OppFi Inc. Q1 FY2026 Earnings Call

Good morning, and welcome to OppFi's First Quarter 2026 Earnings Conference Call. As a reminder, this conference call is being recorded. 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 2025, 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 a 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 six 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 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 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 to maximize 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 and return on 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 2025. 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's 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 2025. 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.

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?

Thanks for the question. 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 we will address through different products like revenue-based finance, installment and line of credit. We plan to have a full suite of products across the risk segments. That's something we've been working on with Bitty 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?

Thanks for the question. We think that there is geographical expansion that will allow us to operate in more states. We will continue to offer our core product, which is our installment product. We already use risk-based pricing. We've introduced lower and higher prices across the risk spectrum and seen a lot of success there. That will continue. We also expect geographic expansion to provide additional opportunities to lower prices for consumers while maintaining our commitment to credit access with the operational and revenue synergies that come 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?

We're being thoughtful about the macro environment. Our new originations were up 8% and receivables were up 9.4% year-over-year. We're continuing to find ways to grow while being thoughtful and focused on long-term sustainable growth. We want customers to be successful; we are not chasing short-term spikes. Our Model 6.1 refit launched in the quarter and is performing well. We're actively building Model 7, which will use more AI, and we expect it to launch in the fall. That should allow us to grow with lower losses. We believe we're positioned well with our pricing and balance sheet, and we'll monitor inflation and macro events, but we feel 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. I noted three areas: one, more states; two, some marketing benefits; and three, some funding efficiency. Could you go through each one and talk through those? On more states, is that a couple of states? What kind of lift do you expect to get there? Also, the LOC product, can you describe how the customer will apply for a loan and how the line of credit will be presented? What will the customer see and how will they apply for that product? And what are your goals for it as a percentage of mix in a year? Finally, I wanted to ask about credit quality. There was a little cleanup in Q4. Was there a cleanup in Q1 as well? Do you see that continuing? Where are we in credit quality and how are you viewing it and thinking about it?

Good questions. We believe that with the national banking platform, we're currently in 40 states and this opens up the full 50 states. We'll work with our regulatory counsel to ensure we comply with federal and state laws. We expect more than just a couple of states of expansion. We also have the line of credit product, which we'll expand through the national bank charter. Regarding revenue synergies, the structure of the bank partnership program and doing certain things directly yields material synergies that accrue to us, and with volume over a year, that becomes significant. For the line of credit product, it will be offered under the OpLoans brand alongside installment. Initially, we'll launch the line of credit in certain states in the summer, and installment will be offered in others. After we get early data, we will provide customers with optionality to select between the two products so they can choose what best suits them. Some customers prefer a line of credit for the control it provides. There is no draw fee on original origination, no late fees, and no prepayment penalty. It will be a very similar, high-quality product and will make us more competitive. On credit quality, our charge-offs as a percentage of receivables were elevated versus last year. Last year was an exceptional year where we extended term a bit and had very strong results. This year is more of a normalization, and performance is still better than 2023 and 2024. We grew receivables 9.4% and new originations. Customers are being cautious on demand and payments given inflationary pressures. We're hopeful geopolitical and energy pressures will be resolved quickly. We have growth levers in the second half: pricing, Model 6 already in market, and the line of credit product expanding geographies. With our risk-based pricing, we can operate effectively across different credit environments and cycles, which is a marked improvement compared to earlier years when we had a single price product.

Fair. That's helpful. Best of luck the rest of 2026 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 show the upside it's providing.

We're starting the migration this month. LOLA will reduce cycle times. On our old system, our auto approval rate improved from 78.6% last year in Q1 to 79.2% this year. The new architecture is structurally going to reduce processing times and speed approvals, and we will continue to increase the auto approval rate. The clean architecture allows us to launch products much faster. The line of credit product was conceived at the beginning of the year and will launch in a few months, and that's all enabled by the modular infrastructure from our loan servicing system. From a corporate standpoint, we'll have better integrations into accounting systems; our data is retagged and cleaned up, allowing us to deploy AI tools to read data and generate insights faster. From a product and risk perspective, we expect to reduce cycle time to get enhancements to market by about 50% because of the architecture. There are significant benefits, and we'll continue to report those benefits in our quarterly calls and how the company is using them 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.