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

Thank you, operator. Good morning, and welcome to OppFi's Third Quarter 2025 Earnings Call. Today, our Executive Chairman and CEO, Todd Schwartz; and CFO, Pam Johnson will present our financial results, followed by a question-and-answer session. You can access the earnings presentation on our website at investors.oppfi.com. During this call, OppFi may discuss certain forward-looking information. The company's filings with the SEC described essential factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements. Please refer to Slide 2 of the earnings presentation and press release for our disclaimer statements covering forward-looking statements and references to information about non-GAAP financial measures which will be discussed throughout today's call. Reconciliations of those measures to GAAP measures can be found in the appendix to our earnings presentation and press release. With that, I'd like to turn the call over to Todd.

Thanks, Mike, and good morning, everyone. Thank you for joining us today. OppFi achieved another record quarter of revenue, profitability, originations and ending receivables. In addition, we are happy to report that we have renewed our credit agreement with Castlelake, improving operating leverage, pricing and capacity. Given our continued outperformance in Q3, we are raising earnings guidance for the third time this year. I will discuss growth, credit our Loan Origination Lending Application, LOLA migration and Bitty, our SMB investment on the call. In the quarter, we achieved a 12.5% growth in net originations and a 13.5% increase in revenue year-over-year, with almost 50% of originations coming from new customers. Auto approval rates increased to 79% year-over-year, and customers continue to be approved at higher rate than in prior quarters with no human interaction. We continue to see increased scale in our partnerships and direct response programs. We started testing Connected TV in Q4 and believe that this could contribute to growth in 2026 and beyond. This strong top line growth, combined with prudent expense management, led OppFi to generate a record $41 million of adjusted net income for the quarter, representing 41% year-over-year growth. Regarding credit, Model 6 continues to perform well and better segment customers across risk segments. Throughout the quarter, we saw higher charge-offs in new loan vintages. However, by tightening higher risk segments and applying our risk-based pricing approach, we maintain strong unit economics while sustaining growth. The team leveraged AI tools, customer attributes and repayment data to refit Model 6 into what we believe is the most reliable model to date, Model 6.1. This Model 6.1 refit is designed to identify riskier borrower populations better while incrementally improving volume. The model is also designed to enhance risk pricing across segments accounting for behavioral and seasonal…

Thanks, Todd, and good morning, everyone. As Todd noted, we achieved another record quarter, generating revenues of $155 million, an impressive 14% increase over third quarter 2024. Model 6 has been a significant contributor to this growth, empowering OppFi to expand its reach and grow its business effectively. It's enhanced predictive power has enabled us to better manage our loan economics through risk-based pricing and allow our bank partners to underwrite larger loan amounts for creditworthy individuals, helping fuel robust growth in originations and receivables balances. As Todd noted, in the third quarter of 2025, we observed an increase in net charge-offs as a percentage of revenue at 35%, up from 34% in third quarter '24. It's important to note that we believe this risk is appropriately priced into these loans. This strategy also contributed to our net revenue growth, reaching a quarterly record of $105 million, a 15% increase over third quarter '24, though the yield decreased slightly to 133% from 134% in third quarter '24. Our scale and focus on cost discipline also played a pivotal role in our strong performance. Continued operational improvements contributed to notably lower total expenses before interest expense, which declined significantly to 30% of revenue in the third quarter, a substantial improvement compared to 33% in the same quarter last year. As we noted previously, earlier this year, we proactively paid down our corporate debt and successfully upsized one of our main credit facilities at more attractive interest rates. These strategic moves helped reduce interest expense to 6% of total revenue, down from 8% in the prior year. Additionally, in early October, we announced the signing of another $150 million credit facility with lower interest rates than the previous one, positioning us to realize even lower interest expenses as a percentage of revenue…

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

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

Yes. David, good question. Thank you. We constantly are surveying -- looking at different data points, not only from the data that we received from customers, bank accounts and the macroeconomic data. I mean the backdrop from a macroeconomic standpoint still remains largely unchanged. We are hearing about different products like auto loan delinquencies and all this, but we really focus on how it affects our customers. In our bank data, we're not seeing anything that would cause alarm. However, we did see some higher early payment stats in the quarter that caused us to tighten slightly. I will remind you, though, that back in '22 without risk-based pricing, not being able to price risk properly in these environments is something that we were not able to do. Also our recovery lines. We feel really good about keeping unit economics strong with pricing and strong recoveries in this environment and feel like we can operate in any environment with Model 6, and it's kind of a dynamic modeling environment. It's not set it, forget it anymore. We're really of the mindset that we're going to meet the customer where they are and we're going to price it properly and have a product for them. So yes, we may incur some higher charge-offs coming through in the fourth. But let's not lose sight of as a percentage of revenue, year-over-year, we expect our charge-offs as a percentage of revenue to go down year-over-year. So that's just kind of how the environment is now. You've got to -- you can't set it forget it, you have to be constantly watching it and constantly updating your pricing per segments and your pricing for risk.

Got it. No, that's helpful. You kind of delved into maybe my follow-up, which was maybe to get a little better context for risk-based pricing that Model 6 is going to enable more of. I guess at a high level, should we think about more risk-based pricing as you're currently leading yields on the table? Or is it you're leaving volume on the table that there are maybe consumers that are applying, not accepting the loan? Maybe give us a little context.

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

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

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

Our next question comes from Mike Grondahl with Northland Securities.

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

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

And then Connected TV? I think you...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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