OPPFI INC. 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 consumers who lack access to
mainstream credit and help them build financial health. Consumers on our
platform benefit from higher approval rates and a highly automated, transparent,
efficient, and fully digital experience. Our bank partners benefit from our
turn-key, outsourced marketing, data science, and proprietary technology to
digitally acquire, underwrite and service everyday consumers and increase
automation throughout the lending process.
We principally service consumers on our financial platform through OppLoans,
which is our bank sponsored installment loan product that is a fully amortizing,
simple interest small dollar loan with an average loan size of approximately
$1,500 and a term of 11 months. We also recently launched our SalaryTap and
OppFi Card products, which do not currently represent a significant amount of
our business.
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COVID-19 Pandemic
OnMarch 11, 2020 , theWorld Health Organization designated the novel coronavirus ("COVID-19") as a global pandemic. Recently, consumer activity has began to recover and many government mandates to restrict daily activities have been lifted, but the long-term effects of the COVID-19 pandemic globally and inthe United States remain unknown. Worker shortages, supply chain issues, inflationary pressures, vaccine and testing requirements, the emergence of new variants, and the reinstatement of restrictions and health and safety related measures in response to the emergence of new variants, such as the Delta and Omicron variants, contributed to the volatility of ongoing recovery. There can be no assurance that economic recovery will continue or that consumer behavior will return to pre-pandemic levels. For further discussion please reference the 'Risk Factors' section. Election of Fair Value 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. For more information, please refer to "Fair Value Pro Forma" below. RECENT DEVELOPMENTS
Key recent events impacting our business are as follows:
•OnNovember 18, 2021 , the Company entered into a Consent Judgement and Order ("Settlement") with the Attorney General of theDistrict of Columbia ("District") to resolve all matters in a dispute related to the action previously filed against the Company by the District ("Action"). The Company denies the allegations in the Action and denies that it has violated any law or engaged in any deceptive or unfair practices. The Action was resolved to avoid the expense of protracted litigation. As part of the Settlement, the Company agreed to, among other things, refrain from certain business activities in theDistrict of Columbia , pay$0.3 million to theDistrict of Columbia and provide refunds to certainDistrict of Columbia consumers. As ofDecember 31, 2021 , unpaid refunds totaled$1.5 million , which is included in accrued expenses on the consolidated balance sheets. •OnJanuary 6, 2022 , the Company announced that its Board of Directors ("Board") had authorized a program to repurchase ("Repurchase Program") up to$20.0 million in the aggregate of shares of the Company's Class A Common Stock. Repurchases under the Repurchase Program may be made from time to time, on the open market, in privately negotiated transactions, or by other methods, at the discretion of the management of the Company and in accordance with the limitations set forth in Rule 10b-18 promulgated under the Exchange Act and other applicable legal requirements. The timing and amount of the repurchases will depend on market conditions and other requirements. The Repurchase Program does not obligate the Company to repurchase any dollar amount or number of shares and the Repurchase Program may be extended, modified, suspended, or discontinued at any time. For each share of Class A Common Stock that the Company repurchases under the Repurchase Program,OppFi-LLC will redeem one Class A common unit ofOppFi-LLC held by the Company, decreasing the percentage ownership ofOppFi-LLC by the Company and relatively increasing the ownership by the other members. The Repurchase Program will expire inDecember 2023 . •OnFebruary 23, 2022 , the Board of the Company appointed Mr.Todd G. Schwartz as the Chief Executive Officer of the Company, effectiveFebruary 28, 2022 .Mr. Schwartz will continue to serve as the Executive Chairman of the Board. •OnMarch 7, 2022 , the Company, throughOppFi-LLC , filed a complaint for declaratory and injunctive relief ("Complaint") against the Commissioner (in her official capacity) of theDepartment of Financial Protection and Innovation of the State of California ("Defendant") in theSuperior Court of the State of California ,County of Los Angeles , Central Division. The Complaint seeks a declaration that the interest rate caps set forth in the California Financing Law, as amended by the Fair Access to Credit Act, a/k/a AB 539 ("CFL"), do not apply to loans that are originated by the Company's federally-insured state-chartered bank partners and serviced through the Company's technology and service platform pursuant to a contractual arrangement with each such bank ("Program"). The Complaint further seeks injunctive relief against the Defendant, preventing the Defendant from enforcing interest rate caps under the CFL against the Company based on activities related to the Program. As ofDecember 31, 2021 , consumers living in theState of California made up approximately 11% of the Company's finance receivables portfolio. The Company intends to aggressively prosecute the claims set forth in the Complaint. 73
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HIGHLIGHTS
Our financial results as of and for the year endedDecember 31, 2021 are summarized below: •Basic and diluted earnings per share ("EPS") of$1.93 for the year endedDecember 31, 2021 ; •Adjusted basic and diluted EPS(1) of$0.78 for the year endedDecember 31, 2021 ; •Net originations increased 23% to$595.1 million from$483.4 million for the years endedDecember 31, 2021 and 2020, respectively; •Ending receivables increased 22% to$337.5 million from$275.7 million as ofDecember 31, 2021 and 2020, respectively; •Total revenue increased 20% to$350.6 million from$291.0 million for the years endedDecember 31, 2021 and 2020, respectively; •Adjusted revenue(1) increased 9 % to$350.6 million from$323.0 million for the years endedDecember 31, 2021 and 2020, respectively; •Net income increased 16% to$89.8 million from$77.5 million for the years endedDecember 31, 2021 and 2020 respectively; and •Adjusted net income(1) increased 19% to$65.8 million from$55.2 million for the years endedDecember 31, 2021 and 2020, respectively. (1) Adjusted Basic and Diluted EPS, Adjusted Revenue and Adjusted Net Income are non-Generally Accepted Accounting Principles ("GAAP") financial measures. For information regarding our uses and definitions of these measures and for reconciliations to the most directly comparable United States GAAP measures, see "Non-GAAP Financial Measures" below.
Key Performance Metrics
We regularly review the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions, which may also be useful to an investor. The following tables and related discussion set forth key financial and operating metrics for the Company's operations as of and for the years endedDecember 31, 2021 and 2020.
Note: All key performance metrics includes the three products on the
Total Net Originations We measure originations to assess the growth trajectory and overall size of our loan portfolio. There is a direct correlation between origination growth and revenue growth. We include both bank partner originations as well as those originated by us directly. Loans are considered to be originated when the contract is signed between us and the prospective borrower. The vast majority of our originations ultimately disburse to a borrower, but disbursement timing lags that of originations. Originations may be useful to an investor because they help understand the growth trajectory of our revenues. The following tables present total net originations (defined as gross originations net of transferred balance on refinanced loans), percentage of net originations by bank partners, and percentage of net originations by new loans for the years endedDecember 31, 2021 and 2020 (in thousands): Year Ended December 31, Change 2021 2020 $ % Total net originations$ 595,079 $ 483,350 $ 111,729 23.1 % Percentage of net originations by bank partners 90.6 % 65.0 % N/A 39.4 % Percentage of net originations by new loans 46.2 % 42.8 % N/A 7.9 % 74
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Net originations increased to$595.1 million for the year endedDecember 31, 2021 , from$483.4 million for the year endedDecember 31, 2020 . The 23.1% increase was 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. However, 2021 growth was significantly lower than historical years due in part to the continued impact of the pandemic on customer demand. Our origination mix continues to shift towards a servicing / facilitation model for bank partners from a direct origination model. Total net originations by our bank partners increased to 90.6% for the year endedDecember 31, 2021 , from 65.0% for the year endedDecember 31, 2020 . In addition, our net originations saw an increase in the percentage of originations of new loans compared to refinanced loans as customer demand began to return from weakness due to the onset of the COVID-19 pandemic in 2020 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 46.2% for the year endedDecember 31, 2021 from 42.8% for the year endedDecember 31, 2020 .
Ending Receivables
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 ofDecember 31, 2021 and 2020 (in thousands): Change 2021 2020 $ % Ending receivables$ 337,529 $ 275,670 $ 61,859 22.4 % Ending receivables increased to$337.5 million as ofDecember 31, 2020 from$275.7 million as ofDecember 31, 2020 . The 22.4% increase was primarily driven by growth in originations in 2021. Off-balance sheet receivables were$19.7 million as ofDecember 31, 2020 , and there were no off-balance sheet receivables as ofDecember 31, 2021 . 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 years endedDecember 31, 2021 and 2020: Year Ended December 31, Change 2021 2020 % Average yield 126.9 % 128.1 % (0.9) % Average yield decreased to 126.9% for the year endedDecember 31, 2021 , from 128.1% for the year endedDecember 31, 2020 . The 0.9% decrease was driven by the introduction of market-based offers in the fourth quarter, which offers qualifying customers to receive a lower APR. Additionally, average yield was driven lower by the expansion of the APR stepdown program through 2021, which rewards eligible customers for making on-time payments by lowering their interest rates in regular intervals.
Net Charge-Offs as a Percentage of Average Receivables
Net charge-offs as a percentage of average receivables represents annualized
total charge offs from the period less recoveries as a percent of average
receivables. Receivables are defined as unpaid principal of 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 years ended
Year Ended December 31, Change
2021 2020 %
Net charge-offs as % of average receivables 37.5 % 35.6 % 5.3 %
Net charge-offs as a percentage of average receivables increased by 5.3% to 37.5% for the year endedDecember 31, 2021 , from 35.6% for the year endedDecember 31, 2020 . The increase for the year endedDecember 31, 2021 reflects a gradual return to normalization of credit towards pre-pandemic levels due to reduced government stimulus from 2020 and the corresponding impact on our customers' bank balance.
Marketing Cost per Funded Loan
Marketing cost per funded loan represents marketing cost per funded loan for new and refinance loans. This metric is the amount of direct marketing costs incurred during a period divided by the number of loans originated during that same period. The following tables present marketing cost per funded loan for the years endedDecember 31, 2021 and 2020: Year EndedDecember 31 ,
Change
2021 2020 $ %
Marketing cost per funded loan $ 78 $ 62 Our marketing cost per funded loan increased to$78 for the year endedDecember 31, 2021 , from$62 for the year endedDecember 31, 2020 . The 25.8% increase for the year endedDecember 31, 2021 was driven by the higher mix of new versus refinanced loans year over year as well as a higher Marketing Cost per New Funded Loan as described in the following section.
Marketing Cost per New Funded Loan
Marketing cost per new funded loan represents the amount of direct marketing costs incurred during a period divided by the number of new loans originated during that same period. The following tables present marketing cost per funded loan (new) for the years endedDecember 31, 2021 and 2020: Year Ended December 31, Change 2021 2020 $ % Marketing cost per new funded loan $ 254 $
211
Our marketing cost per new funded loan increased to$254 for the year endedDecember 31, 2021 from$211 for the year endedDecember 31, 2020 . The 20.4% increase for the year endedDecember 31, 2021 was driven by increased mix to the partner channel from lower cost organic channels and higher spend in direct mail as the company pulled back direct mail spending in 2020.
Auto-Approval Rate
Auto-approval rate is calculated by taking the number of approved loans that are not decisioned by a loan advocate or underwriter (auto-approval) divided by the total number of loans approved. The following table presents auto approval rate as ofDecember 31, 2021 and 2020: Year Ended December 31, Change 2021 2020 % Auto-approval rate 60.0 % 25.7 % 133.4 %
Auto-approval rate increased by 133.4% as of
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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 years endedDecember 31, 2021 and 2020: Year Ended December 31, Change 2021 2020 $ % Sales and servicing cost per loan $ 159 $
148
Our servicing cost per loan increased by$11 for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 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 in sales and servicing costs per loan of 7.4% for the year endedDecember 31, 2021 were significantly lower than total net origination growth of 23.1% for the year endedDecember 31, 2021 . 77
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RESULTS OF OPERATIONS
Comparison of the years ended
The following table presents our consolidated results of operations for the years endedDecember 31, 2021 and 2020 (in thousands, except per number of shares and share data). Year Ended December 31, Change 2021 2020 $ % Interest and loan related income, gross (a)$ 349,029 $ 322,165 $ 26,864 8.3 % Other income 1,539 789 750 95.1 Interest, loan related, and other income 350,568 322,954 27,614 8.6 Amortization of loan origination costs - (31,940) 31,940 (100.0) Total revenue 350,568 291,014 59,554 20.5 Total provision (929) (90,787) 89,858 (99.0) Change in fair value of finance receivables (85,960) - (85,960) - Net revenue 263,679 200,227 63,452 31.7 Expenses 206,422 122,711 83,711 68.2 Income from operations 57,257 77,516 (20,259) (26.1) Gain on forgiveness of Paycheck Protection Program loan 6,444 - 6,444 - Change in fair value of warrant liability 26,405 - 26,405 - Income before income taxes 90,106 77,516 12,590 16.2 Provision for income taxes (311) - (311) - Net income 89,795$ 77,516 $ 12,279 15.8 % Less: net income attributable to noncontrolling interest 64,241
Net income attributable to
Earnings per share attributable toOppFi Inc. : (b) Earnings per common share: Basic$ 1.93 $ - Diluted$ 1.93 $ - Weighted average common shares outstanding: Basic 13,218,119 - Diluted 13,227,049 -
(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
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 0.5 % of total revenue for the year endedDecember 31, 2021 . Total revenue increased by$59.6 million , or 20.5%, to$350.6 million for the year endedDecember 31, 2021 from$291.0 million for the year endedDecember 31, 2020 . This increase was due to the removal of the amortization of loan origination costs as a result of the election of the fair value option in 2021 as well as receivables growth 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.
Change in Fair Value and Total Provision
Commencing onJanuary 1, 2021 , we elected the fair value option on the OppLoan installment product. To derive the fair value, we generally utilize discounted cash flow analyses that factor in estimated losses and prepayments over the estimated duration of the underlying assets. Loss and prepayment assumptions are determined using historical loss data and include appropriate consideration of recent trends and anticipated future performance. Future cash flows are discounted using a rate of return that 78
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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 andOppFi 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 year endedDecember 31, 2021 , change in fair value consists of gross charge-offs incurred in the period, net of recoveries, plus the change in the fair value on the installment loans portfolio. Change in fair value totaled$86.0 million for the year endedDecember 31 , 2021,which was comprised of$103.5 million of net charge-offs, partially offset by a fair market value adjustment of$17.6 million . The fair value adjustment 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. For the year endedDecember 31, 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. For the year endedDecember 31, 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 as this was the only product for the Company during 2020 and the Company utilized incurred credit loss application method prior to electing the fair value option onJanuary 1, 2021 . StartingJanuary 1, 2021 , our provision for future losses is based on estimated 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$63.5 million , or 31.7%, to$263.7 million for the year endedDecember 31, 2021 from$200.2 million for the year endedDecember 31, 2020 . This increase was attributable to 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 and growth in receivables from the prior year. Expenses Expenses includes 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. Expenses increased by$83.7 million , or 68.2%, to$206.4 million for the year endedDecember 31, 2021 , from$122.7 million for the year endedDecember 31, 2020 . This was primarily due to higher marketing costs due to higher originations, an increase in salaries and employee benefits related to additional headcount, technology infrastructure costs and professional fees related to investments to support the company's augmentation of internal controls, operational risk and compliance functions, insurance expenses as the company transitioned to becoming a public entity, 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$20.3 million , or 26.1%, to$57.3 million for the year endedDecember 31, 2021 , from$77.5 million for the year endedDecember 31, 2020 .
Other Income (Expenses)
Other income for the year endedDecember 31, 2021 included the gain from forgiveness of an unsecured loan of$6.4 million in connection with the Paycheck Protection Program ("PPP") Loan. Additionally, other income included the change in fair value of the warrant liability in the amount of$26.4 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 79
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Income before income tax is the difference between net revenue and expenses. Income before income tax increased by$12.6 million , or 16.2%, to$90.1 million for the year endedDecember 31, 2021 , from$77.5 million for the year endedDecember 31, 2020 .
Income Tax
OppFi Inc. recorded a provision for income taxes of$0.3 million for the year endedDecember 31, 2021 and no expense for the year endedDecember 31, 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
Net Income Attributable to
Net income attributable toOppFi Inc. was$25.6 million for the year endedDecember 31, 2021 . Net income attributable toOppFi Inc. represents the income solely attributable to stockholders ofOppFi Inc. for the year endedDecember 31, 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 margin thereof), and Adjusted Net Income (and margin thereof) can provide useful measures for period-to-period comparisons of our business and useful information to investors and others in understanding and evaluating our operating results. However, non-GAAP financial measures are not calculated in accordance with United States GAAP measures, should not be considered an alternative to any measure of financial performance calculated and presented in accordance with GAAP, and may not be comparable to the non-GAAP financial measures of other companies.
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. 80
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Year Ended December 31, Variance
2021 2020 %
Fair Value Fair Value Pro
(in thousands, unaudited) As Reported As Reported Adjustments Forma
Interest, loan related, and other
income $ 350,568 $ 291,014 $ 31,940 $ 322,954 8.6 %
Total provision (929) (90,787) 90,787 - -
Fair value adjustments (a) (85,960) - (104,028) (104,028) (17.4)
Net revenue 263,679 200,227 18,699 218,926 20.4
Expenses
Sales and marketing 52,622 15,333 22,510 37,843 39.1
Customer operations 40,260 33,697 4,482 38,179 5.5
Technology, products, and analytics 27,442 19,745 - 19,745 39.0
General, administrative, and other 61,842 32,708 - 32,708 89.1
Total expenses before interest
expense 182,166 101,483 26,992 128,475 41.8
Interest expense (b) 24,256 21,228 - 21,228 14.3
Income from operations 57,257 77,516 (8,293) 69,223 (17.3)
Gain on forgiveness of Paycheck
Protection Program loan 6,444 - - - -
Change in fair value of warrant
liability 26,405 - - - -
Income before income taxes 90,106 77,516 (8,293) 69,223 30.2
Provision for income taxes (311) - - - -
Net income 89,795 $ 77,516 $ (8,293) $ 69,223 29.7 %
Less: net income attributable to
noncontrolling interest 64,241
Net income attributable to OppFi
Inc. $ 25,554 (a) Fair value adjustment of
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.
Year Ended December 31, Variance
(in thousands, unaudited) 2021 2020 %
Total revenue $ 350,568 $ 291,014 20.5 %
Amortization of loan origination costs - 31,940 -
Adjusted revenue $ 350,568 $ 322,954 8.6 %
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-
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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.
Year Ended December 31, Variance
(in thousands, except share and per share data)
Unaudited 2021 2020 %
Net income $ 89,795 $ 77,516 15.8 %
Provision for income taxes 311 - -
FV adjustments - (8,293) (100.0)
Debt issuance cost amortization 2,310 1,945 18.8
Other addback and one-time expense(a) (8,452) 2,439 (446.5)
Adjusted EBT 83,964 73,607 14.1
Less: pro forma taxes(b) (18,145) (18,402) (1.4)
Adjusted net income 65,819 55,205 19.2
Pro forma taxes(b) 18,145 18,402 (1.4)
Depreciation and amortization 10,282 6,732 52.7
Interest expense 21,946 19,284 13.8
Business (non-income) taxes 665 1,527 (56.5)
Loss on disposition of equipment 6 - -
Adjusted EBITDA $ 116,863 $ 101,150 15.5 %
Adjusted basic EPS: (c) $ 0.78 $ -
Weighted average adjusted basic shares: 84,465,109 -
Adjusted diluted EPS: (c) $ 0.78 $ -
Weighted average adjusted diluted shares: 84,474,039 -
(a) For the year ended December 31, 2021 , other addback and one-time expense of ($8.5 million ) included a ($26.4
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 $24.4 million impact to the G&A line item in expenses comprised of: $6.6 million in
one-time expenses related to the Business Combination, $3.0 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 $10.6 million in
other one-time expenses.
(b) Assumes a tax rate of 25% for the year ended December 31, 2020 and a 21.61% 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
Year Ended December 31,
(unaudited) 2021 2020Weighted average Class A common stock outstanding 13,218,119
-
Weighted average Class V voting stock outstanding 96,746,990
-
Elimination of earnouts at period end (25,500,000) -
Weighted average adjusted basic shares 84,465,109 -
Dilutive impact of unvested restricted stock units 8,930 -
Weighted average adjusted diluted shares 84,474,039 -
Year Ended December 31,
(unaudited) 2021 2020
Adjusted net income (in thousands)
$ 0.78 $ -
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Year Ended December 31,
(unaudited) 2021 2020
Adjusted net income (in thousands)
$ 0.78 $ -
Condensed Balance Sheets
Comparison of the years ended
The following table presents our condensed balance sheet as ofDecember 31, 2021 and 2020 (in thousands): Year Ended December 31, Change 2021 2020 $ % Assets Cash and restricted cash$ 62,362 $ 45,657 $ 16,705 36.6 % Finance receivables at fair value 383,890 - 383,890 - Finance receivables at amortized cost, net 4,220 222,243 (218,023) (98.1) Other assets 51,634 17,943 33,691 187.8 Total assets$ 502,106 $ 285,843 $ 216,263 75.7 % Liabilities and stockholders' equity / members' equity Other liabilities$ 58,967 $ 28,406 $ 30,561 107.6 % Total debt 274,021 158,105 115,916 73.3 Warrant liability 11,240 - 11,240 - Total liabilities 344,228 186,511 157,717 84.6 Total stockholders'equity / members' equity 157,878 99,332 58,546 58.9 Total liabilities and stockholders' equity /members' equity$ 502,106 $ 285,843 $ 216,263 75.7 % Total cash and restricted cash increased by$16.7 million as ofDecember 31, 2021 compared toDecember 31, 2020 , driven by free cash flow from operations as well as increased borrowings under the Atalaya Credit Agreement and higher utilization of senior debt to finance receivables growth, transaction expenses, and tax distribution. Finance receivables as ofDecember 31, 2021 increased compared toDecember 31, 2020 due to higher unpaid on-balance sheet principal balances as well as the election of the fair value option in 2021. Other assets as ofDecember 31, 2021 increased by$33.7 million compared toDecember 31, 2020 , driven by the addition of a deferred tax asset of$25.6 million related to the Business Combination, as well as$5.1 million largely consisting of prepaid expenses and$4.1 million of property, equipment and capitalized technology costs, partially offset by$1.1 million of debt issuance costs. Other liabilities increased by$30.6 million driven by a tax receivable agreement liability in connection with the business combination with a balance of$23.3 million as ofDecember 31, 2021 . Total debt increased by$115.9 million driven by an increase in utilization of leverage facilities of$49.3 million and a$24.8 million net impact of the corporate credit facility refinancing, offset by$6.4 million of loan forgiveness of the PPP loan. Total equity increased by$58.5 million driven by net income of$89.8 million and impact of adoption of the fair value method of accounting of$69.4 million , partially offset by net distributions and transaction related adjustments to equity. 83
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LIQUIDITY AND CAPITAL RESOURCES
To date, the funds received from operating income and our ability to obtain lending commitments have provided the liquidity necessary for us to fund our operations.
Maturities of our financing facilities are staggered over three years to help minimize refinance risk.
The following table presents our unrestricted cash and undrawn debt as of
December 31, 2021 December 31, 2020
Unrestricted cash $ 25,064 $ 25,601
Undrawn debt $ 158,100 $ 338,108
As of December 31, 2021 , we had $25.1 million in unrestricted cash, a decrease
of $0.5 million from December 31, 2020 . As of December 31, 2021 , we had an
additional $158.1 million of unused debt capacity under our financing facilities
for future availability, representing a 38 % overall undrawn capacity, a
decrease from $338.1 million as of December 31, 2020 . The reduction in undrawn
debt was due to funding of receivables growth, transaction expenses related to
the Business Combination, and tax distributions covering the full year 2020 and
2021 annual estimates. Including total financing commitments of $411 million ,
and cash on the balance sheet of $62.4 million , we had approximately $473
million in funding capacity as of December 31, 2021 .
We believe that our unrestricted cash, undrawn debt and funds from operating
income will be sufficient to meet our liquidity needs for at least the next 12
months from the date of this Annual Report. Our future capital requirements will
depend on multiple factors, including our revenue growth, aggregate receivables
balance, interest expense, working capital requirements, cash provided by and
used in operating, investing and financing activities and capital expenditures.
To the extent our unrestricted cash balances, funds from operating income and
funds from undrawn debt are insufficient to satisfy our liquidity needs in the
future, we may need to raise additional capital through equity or debt financing
and may not be able to do so on terms acceptable to it, if at all. If we are
unable to raise additional capital when needed, our results of operations and
financial condition could be materially and adversely impacted.
Cash Flows
The following table presents cash provided by (used in) operating, investing and financing activities during the year endedDecember 31, 2021 and 2020 (in thousands): Year Ended December 31, Change 2021 2020 $ % Net cash provided by operating activities$ 167,346 $ 192,112 $ (24,766) (12.9) % Net cash used in investing activities (199,470) (98,312) (101,158) (102.9) Net cash provided by (used in) financing activities 48,829 (84,122) 132,951 158.0 Net increase in cash and restricted cash$ 16,705 $ 9,678 $ 7,027 72.6 % Operating Activities Net cash provided by operating activities was$167.3 million for the year endedDecember 31, 2021 . This was a decrease of$24.8 million when compared to net cash provided by operating activities of$192.1 million for the year endedDecember 31, 2020 . Cash provided by operating activities decreased due to higher expenses in 2021, driven by higher marketing costs due to higher originations, as well as an increase in salaries and employee benefits, and increased investment in technology infrastructure. 84
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Investing Activities
Net cash used in investing activities was$199.5 million for the year endedDecember 31, 2021 . This was an increase of$101.2 million when compared to net cash used in investing activities of$98.3 million for the year endedDecember 31, 2020 , due to higher finance receivables originated and acquired, partially offset by higher finance receivables repaid.
Financing Activities
Net cash provided by financing activities was$48.8 million for the year endedDecember 31, 2021 . This was an increase of$133.0 million when compared to net cash used in financing activities of$84.1 million for the year endedDecember 31, 2020 , primarily due to an increase in net advances in borrowings, partially offset by an increase in member distributions and capitalized transaction costs. 85
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Financing Arrangements
Our corporate credit facilities consist of term loans and revolving loan facilities that we have drawn on to finance our operations and for other corporate purposes. These borrowings are generally secured by all the assets ofOppFi-LLC that have not otherwise been sold or pledged to secure our structured finance facilities, such as assets belonging to certain of the special purpose entity subsidiaries ofOppFi-LLC ("SPEs"). In addition, we, through our SPEs, have entered into warehouse credit facilities to partially finance the origination of loans by us on our platform or the purchase of participation rights in loans originated by our bank partners through our platform, which credit facilities are secured by the loans or participation rights. The following is a summary ofOppFi's borrowings as ofDecember 31, 2021 and 2020 (in thousands): Interest Rate as of Borrowing December 31, December 31, December 31, 2021, Maturity Purpose Borrower(s) Capacity 2021 2020 Except as Noted Date Opportunity Funding Secured borrowing payable SPE II, LLC$ 38,500 $ 22,443 $ 16,025 15.00% - (1) Senior debt Revolving line of credit OppFi-LLC $ - $ -$ 5,000 LIBOR plus 2.50% (2) (3) February 2022 Opportunity Funding Revolving line of credit SPE III, LLC 175,000 119,000 59,200 LIBOR plus 6.00% (3) January 2024 Opportunity Funding SPE V, LLC; Opportunity Funding Revolving line of credit SPE VII, LLC 75,000 45,900 24,222 LIBOR plus 7.25% (3) April 2024 Opportunity Funding Revolving line of credit SPE VI, LLC 50,000 30,600 16,148 LIBOR plus 7.25% (3) April 2023 Opportunity Funding SPE IV, LLC; SalaryTap Funding Revolving line of credit SPE, LLC 45,000 7,500 12,506 LIBOR plus 3.85% (3) February 2024 Total revolving lines of credit 345,000 203,000 117,076 Term loan, net OppFi-LLC 50,000 48,578 14,650 LIBOR plus 10.00% (3) March 2025 Total senior debt$ 395,000 $ 251,578 $ 131,726 Subordinated debt OppFi-LLC $ - $ -$ 4,000 14.00% (2) December 2023 Other debt OppFi-LLC $ - $ -$ 6,354 1.00% (4) April 2022 (1) Maturity date extended indefinitely until borrowing capacity is depleted (2) Interest rate as of12/31/2020 and for the subsequent period thru and until loan was repaid (3) Subject to customary LIBOR replacement provisions as set forth below in "Financing Agreements." (4) Interest rate as of12/31/2020 and for the subsequent period thru and until loan was forgiven 86
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The following is a discussion of our current credit facilities.
Amended and Restated Program Agreement with
OppFi-LLC andOpportunity Funding SPE II, LLC , a wholly owned subsidiary ofOppFi-LLC ("SPE II"), are parties to an Amended and Restated Program Agreement, originally entered into onAugust 1, 2017 (as amended to date, the "Program Agreement"), withMidtown Madison Management, LLC , as purchaser agent ("Purchaser Agent") for funds ofAtalaya Capital Management ("Program Purchasers"). Pursuant to the terms of the Program Agreement and related participation purchase and sale agreements, the Program Purchasers have agreed to purchase from SPE II up to$165.0 million of 97.5% participation interests in: (i) finance receivables directly originated byOppFi-LLC and acquired by SPE II and (ii) participation rights in the economic interests of finance receivables originated byOppFi-LLC's bank partners on our platform and acquired by SPE II. Pursuant to the terms of the Program Agreement, the Program Purchasers earn a preferred return of 15% on the participation interests purchased and a performance fee after the preferred return has been satisfied. SPE II has certain repurchase obligations with respect to participation interests purchased by the Program Purchasers if representations and warranties made by SPE II with respect thereto are not accurate when made. Pursuant to a servicing agreement,OppFi-LLC has agreed to service the finance receivables and participation rights, as applicable, purchased by SPE II and the participation interests therein purchased by the Program Purchasers. The obligations of SPE II under the Program Agreement are secured by substantially all of the assets of SPE II. The Purchaser Agent may at any time refuse to purchase participation interests pursuant to the Program Agreement, provided that following such a refusal, SPE II will have the right to terminate the Program Agreement at any time and for any reason, in its sole discretion, upon giving five business days notice to the Purchaser Agent. The Program Agreement contains certain customary representations and warranties and affirmative and negative covenants, including minimum tangible net worth and liquidity and performance metrics related to the participation interests purchased by the Program Purchasers, and provides for certain events of default, including, but not limited to, a cross-default on certain other debt obligations and bankruptcy or insolvency events, subject to customary cure periods, as applicable.
Senior Secured Multi-Draw Term Loan Facility with
OppFi-LLC is party to that certain Senior Secured Multi-Draw Term Loan Facility withMidtown Madison Management, LLC as agent forAtalaya Special Opportunities Fund VII LP (together with the other affiliated funds that became lenders party thereto, the "Atalaya Lenders"), originally entered into onNovember 9, 2018 (as amended to date, the "Atalaya Term Loan Facility"). The Atalaya Term Loan Facility provides for maximum term loan commitments by the Atalaya Lenders of up to$50 million , substantially all of which has been drawn byOppFi-LLC . The Atalaya Term Loan Facility bears interest at the one-month LIBOR rate plus 10%, subject to a LIBOR floor of 2.00%, payable monthly in arrears. The Atalaya Term Loan Facility provides that following the date of a public statement of the cessation of publication of all tenors of LIBOR (subject to an early opt-in election), LIBOR shall be replaced as a benchmark rate in the Atalaya Term Loan Facility with term SOFR (or another alternative rate if term SOFR is not able to be determined), with such adjustments to cause the new benchmark rate to be economically equivalent to LIBOR at the time of the LIBOR cessation.OppFi-LLC's obligations under the Atalaya Term Loan Facility are secured by all ofOppFi-LLC's assets, other than the assets and equity interests of the SPEs, and are guaranteed by all of its subsidiaries, other than the SPEs. The Atalaya Term Loan Facility is subject to a borrowing base and various financial covenants, including maximum consolidated debt to EBITDA ratio and minimum consolidated fixed charge coverage ratio and liquidity. Outstanding obligations under the Atalaya Term Loan Facility may be prepaid beginning onSeptember 30, 2022 , subject to prepayment premiums. In addition,OppFi-LLC is subject to certain mandatory prepayment requirements in the event its borrowings under the Atalaya Term Loan Facility exceed its borrowing base. The Atalaya Term Loan Facility contains certain customary representations and warranties and affirmative and negative covenants, including with respect to dividends and other restricted payments. Outstanding obligations under the Atalaya Term Loan Facility, including unpaid principal and interest, are due onMarch 30, 2025 unless there is an earlier event of default such as bankruptcy, default on interest payments, a cross default on certain other debt obligations, or failure to perform or observe covenants, at which point the obligations may become due 87
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earlier, and additional default interest is due in addition to any other amounts owed and payable while such events of default are ongoing.
In connection with entering into the Atalaya Term Loan Facility and certain amendments thereto,OppFi-LLC issued toMidtown Madison Management, LLC , as agent for the Atalaya Lenders, warrants to purchase equity interests inOppFi-LLC . These warrants were transferred to affiliates of the Atalaya Lenders and were automatically exercised in connection with the Closing, and such affiliates of the Atalaya Lenders became Members. In connection with the execution of the OppFi A&R LLCA, such equity interests were recapitalized into Retained OppFi Units representing less than 1% of the outstanding OppFi Units immediately following the Closing.
Amended and Restated Revolving Credit Agreement with
OppFi-LLC ,Opportunity Funding SPE III, LLC , a wholly owned subsidiary ofOppFi-LLC ("SPE III"),OppWin, LLC a wholly owned subsidiary ofOppFi-LLC ("OppWin"), and the other credit parties and guarantors thereto, are parties to an Amended and Restated Revolving Credit Agreement, originally entered into onJanuary 31, 2020 (as amended to date, the "Ares SPE III Credit Agreement"), withAres Agent Services, L.P. , as administrative agent and collateral agent ("Ares"), and the lenders party thereto. The Ares SPE III Credit Agreement provides for a senior secured asset-backed revolving credit facility with maximum available borrowings for SPE III, as borrower, of$175 million . Borrowings under the Ares SPE III Credit Agreement are secured by substantially all of the assets of SPE III. Pursuant to receivables purchase agreements, SPE III has agreed to purchase fromOppFi-LLC and OppWin, as applicable, (i) finance receivables directly originated byOppFi-LLC and (ii) participation rights in the economic interests of finance receivables originated byOppFi-LLC's bank partners on our platform.OppFi-LLC and OppWin have certain repurchase obligations with respect to finance receivables or participation rights purchased by SPE III if representations and warranties made byOppFi-LLC or OppWin, as applicable, with respect thereto are not accurate when made. Pursuant to a servicing agreement,OppFi-LLC has agreed to service the finance receivables and participation rights, as applicable, purchased by SPE III. Libor Rate Loans (as defined in the Ares SPE III Credit Agreement) bear interest at a floating rate that is the greater of (i) 2.00% and (ii) one-month LIBOR, plus 6.00% (subject to customary LIBOR replacement provisions), and Base Rate Loans (as defined in the Ares SPE III Credit Agreement) bear interest at the Base Rate (as defined in the Ares SPE III Credit Agreement), plus 6.00%. The Ares SPE III Credit Agreement provides that if LIBOR is no longer available, a broadly accepted comparable successor rate, including any adjustments thereto, will be applied in lieu of LIBOR in a manner consistent with market practice to maintain the then-current yield. Interest is payable monthly in arrears, and any amounts due under the Ares SPE III Credit Agreement may be prepaid voluntarily subsequent to its first anniversary upon notice to Ares, subject to the borrowing base limitations and other customary conditions and further subject in certain cases to prepayment premiums and minimum utilization penalties. Borrowings under the Ares SPE III Credit Agreement are subject to a borrowing base.
The Ares SPE III Credit Agreement is scheduled to mature on
The Ares SPE III Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants, including with respect to dividends and other restricted payments, various financial covenants, including minimum adjusted tangible net worth, liquidity, earnings and maximum senior leverage ratio, and performance metrics related to the finance receivables and participation rights purchased by SPE III, and provides for certain events of default, including, but not limited to, failure to pay any principal, interest or other amounts when due, failure to perform or observe covenants, cross-default on certain other debt obligations and bankruptcy or insolvency events, subject to customary cure periods, as applicable. Amounts owed byOppFi-LLC under the Ares SPE III Credit Agreement could be accelerated and become immediately due and payable following the occurrence an event of default, and additional default interest is due in addition to any other amounts owed and payable while such events of default are ongoing.
Revolving Credit Agreement with
OppFi-LLC , SPE IV, STF Borrower, OppWin, and the other credit parties and guarantors thereto, are parties to the BMO Credit Agreement with BMO as administrative agent and collateral agent, and the lenders party thereto. The BMO Credit Agreement provides for a senior secured reserve-based revolving credit facility with maximum available borrowings for SPE IV and STF Borrower, as borrowers, of$45 million , which may be increased in accordance with the terms thereof, and an accordion feature of$30 million . 88
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Borrowings under the BMO Credit Agreement are secured by substantially all of the assets of SPE IV and STF Borrower, respectively. Pursuant to receivables purchase agreements, SPE IV and STF Borrower have each agreed to purchase fromOppFi-LLC and OppWin, as applicable, (i) finance receivables directly originated byOppFi-LLC and (ii) participation rights in the economic interests of finance receivables originated byOppFi-LLC's bank partners on our platform.OppFi-LLC and OppWin have certain repurchase obligations with respect to finance receivables or participation rights purchased by SPE IV and STF Borrower if representations and warranties made byOppFi-LLC or OppWin, as applicable, with respect thereto are not accurate when made. Pursuant to a servicing agreement,OppFi-LLC has agreed to service the finance receivables (including SalaryTap receivables) and participation rights, as applicable, purchased by SPE IV and STF Borrower, respectively. Borrowings under the BMO Credit Agreement bear interest at a floating rate that is the greater of (i) 0.50% and (ii) LIBOR plus 3.85%. Interest is payable monthly in arrears, and any amounts due under the BMO Credit Agreement may be prepaid voluntarily from time to time upon notice to BMO, subject to the borrowing base limitations and other customary conditions and generally without premium or penalty. Borrowings under the BMO Credit Agreement are subject to a borrowing base. The BMO Credit Agreement provides that following the date of a public statement of the cessation of publication of all tenors of LIBOR (subject to an early opt-in election), LIBOR shall be replaced as a benchmark rate in the BMO Credit Agreement with term SOFR (or another alternative rate if term SOFR is not able to be determined), with such adjustments to cause the new benchmark rate to be economically equivalent to LIBOR at the time of the LIBOR cessation. The BMO Credit Agreement is scheduled to terminate onAugust 19, 2023 , and all outstanding amounts thereunder are due no later than six months following such date. The BMO Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants, including with respect to dividends and other restricted payments, various financial covenants, including minimum adjusted tangible net worth, liquidity, earnings and maximum senior leverage ratio, and performance metrics related to the finance receivables and participation rights purchased by SPE IV and STF Borrower, respectively, and provides for certain events of default, including, but not limited to, failure to pay any principal, interest or other amounts when due, failure to perform or observe covenants, cross-default on certain other debt obligations and bankruptcy or insolvency events, subject to customary cure periods, as applicable. Amounts owed byOppFi-LLC under the BMO Credit Agreement could be accelerated and become immediately due and payable following the occurrence an event of default, and additional default interest is due in addition to any other amounts owed and payable while such events of default are ongoing.
Revolving Credit Agreement with
OppFi-LLC , SPE V, SPE VII, OppWin, and the other credit parties and guarantors thereto, are parties to the Atalaya Credit Agreement, with Atalaya, and the various funds ofAtalaya Capital Management party thereto as lenders. The Atalaya Credit Agreement provides for a senior secured reserve-based revolving credit facility with maximum available borrowings for SPE V and SPE VII, as borrowers, of$75 million , subject to certain requirements to borrow pro rata from the Atalaya Credit Agreement and the Ares SPE VI Credit Agreement (as defined below). Borrowings under the Atalaya Credit Agreement are secured by substantially all of the assets of SPE V and SPE VII, respectively. Pursuant to receivables purchase agreements, SPE V and SPE VII have each agreed to purchase fromOppFi-LLC and OppWin, as applicable, (i) finance receivables directly originated byOppFi-LLC and (ii) participation rights in the economic interests of finance receivables originated byOppFi-LLC's bank partners on our platform.OppFi-LLC and OppWin have certain repurchase obligations with respect to finance receivables or participation rights purchased by SPE V and SPE VII, respectively, if representations and warranties made byOppFi-LLC or OppWin, as applicable, with respect thereto are not accurate when made. Pursuant to a servicing agreement,OppFi-LLC has agreed to service the finance receivables (including OppFi Card receivables) and participation rights, as applicable, purchased by SPE V and SPE VII, respectively. Libor Rate Loans (as defined in the Atalaya Credit Agreement) bear interest at a floating rate that is the greater of (i) 2.25% and (ii) one-month LIBOR, plus 7.25%, and Base Rate Loans (as defined in the Atalaya Credit Agreement) bear interest at the Base Rate (as defined in the Atalaya Credit Agreement), plus 7.25%. Interest is payable monthly in arrears, and any amounts due under the Atalaya Credit Agreement may be prepaid voluntarily subsequent to its first anniversary upon notice to Atalaya, subject to the borrowing base limitations and other customary conditions and further subject in certain cases to prepayment premium and minimum utilization penalties. The Atalaya Credit Agreement provides that if LIBOR is no longer available, the administrative agent of the Atalaya Credit Agreement may select a comparable replacement index applied to similarly situated 89
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borrowers under similar credit facilities in good faith in its sole discretion upon written notice. Borrowings under the Atalaya Credit Agreement are subject to a borrowing base.
The Atalaya Credit Agreement is scheduled to mature on
The Atalaya Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants, including with respect to dividends and other restricted payments, various financial covenants, including minimum adjusted tangible net worth, liquidity, earnings and maximum senior leverage ratio, and performance metrics related to the finance receivables and participation rights purchased by SPE V and SPE VII, respectively, and provides for certain events of default, including, but not limited to, failure to pay any principal, interest or other amounts when due, failure to perform or observe covenants, cross-default on certain other debt obligations and bankruptcy or insolvency events, subject to customary cure periods, as applicable. Amounts owed byOppFi-LLC under the Atalaya Credit Agreement could be accelerated and become immediately due and payable following the occurrence an event of default, and additional default interest is due in addition to any other amounts owed and payable while such events of default are ongoing.
Revolving Credit Agreement with
OppFi-LLC ,Opportunity Funding SPE VI, LLC , a wholly owned SPV subsidiary ofOppFi-LLC ("SPE VI"), OppWin, and the other credit parties and guarantors thereto, are parties to a Revolving Credit Agreement, originally entered into onApril 15, 2019 (as amended to date, the "Ares SPE VI Credit Agreement"), with Ares and the lenders party thereto. The Ares SPE VI Credit Agreement provides for a senior secured asset-backed revolving credit facility with maximum available borrowings for SPE VI, as borrower, of$50 million , subject to certain requirements to borrow pro rata from the Ares SPE VI Credit Agreement and the Atalaya Credit Agreement. Borrowings under the Ares SPE IV Credit Agreement are secured by substantially all of the assets of SPE VI. Pursuant to receivables purchase agreements, SPE VI has agreed to purchase fromOppFi-LLC and OppWin, as applicable, (i) finance receivables directly originated byOppFi-LLC and (ii) participation rights in the economic interests of finance receivables originated byOppFi-LLC's bank partners on our platform.OppFi-LLC and OppWin have certain repurchase obligations with respect to finance receivables or participation rights purchased by SPE VI if representations and warranties made byOppFi-LLC or OppWin, as applicable, with respect thereto are not accurate when made. Pursuant to a servicing agreement,OppFi-LLC has agreed to service the finance receivables and participation rights, as applicable, purchased by SPE VI. Libor Rate Loans (as defined in the Ares SPE VI Credit Agreement bear interest at a floating rate that is the greater of (i) 2.25% and (ii) one-month LIBOR, plus 7.25%, and Base Rate Loans (as defined in the Ares SPE VI Credit Agreement) bear interest at the Base Rate (as defined in the Ares SPE VI Credit Agreement), plus 7.25%. The Ares SPE VI Credit Agreement provides that if LIBOR is no longer available, a broadly accepted comparable successor rate, including any adjustments thereto, will be applied in lieu of LIBOR in a manner consistent with market practice to maintain the then-current yield. Interest is payable monthly in arrears, and any amounts due under the Ares SPE VI Credit Agreement may be prepaid voluntarily subsequent to its first anniversary upon notice to Ares, subject to the borrowing base limitations and other customary conditions and further subject in certain cases to prepayment premium and minimum utilization penalties. Borrowings under the Ares SPE VI Credit Agreement are subject to a borrowing base.
The Ares SPE VI Credit Agreement is scheduled to terminate on
The Ares SPE VI Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants, including with respect to dividends and other restricted payments, various financial covenants, including minimum adjusted tangible net worth, liquidity, earnings and maximum senior leverage, ratio, and performance metrics related to the finance receivables and participation rights purchased by SPE VI, and provides for certain events of default, including, but not limited to, failure to pay any principal, interest or other amounts when due, failure to perform or observe covenants, cross-default on certain other debt obligations and bankruptcy or insolvency events, subject to customary cure periods, as applicable. Amounts owed byOppFi-LLC under the Ares SPE VI Credit Agreement could be accelerated and become immediately due and payable following the occurrence of an event of default, and additional default interest is due in addition to any other amounts owed and payable while such events of default are ongoing.
LIBOR Transition
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InJuly 2017 , theFCA , which regulates LIBOR, announced its intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021. OnDecember 31, 2021 , IBA, the administrator of LIBOR, announced plans to cease publication for all USD LIBOR tenors (except the one- and two-week tenors, which ceased onDecember 31, 2021 ) onJune 30, 2023 . TheFederal Reserve Board and theFederal Reserve Bank of New York have identified the SOFR as its preferred alternative to LIBOR in derivatives and other financial contracts. Each of our credit facilities provides for the replacement of LIBOR as discussed above in "Financing Arrangements." We do not expect the replacement of LIBOR to have any effect on our liquidity or the financial terms of our credit facilities
Off Balance Sheet Arrangements
InTexas andOhio ,OppFi-LLC previously arranged for consumers to obtain finance receivable products from independent third-party lenders as part of theCredit Access Business and Credit Service Organization programs (collectively, the "CSO Program"). For the consumer finance receivable products originated by the third-party lenders under the CSO Program, the lenders were responsible for providing the criteria by which the consumer's application was underwritten and, if approved, determining the amount of the finance receivable. When a consumer executed an agreement withOppFi-LLC under the CSO Program,OppFi-LLC agreed, for a fee payable toOppFi-LLC by the consumer, to provide certain services to the consumer, one of which was to guarantee the consumer's obligation to repay the finance receivable obtained by the consumer from the third-party lender if the consumer failed to do so. OnApril 23, 2019 , the Company discontinued the CSO Program inOhio and no new finance receivables were originated through this program after that date. As ofDecember 31, 2021 , there were no finance receivables remaining under the CSO Program inOhio .
On
The guarantees represented an obligation to purchase specific finance receivables that are delinquent, secured by a collateral account established in favor of the respective lenders.
As ofDecember 31, 2020 , the unpaid principal balance of off-balance sheet active finance receivables which were guaranteed by the Company was$19.7 million . Upon the election of the fair value option for installment loan finance receivables onJanuary 1, 2021 , the Company released the reserve for repurchase liabilities as the income rights and related losses were included in the valuation of finance receivables at fair value, which was included in the fair value adjustment to retained earnings. As ofDecember 31, 2020 , the Company recorded a reserve for repurchase liabilities of$4.2 million , which represents the liability for estimated losses on finance receivables guaranteed. The Company used a similar methodology for determining the reserve for repurchase liabilities as it does for calculating the allowance for credit losses on finance receivables. Under the terms of the CSO Program, the Company was required to maintain a restricted cash balance equal to the guaranty, which is determined and settled on a weekly basis. On a daily basis, a receivable and/or payable is recorded to recognize the outstanding settlement balance. As ofDecember 31, 2020 , the restricted cash balance held in a federally insured bank account related to the CSO Program was$3.1 million . As ofDecember 31, 2020 , there was a payable balance of$0.8 million related to settlement which was included in accrued expenses on the consolidated balance sheets. Critical Accounting Policies and Estimates The preparation of consolidated financial statements in accordance with GAAP requiresOppFi to make estimates and judgments that affect reported amounts of assets, liabilities, income and expenses and related disclosures.OppFi bases estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Estimates are evaluated on an ongoing basis. To the extent that there are differences betweenOppFi's estimates and actual results,OppFi's future financial statement presentation, financial condition, results of operations and cash flows will be affected. Accounting policies, as described in detail in the notes to the Company's consolidated financial statements, are an integral part of theOppFi's consolidated financial statements. A thorough understanding of these accounting policies is essential when reviewingOppFi's reported results of operations and financial position. Management believes that the critical accounting 91
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policies and estimates listed below require
-Valuation of installment finance receivables accounted for under the fair value option;
-Determination of the allowance for credit losses; and
-Valuation of the public and private warrants
Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Fair value is determined using different inputs and assumptions based upon the instrument being valued. Where observable market prices from transactions for identical assets or liabilities are not available, we identify market prices for similar assets or liabilities. If observable market prices are unavailable or impracticable to obtain for any such similar assets or liabilities, we look to other modeling techniques, which often incorporate unobservable inputs which are inherently subjective and require significant judgment. Fair value estimates requiring significant judgments are determined using various inputs developed by management with the appropriate skills, understanding and knowledge of the underlying asset or liability to ensure the development of fair value estimates is reasonable. In certain cases, our assessments, with respect to assumptions market participants would make, may be inherently difficult to determine, and the use of different assumptions could result in material changes to these fair value measurements. Installment Finance Receivables: To derive the fair value, the Company 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 that the Company believes a market participant would require.
The following describes the primary inputs to the discounted cash flow analyses that require significant judgement:
•Discount rate: The discount rate utilized in the discounted cash flow analyses reflects our estimate of the rate of return that a market participant would require when investing in financial instruments with similar risk and return characteristics. •Servicing cost: The servicing cost percentage that is applied to portfolio's expected cash flows reflects our estimate of the amount we would incur to service the underlying assets over the assets' remaining lives. Servicing costs are derived from an internal analysis of our cost structure considering the characteristics of our installment finance receivables and have been benchmarked against observable information on comparable assets in the marketplace. •Remaining life: Remaining life is the time weighted average of the estimated principal payments divided by the principal balance at the measurement date. The timing of estimated principal payments is impacted by scheduled amortization of loans, charge-offs, and prepayments. •Default rate: The default rate reflects our estimate of principal payments that will not be repaid over the remaining life of an installment finance receivable. Charge-off expectations are developed using the historical performance of our installment finance receivable portfolio but also incorporate discretionary adjustments based on our expectations of future credit performance. •Prepayment rate: The prepayment rate is the estimated percentage of principal payments that will occur earlier than contractually required over the remaining life of an installment finance receivable. Prepayments accelerate the timing of principal repayment and reduce interest payments. Prepayment rates in our discounted cash flow models are developed using historical results but may also incorporate discretionary adjustments based on our expectations of future performance. Warrants:OppFi holds public and private placement warrants that are recorded as a liability on the consolidated balance sheets. These liabilities are subjected to remeasurement at each balance sheet date and are recorded at fair value. We value Public Warrants at market price based on a quoted price in the marketplace. For Private Placement Warrants, Private Units Warrants and Underwriter Warrants, we estimate the fair value using a Monte Carlo simulation model. This model utilizes unobservable inputs, including expected volatility, risk-free interest rate, and expected term. These inputs may be influenced by several factors that can change significantly and are difficult to predict. These estimates are inherently risky and require significant judgment on the part of management. 92
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Allowance for Credit Losses: Effective,January 1, 2021 ,OppFi adopted ASU 2016-13, replacing their incurred loss impairment methodology with the current expected credit losses methodology for their SalaryTap and OppFi Card finance receivables. The allowance for credit losses represents management's best estimate of current expected credit losses over the life of these portfolios. Estimating credit losses requires judgment in determining loan specific attributes impacting the borrower's ability to repay contractual obligations. The allowance for credit losses is assessed at each balance sheet date and adjustments are recorded in the provision for credit losses on finance receivables. The allowance is currently estimated using market data for determining anticipated credit losses of its SalaryTap and OppFi Card finance receivables until sufficient internal data exists. Management believes its allowance is adequate to absorb the expected life of loan credit losses as of the balance sheet date. Actual losses incurred may differ materially from management's estimates. Changes in these estimates, that are likely to occur from period to period, or the use of different estimates that the Company could have reasonably used in the current period, would have a material impact on the Company's financial position, results of operations or liquidity.
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