for the three and nine months endedSeptember 30, 2021 , respectively; and •Adjusted net income(1) was$17.4 million and$54.4 million for the three and nine months endedSeptember 30, 2021 , respectively. • (1) Adjusted Basic and Diluted EPS, Adjusted Revenue and Adjusted Net Income are non-GAAP financial measures. For information regarding our uses and definitions of these measures and for reconciliations to the most directly comparableU.S. Generally Accepted Accounting Principles ("GAAP") measures, see "Non-GAAP Financial Measures" below. Key Performance Metrics We regularly review the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions, which may also be useful to an investor.
Note: All key performance metrics include the three products on the
platform and are not shown separately as the contributions from SalaryTap and the OppFi card were de minimis.
Total Net Originations We measure originations to assess the growth trajectory and overall size of our loan portfolio. There is a direct correlation between origination growth and revenue growth. We include both bank partner originations as well as those originated by us directly. Originations may be useful to an investor because they help understand the growth trajectory of our revenues. The following tables present total net originations (defined as gross originations net of transferred balance on refinanced loans), percentage of net originations by bank partners, and percentage of net originations by new loans for the three and nine months endedSeptember 30, 2021 and 2020 (in thousands): Three Months Ended September 30, Change 2021 2020 $ % Total net originations $ 164,547$ 131,236 $ 33,311 25.4 % Percentage of net originations by bank partners 93.4 % 65.2 % N/A 43.2 % Percentage of net originations by new loans 51.4 % 41.0 % N/A 25.6 % Nine Months Ended September 30, Change 2021 2020 $ % Total net originations $ 408,394$ 333,480 $ 74,914 22.5 % Percentage of net originations by bank partners 89.0 % 64.4 % N/A 38.2 % Percentage of net originations by new loans 43.6 % 42.9 % N/A 1.7 % Net originations increased to$164.5 million and$408.4 million for the three and nine months endedSeptember 30, 2021 , respectively, from$131.2 million and$333.5 million for the three months and nine months endedSeptember 30, 2020 , respectively. The 25.4% and 22.5% increases, respectively, were primarily due to a partial recovery from the short-term reduction in customer demand attributable to the COVID-19 pandemic and related governmental stimulus measures that we experienced 2020, but which continued to impact our growth in the 2021 period. 44
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Our originations model continues to shift towards a facilitation model for bank partners from a direct origination model. Total net originations by our bank partners increased to 93.4% and 89.0% for the three and nine months endedSeptember 30, 2021 , respectively, from 65.2% and 64.4% for the three and nine months endedSeptember 30, 2020 , respectively. In addition, our net originations saw an increase in the percentage of originations of new loans compared to refinanced loans as customer demand continued to return to pre-pandemic levels coupled with increased automation, which drove a higher conversion of applications to funded loans. Total net originations of new loans as percentage of total loans increased to 51.4% for the three months endedSeptember 30, 2021 from 41.0% for the three months endedSeptember 30, 2020 . Total net originations of new loans as a percentage of total loans increased to 43.6% for the nine months endedSeptember 30, 2021 from 42.9% for the nine months endedSeptember 30, 2020 .
Closing of claims
Ending receivables are defined as the unpaid principal balances of both on- and off-balance sheet loans at the end of the reporting period. The following table presents ending receivables as ofSeptember 30, 2021 and 2020 (in thousands): September 30, Change 2021 2020 $ % Ending receivables$ 293,279 $ 240,275 $ 53,004 22.1 % Ending receivables increased to$293.3 million as ofSeptember 30, 2021 from$240.3 million as ofSeptember 30, 2020 . The 22.1% increase was primarily driven by a return to growth in originations in the second and third quarter of 2021 after the short-term reduction in customer demand attributable to the COVID-19 pandemic and related governmental stimulus measures that we experienced 2020, but which continued to impact our growth in the 2021 period.
Average yield
Average yield represents annualized interest income from the period as a percent of average receivables. Receivables are defined as unpaid principal balances of both on- and off-balance sheet loans. The following tables present average yield for the three and nine months endedSeptember 30, 2021 andSeptember 30, 2020 : Three Months Ended September 30, Change 2021 2020 % Average yield 131.3 % 128.3 % 2.3 % Nine Months Ended September 30, Change 2021 2020 % Average yield 129.0 % 126.1 % 2.3 % Average yield increased to 131.3% and 129.0% for the three and nine months endedSeptember 30, 2021 , respectively, from 128.3% and 126.1% for the three and nine months endedSeptember 30, 2020 , respectively. The 2.3% increases were driven by a higher weighted average coupon due to state mix from a shift to bank partner originations and a lower volume of customers on assistance programs.
Net amortization as a percentage of average receivables
Net charge-offs as a percentage of average receivables represents annualized
total charge offs from the period less recoveries as a percent of average
receivables. Receivables are defined as unpaid principal of both on- and
off-balance sheet loans. Our charge-off policy is based on a review of
delinquent finance receivables on a loan by loan basis. Finance receivables are
charged off at the earlier of the time when accounts reach 90 days past due on a
recency basis, when we receive notification of a customer bankruptcy, or when
finance receivables are otherwise deemed uncollectible.
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The following tables present net charge-offs as a percentage of average receivables annualized for the three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, Change 2021 2020 % Net charge-offs as % of average receivables 35.8 % 24.4 % 46.7 % Nine Months Ended September 30, Change 2021 2020 % Net charge-offs as % of average receivables 31.4 % 37.3 % (15.9) % Net charge-offs as a percentage of average receivables increased by 46.7% to 35.8% for the three months endedSeptember 30, 2021 , from 24.4% for the three months endedSeptember 30, 2020 . The increase for the three months endedSeptember 30, 2021 was due to a normalization of credit to pre-pandemic levels. Net charge-offs as a percentage of average receivables decreased by 15.9% to 31.4% for the nine months endedSeptember 30, 2021 , from 37.3% for the nine months endedSeptember 30, 2020 . The decrease for the nine months endedSeptember 30, 2021 reflects the positive impact on customers' bank balances from government stimulus programs in the first half of 2021.
Marketing cost per financed loan
Marketing cost per funded loan represents marketing cost per funded loan for new and refinance loans. This metric is the amount of direct marketing costs incurred during a period divided by the number of loans originated during that same period. The following tables present marketing cost per funded loan for the three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, Change 2021 2020 $ % Marketing cost per funded loan $ 89$ 62 $ 27 43.5 % Nine Months Ended September 30, Change 2021 2020 $ % Marketing cost per funded loan $ 74$ 76 $ (2) (2.6) % Our marketing cost per funded loan increased to$89 for the three months endedSeptember 30, 2021 , from$62 for the three months endedSeptember 30, 2020 . The 43.5% increase for the three months endedSeptember 30, 2021 was driven primarily by the higher mix of new versus refinanced loans year over year as well as a higher marketing cost per new funded loan. Our marketing cost per funded loan decreased to$74 for the nine months endedSeptember 30, 2021 , from$76 for the nine months endedSeptember 30, 2021 . The 2.6% decrease for the nine months endingSeptember 30, 2021 was driven by an elevated cost per funded loan for direct mail channel in 2020 due to the impact of COVID-19 on customer demand. 46
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Marketing cost per new loan financed
Marketing cost per new funded loan represents the amount of direct marketing costs incurred during a period divided by the number of new loans originated during that same period. The following tables present marketing cost per funded loan (new) for the three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, Change 2021 2020 $ % Marketing cost per new funded loan $ 255$ 212 $ 43 20.3 % Nine Months Ended September 30, Change 2021 2020 $ % Marketing cost per new funded loan $ 254$ 265 $ (11) (4.2) % Our marketing cost per new funded loan increased to$255 for the three months endedSeptember 30, 2021 , from$212 for the three months endedSeptember 30, 2020 . The 20.3% increase for the three months endingSeptember 30, 2021 was related to a higher mix towards the strategic partner marketing channel, as well as increased investment in direct mail. Our marketing cost per new funded loan decreased to$254 for the nine months endedSeptember 30, 2021 from$265 for the nine months endedSeptember 30, 2020 . The 4.2% decrease for the nine months endedSeptember 30, 2021 was driven by an elevated cost per funded loan for direct mail channel in 2020 due to the impact of COVID-19 on customer demand.
Automatic approval rate
Auto-approval rate is calculated by taking the number of approved loans that are not decisioned by a loan advocate or underwriter (auto-approval) divided by the total number of loans approved. The following table presents auto approval rate as ofSeptember 30, 2021 andSeptember 30, 2020 : September 30, Change 2021 2020 % Auto-approval rate 58.1 % 20.9 % 178.6 %
Self-approval rate increased 178.6% as of
Overall auto decisioning, which also takes into account those applications that were denied which are not decisioned by a loan advocate or underwriter (auto-denial) plus auto-approval divided by the total number of applications, was 80% for the three months endedSeptember 30, 2021 . Sales and Servicing Cost per Loan Sales and Servicing cost per loan is calculated by taking the total servicing costs, which include customer center salaries, underwriting and reporting costs, and payment processing fees, divided by the average amount of outstanding loans during that period. The following tables present servicing cost per loan for the three and nine months endedSeptember 30, 2021 andSeptember 30, 2020 : Three Months Ended September 30, Change 2021 2020 $ % Sales and servicing cost per loan $ 164$ 156 $ 8 5.3 % Nine Months Ended September 30, Change 2021 2020 $ % Sales and servicing cost per loan $ 162$ 143 $ 19 12.9 % 47
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Our servicing cost per loan increased by$8 and$19 for the three and nine months endedSeptember 30, 2021 , respectively, as compared to the three and nine months endedSeptember 30, 2020 , respectively, due to the increase in underwriting costs and payment processing fees tied to the increase in originations. Due to improvements in auto-approval rates which drove scale to the business, the percentage growth of 5.3 % and 12.9 % for the three and nine months endedSeptember 30, 2021 were significantly lower than origination growth of 25.4 % and 22.5 % for the three and nine months endedSeptember 30, 2021 . RESULTS OF OPERATIONS Comparison of the three months endedSeptember 30, 2021 and 2020 The following unaudited table presents our consolidated results of operations for the three months endedSeptember 30, 2021 and 2020 (in thousands, except per share data): Three Months Ended September 30, Change 2021 2020 $ % Interest and loan related income, gross (a) $ 91,448$ 73,311 $ 18,137 24.7 % Other income 529 266 263 98.9 Interest, loan related, and other income 91,977 73,577 18,400 25.0 Amortization of loan origination costs - (10,818) 10,818 - Total revenue 91,977 62,759 29,218 46.6 Total provision (143) (17,880) 17,737 99.2 Change in fair value of finance receivables (18,940) - (18,940) - Net revenue 72,894 44,879 28,015 62.4 Expenses 61,382 25,537 35,845 140.4 Income from operations 11,512 19,342 (7,830) (40.5) Gain of loan forgiveness of Paycheck Protection Program loan 6,444 - 6,444 - Change in fair value of warrant liability 13,139 - 13,139 - Income before income taxes 31,095 19,342 11,753 60.8 Provision for income taxes 703 - 703 - Net income 30,392$ 19,342 $ 11,050 57.1 % Less: net income attributable to noncontrolling interest 16,267
Net income attributable to
Earnings per share attributable toOppFi Inc. : (b) Earnings per common share: Basic $ 1.06 $ - Diluted $ 1.06 $ - Weighted average common shares outstanding: Basic 13,363,995 - Diluted 13,363,995 -
(a) Loan-related income mainly consists of insufficient funds commissions, which are immaterial and were waived during the first quarter of 2021. Interest income related to financial receivables recognized under the fair value option is included in “Interest and loan income, net” in the consolidated statements of income. (b) Prior to the reverse recapitalization, all net income was attributable to the non-controlling interest. For periods prior to
Total Revenue Total revenue consists mainly of revenue earned from interest on receivables from outstanding loans based only on the interest method, as well as amortization of loan origination costs in previous periods. We also earn revenue from referral fees related primarily to our turn-up program, which represented less than 0.6 % of total revenue for the three months endedSeptember 30, 2021 . Total revenue increased by$29.2 million , or 46.6 %, to$92.0 million for the three months endedSeptember 30, 2021 from$62.8 million for the three months endedSeptember 30, 2020 . This increase was partially due to the removal of the amortization of loan origination costs as a result of the election of the fair value option in 2021. Under the fair value option, loan origination costs related to the origination of installment loans are expensed when incurred and are no longer recognized as 48
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a part of total revenue. Total revenue also improved year over year due to the increase in interest income from higher receivables and yield compared to the previous period. Total Provision and Change in Fair Value Commencing onJanuary 1, 2021 , we elected the fair value option on the OppLoan product. To derive the fair value, we generally utilize discounted cash flow analyses that factor in estimated losses and prepayments over the estimated duration of the underlying assets. Loss and prepayment assumptions are determined using historical loss data and include appropriate consideration of recent trends and anticipated future performance. Future cash flows are discounted using a rate of return that we believe a market participant would require based on the risk characteristics of the loans. We did not elect the fair value option on our SalaryTap and OppFi Card finance receivables as these products launched inNovember 2020 andAugust 2021 , respectively, and inputs for fair value are not yet determined. Accordingly, the related finance receivables are carried at amortized cost, net of allowance for credit losses. For the three months endedSeptember 30, 2021 , change in fair value consisted of gross charge-offs incurred in the period, net of recoveries, plus the change in the fair value of the installment loans. Change in fair value decreased by$18.9 million for the three months endedSeptember 30, 2021 . The$18.9 million comprised$24.9 million of net charge-offs, partially offset by$6.0 million change in the fair value premium of receivables. Net charge-offs as a percentage of receivables increased due to normalization of credit to pre-pandemic levels. Change in fair value premium had a positive impact due to the increase in receivables in the period and an increase in the fair value mark. The fair value mark improved due to an increase in the remaining life of the portfolio driven by a younger portfolio from origination growth in the period, as well as an increase in the weighted average interest rate of the portfolio driven by state mix from a higher mix of bank partner originated loans and a lower volume of customers on assistance programs. For the three months endedSeptember 30, 2021 , total provision consisted of gross charge-offs incurred in the period, net of recoveries, plus the change in the allowance for credit losses for our SalaryTap and OppFi Card products. In the three months endedSeptember 30, 2020 , total provision consisted of gross charge-offs incurred in the period, net of recoveries, plus the change in the allowance for credit losses for our OppLoan product. Our provision for future losses is based on incurred credit loss application whereby we reserve for life of loan losses. Net Revenue Net revenue is equal to total revenue less the change in fair value and less total provision costs. Total net revenue increased by$28.0 million , or 62.4%, to$72.9 million for the three months endedSeptember 30, 2021 , from$44.9 million for the three months endedSeptember 30, 2020 . This increase was primarily attributable to an increase in gross interest and loan related income, as well as the removal of the amortization of loan origination costs from total revenue as a result of the election of the fair value option in 2021, despite higher gross charge-offs, net of recoveries.
Expenses
Total expenses consist of salaries and employee benefits, interest expense and amortized debt issuance costs, servicing costs, direct marketing costs, technology costs, depreciation and amortization, professional fees and other expenses. Total expenses increased by$35.8 million , or 140.4 %, to$61.4 million for the three months endedSeptember 30, 2021 from$25.5 million for the three months endedSeptember 30, 2020 . This was primarily due to higher marketing costs due to higher originations, an increase in bank partner and payment processing fees, an increase in salaries, employee benefits and technology infrastructure costs, and the impact of the 2021 election of fair value option. As a result of the election of the fair value option, loan origination costs, including direct marketing costs and payment processing fees related to the origination of the OppLoan product, are recognized as expenses when incurred and are no longer recognized as an offset to total revenue.
Income from operations
Operating profit is the difference between net income and expenses. Operating profit decreased by
Other income (expenses)
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Other income for the three months endedSeptember 30, 2021 included the gain from forgiveness of an unsecured loan of$6.4 million in connection with theU.S. Small Business Administration's ("SBA") Paycheck Protection Program (the "PPP Loan"). Additionally, other income included the change in fair value of the warrant liability of$13.1 million . This warrant liability arose with respect to warrants issued in connection with the initial public offering of FGNA and is subject to re-measurement at each balance sheet date.
Income before income tax
Income before income tax is the sum of income from operations and other income (expenses). Income before income tax increased by$11.8 million , or 60.8%, to$31.1 million for the three months endedSeptember 30, 2021 , from$19.3 million for the three months endedSeptember 30, 2020 .
Income tax
The Company is the sole managing member ofOppFi-LLC and, as a result, consolidates the financial results ofOppFi-LLC .OppFi-LLC is treated as a partnership forU.S. federal and most applicable state and local income tax purposes. As a partnership,OppFi-LLC is not subject toU.S. federal and certain state and local income taxes. Any taxable income or loss generated byOppFi-LLC is passed through to and included in the taxable income or loss of its members, includingOppFi , on a pro rata basis.OppFi is subject toU.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss ofOppFi-LLC , as well as any stand-alone income or loss generated byOppFi .OppFi Inc. recorded tax expense of$703 thousand for the three months endedSeptember 30, 2021 and no expense for the three months endedSeptember 30, 2020 . As noted above,OppFi-LLC is treated as a partnership and is not subject to income taxes; prior to the consummation of the Business Combination onJuly 20, 2021 , there were no taxes attributable toOppFi Inc. asOppFi-LLC was the only reportable entity. Net Income
In accordance with the provisions of Accounting Standards Codification (“ASC”) 810, Consolidation,
Net income increased by$11.1 million , or 57.1%, to$30.4 million for the three months endingSeptember 30, 2021 , from$19.3 million for the three months endedSeptember 30, 2020 .
Net income attributable to
Net income attributable toOppFi Inc. was$14.1 million for the three months endedSeptember 30, 2021 . Net income attributable toOppFi Inc. represents the income solely attributable to stockholders ofOppFi for the three months endedSeptember 30, 2021 . Prior to the completion of the Business Combination onJuly 20, 2021 , there was no income attributable toOppFi Inc. asOppFi-LLC was the only reportable entity. 50
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Comparison of the nine months ended
The following unaudited table presents our consolidated results of operations for the nine months endedSeptember 30, 2021 and 2020 (in thousands, except per share data): Nine Months Ended September 30, Change 2021 2020 $ % Interest and loan related income, gross (a)$ 253,581 $ 235,651 $ 17,930 7.6 % Other income 1,029 506 523 103.4 Interest, loan related, and other income 254,610 236,157 18,453 7.8 Amortization of loan origination costs - (37,464) 37,464 - Total revenue 254,610 198,693 55,917 28.1 Total provision (181) (62,755) 62,574 99.7 Change in fair value of finance receivables (52,635) - (52,635) - Net revenue 201,794 135,938 65,856 48.4 Expenses 147,911 74,580 73,331 98.3 Income from operations 53,883 61,358 (7,475) (12.2) Gain of loan forgiveness of Paycheck Protection Program loan 6,444 - 6,444 - Change in fair value of warrant liability 13,139 - 13,139 - Income before income taxes 73,466 61,358 12,108 19.7 Provision for income taxes 703 - 703 - Net income 72,763$ 61,358 $ 11,405 18.6 % Less: net income attributable to noncontrolling interest 58,638
Net income attributable to
Earnings per share attributable toOppFi Inc. : (b) Earnings per common share: Basic$ 1.08 $ - Diluted$ 1.08 $ - Weighted average common shares outstanding: Basic 13,107,873 - Diluted 13,107,873 - (a) Loan related income primarily consists of non-sufficient funds fees, which are immaterial and were discontinued during Q1 2021. Interest income related to finance receivables accounted for under the fair value option is included in "Interest and loan related income, net" in the consolidated statements of operations. (b) Prior to the reverse recapitalization, all net income was attributable to the noncontrolling interest. For the periods prior toJuly 20, 2021 , earnings per share was not calculated, as net income prior to the Business Combination was attributable entirely toOppFi-LLC .
Total income
Total revenue consists mainly of revenue earned from interest on receivables from outstanding loans based only on the interest method, as well as amortization of loan origination costs in previous periods. We also earn revenue from referral fees related primarily to our turn-up program, which represented less than 0.5 % of total revenue for the nine months endedSeptember 30, 2021 . Total revenue increased by$55.9 million , or 28.1 %, to$254.6 million for the nine months endedSeptember 30, 2021 from$198.7 million for the nine months endedSeptember 30, 2020 . This increase was primarily due to the removal of the amortization of loan origination costs as a result of the election of the fair value option in 2021. Under the fair value option, loan origination costs related to the origination of installment loans are expensed when incurred and are no longer recognized as a part of total revenue.
Total provision and change in fair value
Commencing onJanuary 1, 2021 , we elected the fair value option on the OppLoan product. To derive the fair value, we generally utilize discounted cash flow analyses that factor in estimated losses and prepayments over the estimated duration of the underlying assets. Loss and prepayment assumptions are determined using historical loss data and include appropriate consideration of recent trends and anticipated future performance. Future cash flows are discounted using a rate of return that we believe a market participant would require based on the risk characteristics of the loans. We did not elect the fair value option on our SalaryTap and OppFi Card finance receivables as these products launched inNovember 2020 andAugust 2021 , 51
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respectively, and inputs for fair value are not yet determined. Accordingly, the related finance receivables are carried at amortized cost, net of allowance for credit losses. For the nine months endedSeptember 30, 2021 , change in fair value consists of gross charge-offs incurred in the period, net of recoveries, plus the change in the fair value of the installment loans. Change in fair value decreased by$52.6 million for the nine months endedSeptember 30, 2021 as we adopted the fair value option for our installment product onJanuary 1, 2021 . The$52.6 million comprised$62.1 million of net charge-offs, partially offset by a$9.4 million change in the fair value premium of receivables. Net charge-offs as a percentage of receivables improved due to the impact from government stimulus programs. Change in fair value premium had a positive impact due to the increase in receivables in the period and an increase in the fair value mark. The fair value mark improved due to an increase in the remaining life of the portfolio driven by a younger portfolio from origination growth in the period, as well as an increase in the weighted average interest rate of the portfolio driven by the higher mix of bank partner originated loans and a lower volume of customers on assistance programs. In the nine months endedSeptember 30, 2021 , total provision consists of gross charge-offs incurred in the period, net of recoveries, plus the change in the allowance for credit losses for our SalaryTap and OppFi Card products. In the nine months endedSeptember 30, 2020 , total provision consists of gross charge-offs incurred in the period, net of recoveries, plus the change in the allowance for credit losses for the OppLoan product. Our provision for future losses is based on incurred credit loss application whereby it reserves for life of loan losses. Net Revenue Net revenue is equal to total revenue less the change in fair value and less total provision costs. Total net revenue increased by$65.9 million , or 48.4%, to$201.8 million for the nine months endedSeptember 30, 2021 from$135.9 million for the nine months endedSeptember 30, 2020 . This increase was primarily attributable to lower gross charge-offs, net of recoveries, as well as the removal of the amortization of loan origination costs from total revenue as a result of the election of the fair value option in 2021.
Expenses
Total expenses consist of salaries and employee benefits, interest expense and amortized debt issuance costs, servicing costs, direct marketing costs, technology costs, depreciation and amortization, professional fees and other expenses. Total expenses increased by$73.3 million , or 98.3%, to$147.9 million for the nine months endedSeptember 30, 2021 , from$74.6 million for the nine months endedSeptember 30, 2020 . This was primarily due to higher marketing costs due to higher originations, an increase in salaries and employee benefits, technology infrastructure costs and professional fees, and the impact of the 2021 election of fair value option. As a result of the election of the fair value option, loan origination costs, including direct marketing costs and payment processing fees related to the origination of the OppLoan product, are recognized as expenses when incurred and are no longer recognized as an offset to total revenue. Income from Operations Income from operations is the difference between net revenue and expenses. Total income from operations decreased by$7.5 million , or 12.2%, to$53.9 million for the nine months endedSeptember 30, 2021 , from$61.4 million for the nine months endedSeptember 30, 2020 . Other Income (Expenses) Other income for the nine months endedSeptember 30, 2021 included the gain from forgiveness of an unsecured loan of$6.4 million in connection with the PPP Loan. Additionally, other income included the change in fair value of the warrant liability in the amount of$13.1 million . This warrant liability arose with respect to warrants issued in connection with the initial public offering of FGNA and is subject to re-measurement at each balance sheet date.
Income before income tax
Income before income tax is the difference between net revenue and expenses. Income before income tax increased by$12.1 million , or 19.7%, to$73.5 million for the nine months endedSeptember 30, 2021 , from$61.4 million for the nine months endedSeptember 30, 2020 . 52
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Income tax
OppFi Inc. recorded tax expense of$703 thousand for the nine months endedSeptember 30, 2021 and no expense for the nine months endedSeptember 30, 2020 . As noted above,OppFi-LLC is treated as a partnership and is not subject to income taxes; prior to the consummation of the Business Combination onJuly 20, 2021 , there were no taxes attributable toOppFi Inc. asOppFi-LLC was the only reportable entity. Net Income Net income increased by$11.4 million , or 18.6%, to$72.8 million for the nine months endedSeptember 30, 2021 from$61.4 million for the nine months endedSeptember 30, 2020 .
Net income attributable to
Net income attributable toOppFi Inc. was$14.1 million for the nine months endedSeptember 30, 2021 . Net income attributable toOppFi Inc. represents the income solely attributable to stockholders ofOppFi Inc. for the nine months endedSeptember 30, 2021 . Prior to the consummation of the Business Combination onJuly 20, 2021 , there was no income attributable toOppFi Inc. asOppFi-LLC was the only reportable entity.
NON-GAAP FINANCIAL MEASURES
We believe that the provision of non-GAAP financial measures in this report, including Fair Value Pro Forma information, Adjusted Revenue, Adjusted Basic and Diluted EPS, Adjusted EBITDA, and Adjusted Net Income can provide useful measures for period-to-period comparisons of our business and useful information to investors and others in understanding and evaluating our operating results. However, non-GAAP financial measures are not calculated in accordance withUnited States generally accepted accounting principles ("GAAP"), should not be considered an alternative to any measure of financial performance calculated and presented in accordance with GAAP, and may not be comparable to the non-GAAP financial measures of other companies. Fair Value Pro Forma OnJanuary 1, 2021 , we elected the fair value option for our OppLoan product. Accordingly, the related finance receivables are carried at fair value in the consolidated balance sheets and the changes in fair value are included in the consolidated statements of operations. To derive the fair value,OppFi generally utilizes discounted cash flow analyses that factor in estimated losses and prepayments over the estimated duration of the underlying assets. Loss and prepayment assumptions are determined using historical loss data and include appropriate consideration of recent trends and anticipated future performance. Future cash flows are discounted using a rate of return thatOppFi believes a market participant would require. Accrued interest and fees are included in "Finance receivables" in the consolidated balance sheets. Interest income is included in "Interest and loan related income, net" in the consolidated statements of operations. We have adjusted 2020 financials based on applying the fair value option in order to provide comparability to 2021 financials. 53
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Three Months Ended September 30, Variance
2021 2020 %
Fair Value Fair Value
(in thousands, unaudited) As Reported As
Reported Adjustments Pro Forma Total revenue$ 91,977 $ 62,759 $ 10,818 $ 73,577 25.0 % Total provision (143) (17,880) 17,880 - - Fair value adjustment(a) (18,940) - (11,880) (11,880) (59.4) Net revenue 72,894 44,879 16,818 61,697 18.1 Expenses Sales and marketing 15,633 3,693 5,820 9,513 64.3 Customer operations 10,550 4,129 5,285 9,414 12.1 Technology, products, and analytics 7,329 5,080 - 5,080 44.3 General, administrative, and other 21,456 7,982 - 7,982 168.8 Total expenses before interest expense 54,968 20,884 11,105 31,989 71.8 Interest expense (b) 6,414 4,653 - 4,653 37.8 Income from operations 11,512 19,342 5,713 25,055 (54.1) Gain of forgiveness of PPP Loan 6,444 - - - - Change in fair value of warrant liability 13,139 - - - - Income before income taxes 31,095 19,342 5,713 25,055 24.1 Provision for income taxes 703 - - - - Net income 30,392$ 19,342 $ 5,713 $ 25,055 21.3 % Less: net income attributable to noncontrolling interest 16,267 Net income attributable to OppFi Inc.$ 14,125 (a) Fair value adjustment of$11.9 million includes net charge-offs of$13.9 million and a fair market value adjustment of ($2.0 million ) driven by higher receivables and a higher fair market value mark. (b) Includes debt amortization costs. Nine Months Ended September 30, Variance 2021 2020 % Fair Value Fair Value Pro (in thousands, unaudited) As Reported As
Reported Adjustments Forma Total revenue$ 254,610 $ 198,693 $ 37,464 $ 236,157 7.8 % Total provision (181) (62,755) 62,755 - - Fair value adjustments (a) (52,635) - (87,470) (87,470) 39.8 Net revenue 201,794 135,938 12,749 148,687 35.7 Expenses Sales and marketing 35,114 10,185 15,174 25,539 38.5 Customer operations 30,036 12,359 15,671 28,030 7.2 Technology, products, and analytics 19,669 14,254 - 14,254 38.0 General, administrative, and other 45,687 21,200 - 21,200 115.5 Total expenses before interest expense 130,506 57,998 30,845 88,843 46.9 Interest expense (b) 17,405 16,582 - 16,582 5.0 Income from operations 53,883 61,358 (18,096) 43,262 24.6 Gain of forgiveness of PPP loan 6,444 - - - - Change in fair value of warrant liability 13,139 - - - - Income before income taxes 73,466 61,358 (18,096) 43,262 69.8 Provision for income taxes 703 - - - - Net income 72,763$ 61,358 $ (18,096) $ 43,262 68.2 % Less: net income attributable to noncontrolling interest 58,638 Net income attributable to OppFi Inc.$ 14,125
(a) Fair value adjustment of
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Adjusted Revenue
Adjusted revenue is a non-GAAP financial measure defined as our total revenue,
as reported, adjusted for the impact of amortization of loan origination costs.
Under the fair value option, loan origination costs related to the origination
of installment loans are expensed when incurred and are no longer recognized as
a part of total revenue. We believe that adjusted revenue is an important
measure because it allows management, investors, and our board of directors to
evaluate and compare our revenue for period-to-period comparisons of our
business, as it removes the effect of differing accounting methodologies.
Three Months Ended September 30, Variance
(in thousands, unaudited) 2021 2020 %
Total revenue $ 91,977 $ 62,759 46.6 %
Amortization of loan origination costs - 10,818 -
Adjusted revenue $ 91,977 $ 73,577 25.0 %
Nine Months Ended September 30, Variance
2021 2020 %
Total revenue $ 254,610 $ 198,693 28.1 %
Amortization of loan origination costs - 37,464 -
Adjusted revenue $ 254,610 $ 236,157 7.8 %
Adjusted net income and adjusted EBITDA
Adjusted Net Income is a non-GAAP measure defined as our GAAP net income,
adjusted for the impact of our election of the fair value option, further
adjusted to eliminate the effect of certain items as shown below as well as
adjusting taxes for comparison purposes. We believe that Adjusted Net Income is
an important measure because it allows management, investors, and our board of
directors to evaluate and compare our operating results from period-to-period by
making the adjustments described below.
Adjusted EBITDA is a non-GAAP measure defined as our adjusted net income, and
adjusted for the items as shown below including taxes, depreciation and
amortization and interest expense. We believe that Adjusted EBITDA is an
important measure because it allows management, investors, and our board of
directors to evaluate and compare our operating results from period-to-period by
making the adjustments described below. In addition, it provides a useful
measure for period-to-period comparisons of our business, as it removes the
effect of taxes, certain non-cash items, variable charges, and timing
differences.
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Three Months Ended September 30, Variance
(in thousands, except per share data,
unaudited) 2021 2020 %
Net income $ 30,392 $ 19,342 57.1 %
Provision for income taxes 703 - -
FV adjustments - 5,713 -
Debt amortization 572 474 20.7
Other addback and one-time expense(a) (8,825) 450 (2061.1)
Adjusted EBT 22,842 25,979 (12.1)
Less: pro forma taxes(b) (5,480) (6,495) (15.6)
Adjusted net income 17,362 19,484 (10.9)
Pro forma taxes(b) 5,480 6,495 (15.6)
Depreciation and amortization 2,712 1,799 50.8
Interest expense 5,841 4,180 39.7
Business (non-income) taxes 383 444 (13.7)
Net gain/loss on sale of asset 1 - -
Adjusted EBITDA $ 31,779 $ 32,402 (1.9) %
Adjusted basic and diluted EPS: (c) $ 0.21 $ -
Adjusted shares outstanding: 84,464,783 -
(a) For the three months ended September 30, 2021 , other addback and one-time expense of ($8.8 million ) included a
($13.1 million ) addback due to the change in fair value of the warrant liabilities, a ($6.4 million ) addback due to the
gain on forgiveness of the PPP Loan, and a $10.7 million impact to the G&A line item in expenses comprised of: $8.5
million in one-time expenses related to the Business Combination, $3.6 million in other one-time expenses, $0.39 million
in profit interest and stock compensation, $0.9 million in the change in fair value of the warrant units outstanding
prior to Business Combination, and $0.4 million in other one-time expense. For the three months ended September 30,
2020 , other addback and one-time expense included $0.3 million in management fees and $0.2 million in other one-time
expense.
(b) Assumes a tax rate of 25% prior to the three months ended September 30, 2021 and a 23.99% after, reflecting the U.S.
federal statutory rate of 21% and a blended statutory rate for state income taxes, in order to allow for a comparison
with other publicly traded companies.
(c) Prior to the Reverse Recapitalization, all net income was attributable to the noncontrolling interest. For the
periods prior to July 20, 2021 , earnings per share was not calculated, as net income prior to the Business Combination
was attributable entirely to OppFi-LLC .
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Nine months ended September 30,
2021 Variance
(in thousands, except per share data,
unaudited) 2021 2020 %
Net income $ 72,763 $ 61,358 18.6 %
Provision for income taxes 703 - -
FV adjustments - (18,096) -
Debt amortization 1,735 1,451 19.6
Other addback and one-time expense(a) (2,923) 726 (502.6)
Adjusted EBT 72,278 45,439 59.1
Less: pro forma taxes(b) (17,839) (11,360) 57.0
Adjusted net income 54,439 34,079 59.7
Pro forma taxes(b) 17,839 11,360 57.0
Depreciation and amortization 7,289 4,775 52.6
Interest expense 15,671 15,131 3.6
Business (non-income) taxes 1,175 1,100 6.8
Net gain/loss on sale of asset 5 - -
Adjusted EBITDA $ 96,418 $ 66,445 45.1 %
Adjusted basic and dilbuted EPS: (c) $ 0.64 $ -
Adjusted shares outstanding: 84,464,783 -
(a) For the nine months ended September 30, 2021 , other addback and one-time expense of ($2.9 million ) included a
($13.1 million ) addback due to the change in fair value of the warrant liabilities, a ($6.4 million ) addback due to
the gain on forgiveness of PPP Loan, and a $16.6 million impact to the G&A line item in expenses comprised of:
$10.1 million in one-time expenses related to the Business Combination, $1.2 million in profit interest and stock
compensation, $4.2 million in the change in fair value of warrant units outstanding prior to Business Combination,
and $1.1 million in other one-time expense. For the nine months ended September 30, 2020 , other addback and
one-time expense included $0.3 million in management fees and $0.5 million in other one-time expense.
(b) Assumes a tax rate of 25% prior to the three months ended September 30, 2021 and a 23.99% tax rate after,
reflecting the U.S. federal statutory rate of 21% and a blended statutory rate for state income taxes, in order to
allow for a comparison with other publicly traded companies.
(c) Prior to the Reverse Recapitalization, all net income was attributable to the noncontrolling interest. For the
periods prior to July 20, 2021 , earnings per share was not calculated, as net income prior to the Business
Combination was attributable entirely to OppFi-LLC .
Adjusted Shares as Reflected in Adjusted Basic and Diluted Earnings Per Share
Three And Nine Months Ended
September 30,
(unaudited) 2021 2020
Class A ordinary shares outstanding at the end of the period 13,464,542
-
Class V voting shares outstanding at the end of the period 96,500 241
-
Elimination of earnouts at period end (25,500,000) -
Adjusted shares outstanding 84,464,783 -
Three Months Ended September 30,
(unaudited) 2021 2020
Adjusted net income (in thousands) $ 17,362 $ 19,484
Adjusted shares outstanding 84,464,783
–
Adjusted basic and diluted EPS: $ 0.21 $ -
Nine Months Ended September 30,
(unaudited) 2021 2020
Adjusted net income (in thousands) $ 54,439 $ 34,079
Adjusted shares outstanding 84,464,783
–
Adjusted basic and diluted EPS: $ 0.64 $ -
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