OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| As Previously Reported | | Adjustments | | As Restated |
Earnings per common share: | | | | | |
Diluted | $ | 0.08 | | | $ | 0.08 | | | $ | — | |
| | | | | |
Weighted average common shares outstanding: |
Diluted | 13,635,483 | | | 70,838,474 | | | 84,473,957 | |
Note 3. Significant Accounting Policies
Basis of presentation and consolidation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been omitted if they substantially duplicate the disclosures contained in the Company’s annual audited consolidated financial statements pursuant to such rules and regulations.
These unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements and the related notes as of and for the year ended December 31, 2021 included in the Company's Annual Report on Form 10-K ("Annual Report") for the year ended December 31, 2021, filed with the SEC on March 11, 2022. In the opinion of the Company’s management, these unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the results and financial position for the periods presented. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that may be expected for the full year ending December 31, 2022.
Segments: Segments are defined as components of an enterprise for which discrete financial information is available and evaluated regularly by the chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing performance. OppFi’s Chief Executive Officer and Chief Financial Officer are collectively considered to be the CODM. The CODM reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company’s operations constitute a single reportable segment.
Use of estimates: The preparation of the unaudited consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions, including those impacted by COVID-19, that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
The judgements, assumptions, and estimates used by management are based on historical experience, management’s experience and qualitative factors. The areas subject to significant estimation techniques are the determination of fair value of installment finance receivables and warrants, the adequacy of the allowance for credit losses on finance receivables, operating lease right of use asset, operating lease liability, valuation allowance of deferred tax assets, stock-based compensation expense and income tax provision. For the aforementioned estimates, it is reasonably possible the recorded amounts or related disclosures could significantly change in the near future as new information is available.
Accounting Policies: There have been no changes to the Company's significant accounting policies from those described in Part II, Item 8 - Financial Statements and Supplementary Data in the Annual Report, except for the new accounting pronouncement subsequently adopted as noted below.
Participation rights purchase obligations: OppFi-LLC has entered into bank partnership arrangements with certain banks insured by the FDIC. As part of these bank partnership arrangements, the banks have the ability to retain a percentage of the finance receivables they have originated, and OppFi-LLC’s participation rights are reduced by the percentage of the finance receivables retained by the banks. For the three months ended March 31, 2022 and 2021, finance receivables originated through the bank partnership arrangements totaled 94% and 74%, respectively. As of March 31, 2022 and December 31, 2021, the unpaid principal balance of finance receivables outstanding for purchase was $11.8 million and $9.5 million, respectively.
Troubled debt restructurings: As the terms of the receivables are typically not renegotiated and settlement offers are not typically made until after a receivable stops accruing interest income (up to 60 days delinquent), the only receivables considered to be impaired, or troubled debt restructurings, are: 1) those receivables where a settlement offer is made after receivables cease accruing interest, which may result in a modification of contractual terms, 2) the Company has received notification that a borrower is working with a third party to settle debt on his/her behalf and 3) customers who have entered into the Company’s
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
short-term or long-term hardship programs. As of March 31, 2022 and December 31, 2021, management determined the balance of troubled debt restructuring receivables to be immaterial to the consolidated financial statements as a whole. As such, substantially all disclosures relating to impaired finance receivables, and troubled debt restructuring, have been omitted from these consolidated financial statements.
Capitalized technology: The Company capitalized software costs associated with application development totaling $3.8 million and $2.7 million for the three months ended March 31, 2022 and 2021, respectively. Amortization expense, which is included in depreciation and amortization on the consolidated statements of operations, totaled $3.0 million and $1.9 million for the three months ended March 31, 2022 and 2021, respectively.
Earnout Units: In connection with the Closing, 25,500,000 Retained OppFi Units (“Earnout Units”) held by the Members, and an equal number of shares of Class V Voting Stock distributed to OFS in connection with the Business Combination, are subject to certain restrictions and potential forfeiture pending the achievement (if any) of certain earnout targets pursuant to the terms of the Business Combination Agreement. But for restrictions related to a lock-up (transfer restrictions) and forfeiture (earnout criteria), as such restrictions are more specifically set forth in the Investor Rights Agreement entered into at the Closing, by and among the Company, certain founder holders of FGNA, the Members, the Members’ Representative and certain other parties thereto and/or the OppFi A&R LLCA, as applicable, the Earnout Units have all other economic and voting rights of the other units of OppFi-LLC. With respect to transfers, the Earnout Units are subject to a lock-up until the later of the end of the lock-up period applicable to other OppFi Units or until such Earnout Units are earned in accordance with the Business Combination Agreement. With respect to distributions (other than tax distributions, which in respect of such Earnout Units are treated the same as any other OppFi Unit in accordance with the OppFi A&R LLCA) in relation to the Earnout Units, such distributions (other than tax distributions) are held back until the Earnout Units are earned. If an Earnout Unit is not earned, and therefore forfeited, related distributions are distributed to the other holders of units at such time. Earnout Units are earned as follows:
1) if, on or any time prior to the third (3rd) anniversary of the Closing Date, the volume weighted average price (“VWAP”) equals or exceeds twelve dollars ($12.00) per share for twenty (20) trading days of any thirty (30) consecutive trading day period following the Closing, thirty three and one third percent (33.3%) of each of the earnout voting shares and the Earnout Units shall be earned and no longer subject to each such event;
2) if, on or any time prior to the third (3rd) year anniversary of the Closing Date, the VWAP equals or exceeds thirteen dollars ($13.00) per share for twenty (20) trading days of any thirty (30) consecutive trading day period following the Closing, thirty three and one third percent (33.3%) of each of the earnout voting shares and the Earnout Units shall be earned and no longer subject to each such event;
3) if, on or any time prior to the third (3rd) anniversary of the Closing Date, the VWAP equals or exceeds fourteen dollars ($14.00) per share for twenty (20) trading days of any thirty (30) consecutive trading day period following the Closing, thirty three and one third percent (33.3%) of each of the earnout voting shares and the Earnout Units shall be earned and no longer subject to each such event; and
4) if a definitive agreement with respect to a change of control as defined in the Business Combination Agreement (“Change of Control”) is entered into on or prior to the third (3rd) anniversary of the Closing Date, then, effective as of immediately prior to closing of such Change of Control, (A) thirty three and one third percent (33.3%) of each of the earnout voting shares and the Earnout Units shall be earned and no longer subject to each such event if the price per share payable to the holders of Class A common stock in connection with such Change of Control is equal to or exceeds twelve dollars ($12.00), (B) an additional thirty three and one third percent (33.3%) of each of the earnout voting shares and the Earnout Units shall be earned and no longer subject to each such event if the price per share payable to the holders of Class A common stock in connection with such Change of Control is equal to or exceeds thirteen dollars ($13.00), and (C) an additional thirty three and one third percent (33.3%) of each of the earnout voting shares and the Earnout Units shall be earned and no longer subject to each such event if the price per share payable to the holders of Class A common stock in connection with such Change of Control is equal to or exceeds fourteen dollars ($14.00).
Earnout Units are classified as equity transactions at initial issuance and at settlement when earned. Until the shares are issued and earned, the Earnout Units are not included in shares outstanding. The Earnout Units are not considered stock-based compensation.
Earnings per share: Basic earnings per share available to common stockholders is calculated by dividing the net income attributable to OppFi by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share available to common stockholders is computed using the more dilutive of a) the treasury stock method, which gives effect to potentially dilutive common stock equivalents of OppFi outstanding during the period, or b) the if-converted method, which gives effect to both the potentially dilutive common stock equivalents outstanding during the period as well as an assumed full exchange of OppFi-LLC Units into Class A common shares of OppFi as of the beginning of the
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
period. The if-converted method would also give effect to conversion of the Earnout Units in periods they would be deemed to vest. For the if-converted method, earnings is also adjusted to reflect all income of OppFi-LLC inuring to the benefit of OppFi and taxed accordingly. In periods in which the Company reports a net loss available attributable to OppFi, diluted earnings per share available to common stockholders would be the same as basic earnings per share available to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
Noncontrolling interests: Noncontrolling interests are held by the Members, who retained 87.8% and 87.6% of the economic ownership percentage of OppFi-LLC as of March 31, 2022 and December 31, 2021, respectively. In accordance with the provisions of Accounting Standards Codification (“ASC”) 810, Consolidation, the Company classifies the noncontrolling interests as a component of stockholders’ equity in the consolidated balance sheets. Additionally, the Company has presented the net income attributable to OppFi and the noncontrolling ownership interests separately in the consolidated statements of operations.
Emerging growth company: The Company is an emerging growth company as defined under the Jumpstart Our Business Startups Act of 2012 (“Jobs Act”). The Company is permitted to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements apply to private companies. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Accounting pronouncements issued and adopted: In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and issued certain transitional guidance and subsequent amendments between January 2018 and February 2020 (collectively, “Topic 842”). Under Topic 842, lessees are required to recognize lease assets and lease liabilities on the consolidated balance sheets for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statements of operations. Per ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, issued June 2020, Topic 842, as amended, is effective for private companies for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. As permitted for emerging growth companies, the Company adopted Topic 842 under the private company transition guidance, which was effective for the Company beginning on January 1, 2022. The Company utilized the effective date method, whereby the Company will continue to present prior period financial statements and disclosures under ASC 840. In addition, the Company has elected the package of practical expedients permitted under the transition guidance which, among other things, permits companies to not reassess prior conclusions on lease identification, lease classification, and initial direct costs. The Company also elected the practical expedient which permits the Company to combine lease and non-lease components and to exclude short-term leases, defined as having an initial term of twelve months or less, from the consolidated balance sheets. The adoption of Topic 842, as amended, resulted in the Company recording a right-of-use asset and lease liability related to the Company’s operating lease of its corporate headquarters totaling approximately $15.5 million and $18.0 million, respectively, on the Company’s consolidated balance sheet as of January 1, 2022. A decrease to deferred rent totaling approximately $2.5 million, which was previously included in accrued expenses on the consolidated balance sheet, was reclassified as an offset to the right-of-use asset upon adoption of Topic 842. The standard did not materially affect the Company's consolidated statements of operations or cash flows.
Accounting pronouncements issued and not yet adopted: In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The purpose of ASU No. 2020-04 is to provide optional guidance for a period of time related to accounting for reference rate reform on financial reporting. It is intended to reduce the potential burden of reviewing contract modifications related to discontinued rates. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. The purpose of ASU No. 2021-01 is to expand guidance on contract modifications and hedge accounting. The amendments and expedients in these updates are effective as of March 12, 2020 through December 31, 2022 and may be elected by topic. The Company is currently evaluating the impact of ASU No. 2020-04 and 2021-01 on the Company’s consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The purpose of ASU No. 2022-02 is to provide guidance on troubled debt restructuring accounting model for creditors that have adopted Topic 326. Additionally, the guidance expands on vintage disclosure requirements. The guidance is effective for annual reporting periods beginning after December 15, 2022, including interim periods within the annual reporting period. The Company is currently evaluating the impact of ASU No. 2022-02 on the Company’s consolidated financial statements.
Note 4. Finance Receivables
Finance receivables at fair value: The components of installment finance receivables at fair value as of March 31, 2022 and December 31, 2021 were as follows (in thousands):
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Unpaid principal balance of finance receivables - accrual | $ | 309,971 | | | $ | 307,059 | |
Unpaid principal balance of finance receivables - non-accrual | 22,546 | | | 25,185 | |
Unpaid principal balance of finance receivables | $ | 332,517 | | | $ | 332,244 | |
| | | |
Finance receivables at fair value - accrual | $ | 367,724 | | | $ | 369,576 | |
Finance receivables at fair value - non-accrual | 3,448 | | | 3,677 | |
Finance receivables at fair value, excluding accrued interest and fees receivable | 371,172 | | | 373,253 | |
Accrued interest and fees receivable | 10,673 | | | 10,637 | |
Finance receivables at fair value | $ | 381,845 | | | $ | 383,890 | |
| | | |
Difference between unpaid principal balance and fair value | $ | 38,655 | | | $ | 41,009 | |
The Company’s policy is to discontinue and reverse the accrual of interest income on installment finances receivables at the earlier of 60 days past due on a recency basis or 90 days past due on a contractual basis. As of March 31, 2022, the aggregate unpaid principal balance and fair value of installment finance receivables 90 days or more past due was $10.1 million and $1.5 million, respectively. As of December 31, 2021, the aggregate unpaid principal balance and fair value of installment finance receivables 90 days or more past due was $10.5 million and $1.5 million, respectively.
Changes in the fair value of installment finance receivables at fair value for the three months ended March 31, 2022 and 2021 were as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Balance at the beginning of the period | $ | 383,890 | | | $ | 289,166 | |
Originations of principal | 154,021 | | | 105,834 | |
Repayments of principal and recoveries | (106,577) | | | (104,195) | |
Accrued interest and fees receivable | 36 | | | 1,366 | |
Charge-offs, net (1) | (47,171) | | | (19,833) | |
Net change in fair value (1) | (2,354) | | | (2,556) | |
Balance at the end of the period | $ | 381,845 | | | $ | 269,782 | |
| | | |
(1) Included in "Change in fair value of finance receivables" in the consolidated statements of operations. | | |
Finance receivables at amortized cost, net: The components of finance receivables carried at amortized cost as of March 31, 2022 and December 31, 2021 were as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Finance receivables | $ | 5,942 | | | $ | 5,285 | |
Accrued interest and fees | 32 | | | 24 | |
Unearned annual fee income | (232) | | | (286) | |
Allowance for credit losses | (931) | | | (803) | |
Finance receivables at amortized cost, net | $ | 4,811 | | | $ | 4,220 | |
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Changes in the allowance for credit losses on finance receivables for the three months ended March 31, 2022 and 2021 were as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Beginning balance | $ | 803 | | | $ | 55,031 | |
Effects of adopting fair value option | — | | | (55,031) | |
Provisions for credit losses on finance receivables | 457 | | | 7 | |
Finance receivables charged off | (329) | | | — | |
| | | |
Ending balance | $ | 931 | | | $ | 7 | |
The Company released the reserve for repurchase liability for third-party lender losses on January 1, 2021 upon election of the fair value option for its installment finance receivables. As such, there was no reserve for repurchase liability for third-party losses as of January 1, 2021 and thereafter.
The following is an assessment of the credit quality of finance receivables at amortized cost and presents the recency and contractual delinquency of the finance receivable portfolio as of March 31, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Recency delinquency | | Contractual delinquency | | Recency delinquency | | Contractual delinquency |
Current | | $ | 5,037 | | | $ | 5,045 | | | $ | 5,016 | | | $ | 4,993 | |
Delinquency | | | | | | | | |
30-59 days | | 422 | | | 369 | | | 152 | | | 171 | |
60-89 days | | 366 | | | 392 | | | 102 | | | 104 | |
90+ days | | 117 | | | 136 | | | 15 | | | 17 | |
Total delinquency | | 905 | | | 897 | | | 269 | | | 292 | |
Finance receivables | | $ | 5,942 | | | $ | 5,942 | | | $ | 5,285 | | | $ | 5,285 | |
In accordance with the Company’s income recognition policy, finance receivables in non-accrual status as of March 31, 2022 and December 31, 2021 were $0.5 million and $0.1 million, respectively.
Note 5. Property, Equipment and Software, Net
Property, equipment and software consisted of the following (in thousands):
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
Capitalized technology | | $ | 38,345 | | | $ | 34,586 | |
Furniture, fixtures and equipment | | 3,847 | | | 3,792 | |
Leasehold improvements | | 979 | | | 979 | |
Total property, equipment and software | | 43,171 | | | 39,357 | |
Less accumulated depreciation and amortization | | (27,952) | | | (24,714) | |
Property, equipment and software, net | | $ | 15,219 | | | $ | 14,643 | |
Depreciation and amortization expense for the three months ended March 31, 2022 and 2021 was $3.2 million and $2.2 million, respectively.
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
Accrual for services rendered and goods purchased | | $ | 7,352 | | | $ | 10,631 | |
Accrued payroll and benefits | | 7,030 | | | 11,779 | |
Deferred rent | | — | | | 2,513 | |
Other | | 4,184 | | | 4,672 | |
Total | | $ | 18,566 | | | $ | 29,595 | |
Note 7. Leases
The Company leases its office facilities under a non-cancelable operating lease agreement with an unrelated party through September 2030. Operating leases are included in "Operating lease right of use asset" and "Operating lease liability" in the consolidated balance sheets. The Company currently has finance leases which in the aggregate are immaterial and not presented in the consolidated balance sheets.
Operating lease cost, which is included in occupancy expense in the consolidated statements of operations, for the three months ended March 31, 2022 totaled $1.1 million, of which $0.5 million was related to variable lease payments. Cash paid for amounts included in the measurement of lease liabilities total $0.6 million for the three months ended March 31, 2022.
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Future minimum lease payments as of March 31, 2022 are as follows (in thousands):
| | | | | | | | |
Year | | Amount |
Remainder of 2022 | | $ | 1,709 | |
2023 | | 2,339 | |
2024 | | 2,410 | |
2025 | | 2,482 | |
2026 | | 2,557 | |
Thereafter | | 10,283 | |
Total lease payments | | 21,780 | |
Less: imputed interest | | (4,149) | |
Operating lease liability | | $ | 17,631 | |
The weighted-average remaining lease term and discount rate as of March 31, 2022 are as follows:
| | | | | | | | |
Weighted average remaining lease term (in years) | | 8.5 |
Weighted average discount rate | | 5 | % |
Supplemental cash flow information related to the lease for the three months ended March 31, 2022 are as follows (in thousands):
| | | | | | | | |
| | Amount |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Cash paid for operating leases included in operating activities | | $ | 562 | |
Disclosures under ASC 840, Leases
Rent expense, which is included in occupancy expense in the consolidated statements of operations, totaled $0.9 million for the three months ended March 31, 2021.
Future minimum lease payments as of December 31, 2021 are as follows (in thousands):
| | | | | | | | |
Year | | Amount |
2022 | | $ | 2,271 | |
2023 | | 2,339 | |
2024 | | 2,410 | |
2025 | | 2,482 | |
2026 | | 2,557 | |
Thereafter | | 10,283 | |
Total | | $ | 22,342 | |
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 8. Borrowings
The following is a summary of the Company’s borrowings (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purpose | | Borrower | | Borrowing Capacity | | March 31, 2022 | | December 31, 2021 | | Interest Rate as of March 31, 2022, Except as Noted | | Maturity Date | |
Secured borrowing payable | | Opportunity Funding SPE II, LLC | | $ | 19,176 | | | $ | 19,176 | | | $ | 22,443 | | | 15.00% | | — | (1) |
| | | | | | | | | | | | | |
Senior debt | | | | | | | | | | | | | |
Revolving line of credit | | Opportunity Funding SPE III, LLC | | $ | 175,000 | | | $ | 123,000 | | | $ | 119,000 | | | LIBOR plus 6.00% | | January 2024 | |
Revolving line of credit | | Opportunity Funding SPE V, LLC; Opportunity Funding SPE VII, LLC | | 75,000 | | | 49,500 | | | 45,900 | | | LIBOR plus 7.25% | | April 2024 | |
Revolving line of credit | | Opportunity Funding SPE VI, LLC | | 50,000 | | | 33,000 | | | 30,600 | | | LIBOR plus 7.25% | | April 2023 | |
Revolving line of credit | | Opportunity Funding SPE IV, LLC; SalaryTap Funding SPE, LLC | | 45,000 | | | 7,500 | | | 7,500 | | | SOFR plus 0.11% plus 3.85% | | February 2024 | |
Total revolving lines of credit | | | | 345,000 | | | 213,000 | | | 203,000 | | | | | | |
| | | | | | | | | | | | | |
Term loan, net | | OppFi-LLC | | 50,000 | | | 48,687 | | | 48,578 | | | LIBOR plus 10.00% | | March 2025 | |
Total senior debt | | | | $ | 395,000 | | | $ | 261,687 | | | $ | 251,578 | | | | | | |
| | | | | | | | | | | | | |
(1) | | Maturity date extended indefinitely until borrowing capacity is depleted | | | |
Secured borrowing payable: As of March 31, 2022 and December 31, 2021, $165.0 million and $148.9 million, respectively, of finance receivables have been purchased with an active secured borrowing balance of $19.2 million and $22.4 million, respectively.
Interest expense related to secured borrowings was $0.8 million and $0.8 million for the three months ended March 31, 2022 and 2021, respectively. Additionally, the Company has capitalized $0.2 million in debt issuance costs related to secured borrowings. There were no amortized debt issuance costs related to secured borrowings for the three months ended March 31, 2022. Amortized debt issuance costs related to secure borrowings were $13 thousand for the three months ended March 31, 2021. As of March 31, 2022 and December 31, 2021, there were no unamortized debt issuance costs related to secured borrowings.
Senior debt:
Corporate credit agreement
On March 23, 2021, the borrowings under this revolving credit agreement were paid in full. Subsequent to repayment, OppFi-LLC terminated the revolving credit agreement. Interest expense related to the revolving credit agreement totaled $35 thousand for the three months ended March 31, 2021. Additionally, the Company has capitalized $0.3 million in debt issuance costs in connection with this facility. For the three months ended March 31, 2021, amortized debt issuance costs were $21 thousand.
Revolving line of credit - Opportunity Funding SPE III, LLC
Interest expense related to this facility was $2.5 million and $1.3 million for the three months ended March 31, 2022 and 2021, respectively. Additionally, the Company has capitalized $2.1 million in debt issuance costs in connection with this facility. Amortized debt issuance costs were $0.2 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, the remaining balance of unamortized debt issuance costs associated with the facility was $0.6 million and $0.8 million, respectively.
Revolving line of credit - Opportunity Funding SPE V, LLC and Opportunity Funding SPE VII, LLC
Interest expense related to this facility was $1.1 million and $0.6 million for the three months ended March 31, 2022 and 2021, respectively. Additionally, the Company has capitalized $1.5 million in debt issuance costs in connection with this facility.
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Amortized debt issuance costs were $0.2 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, the remaining balance of unamortized debt issuance costs associated with this facility was $0.2 million and $0.4 million, respectively.
Revolving line of credit - Opportunity Funding SPE VI, LLC
Interest expense related to this facility was $0.8 million and $0.4 million for the three months ended March 31, 2022 and 2021, respectively. Additionally, the Company has capitalized $0.9 million in debt issuance costs in connection with this facility. Amortized debt issuance costs were $0.1 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021 , the remaining balance of unamortized debt issuance costs associated with this facility was $14 thousand and $0.1 million, respectively.
Revolving line of credit - Opportunity Funding SPE IV, LLC and SalaryTap Funding SPE, LLC
On March 31, 2022, this revolving line of credit agreement was amended to bear interest in accordance with the Secured Overnight Financing Rate (“SOFR”) at a per annum rate equal to the applicable SOFR rate plus a credit spread adjustment of 0.11% plus 3.85%.
Interest expense related to this facility was $0.1 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively. Additionally, the Company has capitalized $0.9 million in debt issuance costs in connection with this facility. Amortized debt issuance costs were $46 thousand and $0.1 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, the remaining balance of unamortized debt issuance costs associated with this facility was $0.3 million and $0.3 million, respectively.
Term loan, net
As of March 31, 2022 and December 31, 2021, the outstanding balance of $50.0 million was net of unamortized debt issuance costs of $1.3 million and $1.4 million, respectively.
Interest expense related to this facility was $1.5 million and $0.7 million for the three months ended March 31, 2022 and 2021, respectively. Additionally, the Company has capitalized $2.3 million in debt issuance costs in connection with this facility. Amortized debt issuance costs were $0.1 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively.
As of March 31, 2022, required payments for the term loan for each of the next five years are as follows (in thousands):
| | | | | | | | |
Year | | Amount |
Remainder of 2022 | | $ | — | |
2023 | | — | |
2024 | | — | |
2025 | | 50,000 | |
2026 | | — | |
Total | | $ | 50,000 | |
Subordinated debt - related party: On March 30, 2021, the borrowings under this unsecured line of credit agreement were paid in full. Interest expense related to this related party transaction was $0.1 million for the three months ended March 31, 2021.
Note 9. Warrant Liabilities
As of March 31, 2022, there were 11,887,500 Public Warrants and 3,451,937 Private Placement Warrants outstanding. As of March 31, 2022 and December 31, 2021, the Company recorded warrant liabilities of $8.8 million and $11.2 million, respectively, in the consolidated balance sheets. For the three months ended March 31, 2022, the fair value of the Public Warrants and Private Placement Warrants decreased by $1.9 million and $0.5 million, respectively.
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 10. Stockholders’ Equity
Share repurchase: On January 6, 2022, OppFi 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 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 Securities Exchange Act of 1934, as amended, 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 of OppFi-LLC held by OppFi, decreasing the percentage ownership of OppFi-LLC by OppFi and relatively increasing the ownership by the Members. The Repurchase Program will expire in December 2023.
The Company records the difference between the cash paid for stock repurchases and the underlying par value as a reduction to accumulated earnings (deficit). During the three months ended March 31, 2022, OppFi repurchased 282,334 shares of Class A Common Stock at an average purchase price of $3.67 per share for an aggregate purchase price of $1.0 million. As of March 31, 2022, $19.0 million of the repurchase authorization remained available.
Note 11. Stock-Based Compensation
On July 20, 2021, OppFi established the OppFi Inc. 2021 Equity Incentive Plan (“Plan”), which provides for the grant of awards in the form of options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, performance units, cash-based awards, and other stock-based awards to employees, non-employee directors, officers, and consultants. As of March 31, 2022, the maximum aggregate number of shares of Class A Common Stock that may be issued under the Plan (including from outstanding awards) was 11,772,630 shares. As of March 31, 2022, OppFi had only granted awards in the form of options, restricted stock units, and performance stock units.
Stock options:
A summary of the Company’s stock option activity for the three months ended March 31, 2022 is as follows:
| | | | | | | | | | | | | | |
| Number of Common Stock Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value |
Outstanding as of December 31, 2021 | 3,375,000 | $ | 15.23 | | — | $ | — | |
Granted | 251,918 | 4.77 | | — | — | |
Exercised | — | — | | — | — | |
Forfeited | (1,499,822) | 14.01 | | — | — | |
Outstanding as of March 31, 2022 | 2,127,096 | $ | 14.85 | | 9.34 | $ | — | |
Exercisable as of March 31, 2022 | 175,000 | $ | 15.23 | | 9.30 | $ | — | |
For the three months ended March 31, 2022, the Company recognized negative stock-based compensation expense of $0.2 million related to stock options due to forfeitures. As of March 31, 2022 and December 31, 2021, the Company had unrecognized stock-based compensation related to unvested stock options of $2.8 million and $6.1 million, respectively, that is expected to be recognized over an estimated weighted-average period of approximately 3.3 years and 3.5 years, respectively. The weighted-average grant date fair value of stock options granted during the three months ended March 31, 2022 was $2.86.
The fair value of each option grant during the three months ended March 31, 2022 was estimated on the grant date using the Black-Scholes option pricing model based on the following assumptions:
| | | | | | | | |
Volatility | | 65.00 | % |
Risk-free rate | | 1.71% |
Expected term (years) | | 6.1 years |
Dividend yield | | 0.00 | % |
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Restricted stock units:
A summary of the Company’s restricted stock unit (“RSU”) activity for the three months ended March 31, 2022 is as follows:
| | | | | | | | |
| Number of Restricted Stock Units | Weighted-Average Grant Date Fair Value |
Unvested as of December 31, 2021 | 1,818,530 | $ | 7.58 | |
Granted | 275,799 | 4.54 | |
Vested | (25,671) | 3.58 | |
Forfeited | (566,232) | 5.48 | |
Unvested as of March 31, 2022 | 1,502,426 | $ | 7.10 | |
There were 31,833 vested RSUs that remained unsettled as of March 31, 2022. For the three months ended March 31, 2022, the Company recognized stock-based compensation of $0.8 million related to RSUs. As of March 31, 2022 and December 31, 2021, total unrecognized compensation expense related to RSUs was $8.6 million and $12.2 million, respectively, which will be recognized over a weighted-average vesting period of approximately 3.5 years and 3.6 years, respectively.
Performance stock units:
A summary of the Company’s performance stock unit (“PSU”) activity for three months ended March 31, 2022 is as follows:
| | | | | | | | |
| Number of Performance Stock Units | Weighted-Average Grant Date Fair Value |
Unvested as of December 31, 2021 | 78,907 | $ | 7.69 | |
Granted | — | — | |
Vested | — | — | |
Forfeited | — | — | |
Unvested as of March 31, 2022 | 78,907 | $ | 7.69 | |
For the three months ended March 31, 2022, the Company recognized stock-based compensation of $0.1 million related to PSUs. As of March 31, 2022 and December 31, 2021, total unrecognized compensation expense related to PSUs was $0.4 million and $0.5 million, respectively, which will be recognized over a weighted-average vesting period of approximately 3.50 years and 3.75 years, respectively.
Employee Stock Purchase Plan: On July 20, 2021, the Company established the OppFi Inc. 2021 Employee Stock Purchase Plan (“ESPP”). The ESPP permits eligible employees to contribute up to 10% of their compensation, not to exceed the IRS allowable limit, to purchase shares of Class A Common Stock during six month offerings. Eligible employees will purchase the shares at a price per share equal to the lesser of 85% of the fair market value of the Class A Common Stock on the first trading day of the offering period or the last trading day of the offering period. The offering periods begin each January 1 and July 1, with the initial offering period beginning on January 1, 2022. As of March 31, 2022, the maximum aggregate number of shares of Class A Common Stock that may be issued under the ESPP was 1,200,000 and consists of authorized but unissued or reacquired shares of Class A Common Stock. The maximum aggregate number of shares of Class A Common Stock that may be issued under the ESPP shall be cumulatively increased on January 1, 2022 and on each subsequent January 1, through and including January 1, 2030, by a number of shares equal to the smallest of (a) one percent of the number of shares of Class A Common Stock issued and outstanding on the immediately preceding December 31, (b) 2,400,000 shares, or (c) an amount determined by the Board. As of March 31, 2022 and December 31, 2021 , no shares of Class A Common Stock have been purchased under the ESPP.
ESPP employee payroll contributions accrued as of March 31, 2022 were $0.1 million and are included within accrued expenses on the consolidated balance sheets. Payroll contributions accrued as of March 31, 2022 will be used to purchase shares at the end of the current ESPP offering period ending on June 30, 2022. Payroll contributions ultimately used to purchase shares are reclassified to stockholders’ equity on the purchase date.
Profit unit interests: Prior to the Business Combination, OppFi-LLC issued profit unit interests, which were recapitalized as “OppFi Units” in connection with the adoption by the Members in accordance with the terms of the “OppFi A&R LLCA” immediately prior to the Closing.
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Total profit interest compensation expense for the three months ended March 31, 2021 was $49 thousand.
The compensation expense accounted for all vested units based on the following assumptions:
| | | | | | | | |
Expected term | | 3 years |
Volatility | | 68.0 | % |
Discount for lack of marketability | | 45.0 | % |
Risk free rate | | 0.2 | % |
A summary of the Company’s profit unit interests activity for the three months ended March 31, 2021 is as follows:
| | | | | | | | | | | | | | |
| | | | Avg Fair Value |
| | Units | | at Grant Date |
Outstanding at December 31, 2020 | | 12,202,135 | | $ | 0.08 | |
Granted | | — | | — | |
Forfeited | | (54,800) | | 0.08 | |
Outstanding at March 31, 2021 | | 12,147,335 | | $ | 0.08 | |
A summary of the Company’s non-vested units activity for the three months ended March 31, 2021 is as follows:
| | | | | | | | | | | | | | |
| | | | Avg Fair Value |
| | Units | | at Grant Date |
Non-vested units at December 31, 2020 | | 4,738,333 | | $ | 0.12 | |
Granted | | — | | — | |
Vested | | (325,835) | | 0.15 | |
Forfeited | | (54,800) | | 0.08 | |
Non-vested units at March 31, 2021 | | 4,357,698 | | $ | 0.12 | |
Subsequent to the Business Combination, there was no unrecognized compensation expense related to profit unit interests.
Note 12. Income Taxes
For the three months ended March 31, 2022, OppFi recorded an income tax expense of $0.5 million and reported consolidated income before taxes of $0.2 million, resulting in a 222.2% effective income tax rate. As OppFi-LLC was classified as a partnership for federal income tax purposes, OppFi-LLC did not record a federal income tax expense for the three months ended March 31, 2021. A pro forma income tax provision has been disclosed as if OppFi-LLC was a taxable corporation for the three months ended March 31, 2021. For the three months ended March 31, 2021, the unaudited pro forma income tax expense was $0.7 million, resulting in an effective tax rate of 2.8%
OppFi’s effective income tax rate for the three months ended March 31, 2022 differs from the federal statutory income tax rate of 21% primarily due to the noncontrolling interest in the Up-C partnership structure, nondeductible expenses, state income taxes, and discrete tax items. For the three months ended March 31, 2022, there was a discrete item recorded of $0.5 million related to a prior period stock compensation adjustment, which increased the effective rate by 219%. Excluding the aforementioned discrete item, the effective tax rate for the three months ended March 31, 2022 would have been 3.2%.
OppFi is subject to a 21% federal income tax rate on its activities and its distributive share of income from OppFi-LLC, as well as various state and local income taxes. As of March 31, 2022, OppFi owned 12.2% of the outstanding units of OppFi-LLC and considers appropriate tax accounting only on this portion of OppFi-LLC’s activity. Additionally, OppFi’s income tax rate varies from the 21% statutory federal income tax rate primarily due to a permanent difference related to the adjustment of the warrant liabilities recorded by OppFi. This fair value adjustment of the warrant liabilities represents a large portion of OppFi’s pre-tax book income or loss and is a permanent difference between GAAP and taxable income, which impacts OppFi’s effective income tax rate.
The CARES Act was enacted on March 27, 2020 in the United States to provide emergency assistance to individuals and businesses affected by the COVID-19 pandemic. For the three months ended March 31, 2022, the impact of the CARES Act
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
was immaterial to the Company’s tax provision. However, under the CARES Act, the Company is deferring the employer portion of payroll tax payments through December 31, 2022.
There were no unrecognized tax benefits as of March 31, 2022 or December 31, 2021. No amounts were accrued for the payment of interest and penalties as of March 31, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
Note 13. Interest Expense and Amortized Debt Issuance Costs
The following table summarizes interest expense and amortized debt issuance costs for the three months ended March 31, (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Interest expense | $ | 6,839 | | | $ | 3,950 | |
Amortized debt issuance costs | 609 | | | 521 | |
Interest expense and amortized debt issuance costs | $ | 7,448 | | | $ | 4,471 | |
Note 14. Fair Value Measurements
Fair value on a nonrecurring basis: The Company has no assets or liabilities measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances.
Fair value measurement on a recurring basis: The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Value | | Fair Value Measurements |
| | March 31, 2022 | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | |
Finance receivables at fair value, excluding accrued interest and fees receivable (1) | | $ | 371,172 | | | $ | — | | | $ | — | | | $ | 371,172 | |
| | | | | | | | |
Financial liabilities: | | | | | | | | |
Warrant liability - Public Warrants (2) | | 6,181 | | | 6,181 | | | — | | | — | |
Warrant liability - Private Placement Warrants (3) | | 2,655 | | | — | | | — | | | 2,655 | |
| | | | | | | | |
| | Carrying Value | | Fair Value Measurements |
| | December 31, 2021 | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | |
Finance receivables at fair value, excluding accrued interest and fees receivable (1) | | $ | 373,253 | | | $ | — | | | $ | — | | | $ | 373,253 | |
| | | | | | | | |
Financial liabilities: | | | | | | | | |
Warrant liability - Public Warrants (2) | | 8,083 | | | 8,083 | | | — | | | — | |
Warrant liability - Private Placement Warrants (3) | | 3,157 | | | — | | | — | | | 3,157 | |
| | | | | | | | |
During the three months ended March 31, 2022 and 2021, there were no transfers of assets or liabilities in or out of Level 3 fair value measurements. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) The Company primarily estimates the fair value of its installment finance receivables portfolio using discounted cash flow models that have been internally developed. The models use inputs that are unobservable but reflect the Company’s best estimates of the assumptions a market participant would use to calculate fair value. |
| | | | | | | | |
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table presents quantitative information about the significant unobservable inputs used for the Company’s installment finance receivables fair value measurements as of March 31, 2022 and December 31, 2021: |
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
Interest rate on finance receivables | | 147.70 | % | | 147.60 | % |
Discount rate | | 22.20 | % | | 21.80 | % |
Servicing cost* | | 5.00 | % | | 5.00 | % |
Remaining life | | 0.62 years | | 0.62 years |
Default rate* | | 18.50 | % | | 17.70 | % |
Accrued interest* | | 3.20 | % | | 3.20 | % |
Prepayment rate* | | 21.30 | % | | 21.00 | % |
| | | | |
*Stated as a percentage of finance receivables | | |
(2) The fair value measurement for the Public Warrants is categorized as Level 1 due to the use of an observable market quote in an active market under the ticker OPFI WS.
(3) The fair value of the Private Placement Warrants is measured using a Monte Carlo simulation; accordingly, the fair value measurement for the Private Placement Warrants is categorized as Level 3.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table presents the significant assumptions used in the simulation at March 31, 2022 and December 31, 2021, the Closing Date: |
| | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
Input | | $11.50 Exercise Price Warrants | | $15 Exercise Price Warrants | | $11.50 Exercise Price Warrants | | $15 Exercise Price Warrants |
Risk-free interest rate | | 2.42 | % | | 2.33 | % | | 1.19 | % | | 1.50 | % |
Expected term (years) | | 4.3 | | 9.3 | | 4.6 | | 9.6 |
Expected volatility | | 57.00 | % | | 57.00 | % | | 48.40 | % | | 48.40 | % |
Exercise price | | $ | 11.50 | | | $ | 15.00 | | | $ | 11.50 | | | $ | 15.00 | |
Fair value of warrants | | $ | 0.60 | | | $ | 1.24 | | | $ | 0.74 | | | $ | 1.40 | |
| | | | | | | | | | | | | | | | | | | | |
The following table presents the changes in the fair value of the warrant liability - Private Placement Warrants (in thousands): |
| | | | | | |
| | $11.50 Exercise Price Warrants | | $15 Exercise Price Warrants | | Total |
Fair value as of December 31, 2021 | | $ | 1,879 | | | $ | 1,278 | | | $ | 3,157 | |
Change in fair value | | (356) | | | (146) | | | (502) | |
Fair value as of March 31, 2022 | | $ | 1,523 | | | $ | 1,132 | | | $ | 2,655 | |
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Financial assets and liabilities not measured at fair value: The following table presents the carrying value and estimated fair values of financial assets and liabilities disclosed but not carried at fair value and the level within the fair value hierarchy as of March 31, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Value | | Fair Value Measurements |
| | March 31, 2022 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | |
Cash | | $ | 27,025 | | | $ | 27,025 | | | $ | — | | | $ | — | |
Restricted cash | | 32,921 | | | 32,921 | | | — | | | — | |
Accrued interest and fees receivable | | 10,673 | | | 10,673 | | | — | | | — | |
Finance receivables at amortized cost, net | | 4,811 | | | — | | | — | | | 4,811 | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Secured borrowing payable | | 19,176 | | | — | | | — | | | 19,176 | |
Senior debt, net | | 261,687 | | | — | | | — | | | 261,687 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Value | | Fair Value Measurements |
| | December 31, 2021 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | |
Cash | | $ | 25,064 | | | $ | 25,064 | | | $ | — | | | $ | — | |
Restricted cash | | 37,298 | | | 37,298 | | | — | | | — | |
Accrued interest and fees receivable | | 10,637 | | | 10,637 | | | — | | | — | |
Finance receivables at amortized cost, net | | 4,220 | | | — | | | — | | | 4,220 | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Secured borrowing payable | | 22,443 | | | — | | | — | | | 22,443 | |
Senior debt, net | | 251,578 | | | — | | | — | | | 251,578 | |
Note 15. Commitments, Contingencies and Related Party Transactions
Legal contingencies: Due to the nature of its business activities, the Company is subject to extensive regulations and legal actions and is currently involved in certain legal and regulatory matters, which arise in the normal course of business. In accordance with applicable accounting guidance, the Company establishes an accrued liability for legal and regulatory matters when those matters present loss contingencies which are both probable and reasonably estimable.
The Company has received inquiries from certain agencies and states on its lending compliance, the validity of the bank partnership model, and its ability to facilitate the servicing of bank originated loans. Management is confident that its lending practices and the bank partnership structure, in addition to the Company’s technologies, services, and overall relationship with its bank partners, complies with state and federal laws. However, the inquiries are still in process and the outcome is unknown at this time.
Except as described below, management does not believe that the resolution of any currently pending legal and regulatory matters will have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
On November 18, 2021, the Company entered into a Consent Judgement and Order (“Settlement”) with the Attorney General of the District 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 the District of Columbia, pay $0.3 million to the District of Columbia and provide refunds totaling $1.5 million to certain District of Columbia consumers. As of December 31, 2021, unpaid refunds due to certain District of Columbia totaled $1.5 million, which is included in accrued expenses on the consolidated balance sheets. During the three months ended March 31, 2022, the Company distributed refunds totaling $1.5 million to the District of Columbia consumers.
On March 7, 2022, the Company, through OppFi-LLC, filed a complaint for declaratory and injunctive relief (“Complaint”) against the Commissioner (in her official capacity) of the Department of Financial Protection and Innovation of the State of California (“Defendant”) in the Superior 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
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
the Defendant from enforcing interest rate caps under the CFL against the Company based on activities related to the Program. See Note 18 for additional information.
Related party transactions: OppFi-LLC previously had an unsecured line of credit agreement with Schwartz Capital Group (“SCG”) with a maximum available amount of $4.0 million, which was paid in full on March 30, 2021. Interest expense related to this related party transaction was $0.1 million for the three months ended March 31, 2021.
In August 2020, OppFi-LLC entered into a Management Fee Agreement (“Management Fee Agreement”) with SCG. Pursuant to the terms of the Management Fee Agreement, SCG provided board and advisory services. Effective upon the Closing, OppFi-LLC terminated the Management Fee Agreement. For the three months ended March 31, 2021, management fees under the Management Fee Agreement totaled $0.2 million.
Severance agreements: The Company entered into Severance Agreements and General Releases (“Severance Agreements”) with the Company’s former Chief Executive Officer and other key employees. In connection with these Severance Agreements, the Company agreed to, among other things, pay certain severance benefits for one year. As of March 31, 2022 and December 31, 2021, unpaid severance benefits totaled $2.0 million and $1.3 million, respectively, which are included in accrued expenses on the consolidated balance sheets.
Note 16. Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of finance receivables. As of March 31, 2022, consumers living primarily in Florida, Texas and California made up approximately 14%, 13%, and 12%, respectively, of the gross amount of the Company’s portfolio of finance receivables. As of March 31, 2022, there were no other states that made up more than 10% or more of the gross amount of the Company’s portfolio of finance receivables. As of December 31, 2021, consumers living primarily in Florida, Texas and California made up approximately 14%, 14% and 11%, respectively, of the gross amount of the Company’s portfolio of finance receivables. Furthermore, such consumers’ ability to honor their installment contracts may be affected by economic conditions in these areas. The Company is also exposed to a concentration of credit risk inherent in providing alternate financing programs to borrowers who cannot obtain traditional bank financing.
Note 17. Retirement Plan
The Company sponsors a 401(k) retirement plan (“401(k) Plan”) for its employees. Full time employees (except certain non-resident aliens) who are age 21 and older are eligible to participate in the 401(k) Plan. The 401(k) Plan participants may elect to contribute a portion of their eligible compensation to the 401(k) Plan. The Company has elected a matching contribution up to 4% on eligible employee compensation. The Company’s contribution, which is included in salaries and employee benefits in the consolidated statements of operations, totaled $0.4 million and $0.3 million for the three months ended March 31, 2022 and 2021, respectively.
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 18. Earnings Per Share
Prior to the reverse recapitalization in connection with the Closing (“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 because net income prior to the Business Combination was attributable entirely to OppFi-LLC.
The following table sets forth the computation of basic and diluted (as restated) earnings per share for the three months ended March 31, 2022 (in thousands, except share and per share data):
| | | | | | | | | |
| Three Months Ended | | | | |
| March 31, 2022 | | |
Numerator: | | | | | |
| | | | | |
| | | | | |
Net loss | $ | (297) | | | | | |
Net loss attributable to noncontrolling interest | (1,373) | | | | | |
Net income available to Class A common stockholders - Basic | 1,076 | | | | | |
Dilutive effect of warrants on net income to Class A common stockholders | — | | | | | |
Net loss attributable to noncontrolling interest | (1,373) | | | | | |
Income tax benefit | 331 | | | | | |
Net income available to Class A common stockholders - Diluted | $ | 34 | | | | | |
Denominator: | | | | | |
Weighted average Class A common stock outstanding - Basic | 13,581,828 | | | | |
Effect of dilutive securities: | | | | | |
Stock options | — | | | | |
Restricted stock units | 53,655 | | | | |
Retained OppFi Units | 70,838,474 | | | | |
Dilutive potential common shares | 70,892,129 | | | | |
Weighted average units outstanding - diluted (as restated) | 84,473,957 | | | | |
Earnings per share: | | | | | |
Basic EPS | $ | 0.08 | | | | | |
Diluted EPS (as restated) | $ | — | | | | | |
The following table presents securities that have been excluded from the calculation of diluted earnings per share as
their effect would have been anti-dilutive for the three months ended March 31, 2022:
| | | | | |
| Three Months Ended |
| March 31, 2022 |
Public Warrants | 11,887,500 |
Private Unit Warrants | 231,250 |
$11.50 Exercise Price Warrants | 2,248,750 |
$15 Exercise Price Warrants | 912,500 |
Underwriter Warrants | 59,437 |
Stock Options | 2,127,096 |
Restricted stock units | 1,360,548 |
Performance stock units | 78,907 |
Noncontrolling interest - Earnout Units | 25,500,000 |
Potential common stock | 44,405,988 |
OppFi Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 19. Subsequent Events
The Company has evaluated the impact of events that have occurred through the date these financial statements were issued and identified the following events that required disclosure.
Total return swaps: On April 15, 2022, the Company, through OppFi-LLC, entered into total return swaps (“TRS”) with affiliates of Midtown Madison Management (collectively, “Midtown”) pursuant to which OppFi-LLC agreed to provide credit protection related to a reference pool of consumer receivables financed by Midtown through a $75 million revolving credit agreement (“Credit Agreement”) with Midtown as lender and Gray Rock SPV V, LLC as borrower. Pursuant to the TRS, OppFi-LLC will receive payments received by the Midtown reference lenders under the Credit Agreement. OppFi-LLC also entered into a servicing agreement to service the consumer receivables financed through the Credit Agreement.
California Financing Law litigation: On April 8, 2022, the Defendant filed a cross-complaint against OppFi-LLC attempting to enforce the CFL against OppFi-LLC and, among other things, void loans that are originated by the Company’s federally-insured state-chartered bank partners through the Program in California and seek financial penalties against OppFi-LLC. The Company intends to aggressively prosecute the claims set forth in the Complaint and vigorously defend itself against the cross-complaint as the Company believes that the Defendant’s position is without merit as explained in the Company’s initial Complaint.