OppFi (OPFI) risk factors, FY2024 10-K

Other

1. 01Summary of Risk Factors Related to Our Business

Risks Related to Our Business and Industry

1. 02We are a rapidly growing company with a relatively limited operating history, which may result in increased risks, uncertainties, expenses and difficulties, and makes it difficult to evaluate our future prospects
2. 03Our revenue growth rate and financial performance in recent periods may not be indicative of future performance and such growth may slow over time
3. 04If we fail to effectively manage our growth, our business, financial condition and results of operations could be adversely affected
4. 05We may not be able to maintain or increase our profitability in the future
5. 06We may experience fluctuations in our quarterly operating results
6. 07If we are unable to continue to improve our machine learning models or if our machine learning models contain errors or are otherwise ineffective, our growth prospects, business, financial condition and results of operations would be adversely affected
7. 08If our existing bank partners were to cease or limit operations with us or if we are unable to attract and onboard new bank partners, our business, financial condition and results of operations could be adversely affected
8. 09The sales and onboarding process of new bank partners could take longer than expected, leading to fluctuations or variability in expected revenues and results of operations
9. 10Our business has been, and may continue to be, adversely affected by economic conditions and other factors that we cannot control
10. 11Many new consumers on our platform have limited or no credit history. Accordingly, such borrowers have historically been, and may in the future become, disproportionately affected by adverse macroeconomic conditions, such as the aforementioned events that have occurred or may occur again in the future
11. 12Decreased demand for loans, including as a result of increased savings or income, could result in a loss of revenues or decline in profitability if we are unable to successfully adapt to such changes
12. 13Our models have not yet been extensively tested during down-cycle economic conditions. If our models do not accurately reflect a borrower’s credit risk in such economic conditions, the performance of loans facilitated on our platform may be worse than anticipated
13. 14Substantially all of our revenue is derived from a single loan product, and we are thus particularly susceptible to fluctuations in the unsecured personal loan market. We also do not currently offer a broad suite of products that bank partners and consumers may find desirable
14. 15We have developed and may develop in the future new loan products and services offerings, and if we are unable to manage the related risks, our growth prospects, business, financial condition and results of operations could be adversely affected
15. 16If we do not compete effectively in our target markets, our business, results of operations and financial condition could be harmed
16. 17If we are unable to manage the risks associated with fraudulent activity, our brand and reputation, business, financial condition and results of operations could be adversely affected
17. 18We depend on our key personnel and other highly skilled personnel, and if we fail to attract, retain and motivate our personnel, our business, financial condition and results of operations could be adversely affected
18. 19Cybersecurity attacks or technology failures could disrupt business operations, result in breaches of borrowers’ confidential information that we store and expose us to significant liabilities, reputational damage, loss of customers and regulatory action
19. 20may lead to increased harm of the type described above. There can be no assurance that our security measures intended to protect our information technology systems and infrastructure will successfully prevent service interruptions or security incidents
20. 21We have entered into, and may in the future enter into, joint venture or other minority investments that could be adversely affected by our lack of sole decision-making authority, our reliance on the financial condition of our joint venture partners, and other uncertainties outside of our control
21. 22We face increased competition within our industry and risks concerning innovation and emerging technologies, including artificial intelligence and increasing customer demand for machine learning technologies
22. 23If we are unable to manage the risks related to our loan servicing and collections obligations, our business, financial condition and results of operations could be adversely affected
23. 24The soundness of other financial institutions or the financial services industry generally, such as actual concerns or events involving liquidity, defaults or non-performance, may adversely affect us
24. 25Borrowers may prepay a loan at any time without penalty, which could reduce our servicing fees and deter our bank partners and investors from investing in loans facilitated by our platform
25. 26Our marketing efforts and brand promotion activities may not be effective, which could adversely affect our ability to grow our business
26. 27We may face disruptions with the development and implementation of our new loan management software system which could adversely affect our business operations and financial performance
27. 28Unfavorable outcomes in legal proceedings may harm our business and results of operations
28. 29We may evaluate and potentially consummate acquisitions, which could require significant management attention, consume our financial resources, disrupt our business and adversely affect our financial results
29. 30Our business is subject to the risks of natural disasters and other catastrophic events, and to interruption by man-made problems, any of which could have an adverse effect on our business, results of operations and financial condition

Risks Related to Our Financial Reporting and Risk Management

1. 31If our estimates or judgments relating to our critical accounting policies prove to be incorrect or financial reporting standards or interpretations change, our results of operations could be adversely affected
2. 32The determination of the fair values of our finance receivables portfolio involves unobservable inputs that can be highly subjective and may prove to be materially different than the actual economic outcome
3. 33We have, in the past, and may, in the future, conclude that our internal control over financial reporting is not effective due to the presence of significant deficiencies and material weakness
4. 34We may face litigation and other risks as a result of the material weakness in our internal control over financial reporting
5. 35If our risk management framework does not effectively identify and control our risks, we could suffer unexpected losses or be adversely affected, which could have a material adverse effect on our business
6. 36Our projections are subject to significant risks, assumptions, estimates and uncertainties. As a result, our projected revenues, market share, expenses and profitability may differ materially from our expectations

Risks Related to Our Intellectual Property and Platform Development

1. 37It may be difficult and costly to protect our intellectual property rights, and we may not be able to ensure their protection
2. 38cover potential claims of this type adequately or at all, and we may be required to pay monetary damages, which may be significant
3. 39Any significant disruption in our platform could prevent us from processing loan applicants and servicing loans, reduce the effectiveness of our machine learning models and result in a loss of bank partners or borrowers
4. 40Our platform and internal systems rely on software that is highly technical, and if our software contains undetected errors, our business could be adversely affected
5. 41Some aspects of our business processes include open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business
6. 42Some open source licenses contain requirements that we make source code available at no cost for modifications or derivative works we create based upon the type of open source software we use

Risks Related to Our Dependence on Third Parties

1. 43We rely on strategic relationships with loan aggregators to attract applicants to our platform, and if we cannot maintain effective relationships with loan aggregators or successfully replace their services, or if loan aggregators begin offering competing products, our business could be adversely affected
2. 44Our proprietary machine learning models rely in part on the use of loan applicant and borrower data and other third-party data, and if we lose the ability to use such data, or if such data contain inaccuracies, our business could be adversely affected
3. 45We rely on third-party vendors and if such third parties do not perform adequately or terminate their relationships with us, our costs may increase and our business, financial condition and results of operations could be adversely affected
4. 46Failure by our third-party vendors or our failure to comply with legal or regulatory requirements or other contractual requirements could have an adverse effect on our business
5. 47If we are unable to successfully challenge the position of the DFPI that we are subject to the CFL, our bank partners’ ability to originate loans in California could suffer, which could have a material adverse effect on our business, results of operations and financial condition
6. 48Regulators and payment processors are scrutinizing certain online lenders’ access to the ACH system to disburse and collect loan proceeds and repayments, and any interruption or limitation on our ability to access this critical system would materially adversely affect our business
7. 49to needed services on favorable terms, we would have to materially alter, or possibly discontinue, some or all of our business if alternative processors are not available
8. 50Our offshore service providers involve inherent risks which could result in harm to our business

Risks Related to Our Regulatory Environment

1. 51Litigation, regulatory actions and compliance issues could subject us to significant fines, penalties, judgments, remediation costs and/or requirements resulting in increased expenses
2. 52We contest our liability and the amount of damages, as appropriate, in each pending matter. The outcome of pending and future matters could be material to our results of operations, financial condition and cash flows, and could materially adversely affect our business
3. 53We are subject to or facilitate compliance with a variety of federal, state, and local laws, including those related to consumer protection, privacy and loan financings, and if we fail to comply with such laws, our business could be adversely affected
4. 54Internet-based loan origination processes may give rise to greater risks than paper-based processes and may not always be allowed under state law
5. 55If we are found to be operating without having obtained necessary state or local licenses, our business, financial condition and results of operations could be adversely affected
6. 56The CFPB has sometimes taken expansive views of its authority to regulate consumer financial services, creating uncertainty as to how the agency’s actions or the actions of any other new agency could impact our business
7. 57The impact of the Trump Administration’s recent order on the CFPB is uncertain
8. 58We are actively monitoring developments related to the CFPB, state attorneys general, and other federal and state regulators. However, the evolving regulatory environment presents inherent uncertainties that could materially affect our business operations and financial performance
9. 59The collection, processing, storage, use and disclosure of personal data could give rise to liabilities as a result of existing or new governmental regulation, conflicting legal requirements or differing views of personal privacy rights
10. 60As the regulatory framework for machine learning technology evolves, our business, financial condition and results of operations may be adversely affected
11. 61If we are required to register under the Investment Company Act, our ability to conduct business could be materially adversely affected
12. 62Anti-money laundering, anti-terrorism financing, anti-corruption and economic sanctions laws could have adverse consequences for us

Risks Related to Loan Funding and Indebtedness

1. 63Our warehouse facilities expose us to certain risks, and we can provide no assurance that we will be able to access the whole loan sales markets, or secured warehouse credit facilities, in the future, which may require us to seek more costly financing
2. 64If we are unable to maintain diverse and robust sources of capital, our growth prospects, business, financial condition and results of operations could be adversely affected
3. 65In connection with our credit facilities, we make representations and warranties concerning the loans or participation rights sold, and if such representations and warranties are not accurate when made, we could be required to repurchase such loans or participation rights
4. 66We rely on borrowings under our corporate and warehouse credit facilities to fund certain aspects of our operations, and any inability to meet our obligations as they come due or to comply with various covenants could harm our business
5. 67Changes in interest rates could adversely affect our performance
6. 68We may need to raise additional funds in the future, including through equity, debt or convertible debt financings, to support business growth and those funds may not be available on acceptable terms, or at all

Risks Related to Ownership of our Securities

1. 69Having a minority share position may reduce the influence of stockholders on the management of the Company
2. 70There can be no assurance that we will be able to comply with the continued listing standards of the NYSE
3. 71Future resales of Class A Common Stock may cause the market price of our securities to drop significantly, even if our business is doing well
4. 72Our only significant asset is our ownership interest in OppFi-LLC and the ownership may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our Class A Common Stock or satisfy our other financial obligations
5. 73We may be required to take write-downs or write-offs, restructuring and impairment or other charges that could negatively affect our financial condition, results of operations and our stock price
6. 74The historical financial results of OppFi-LLC included in this Annual Report may not be indicative of what our actual financial position or results of operations would have been
7. 75Our Certificate of Incorporation (“Charter”) includes a forum selection clause, which could discourage claims or limit stockholders’ ability to make a claim against us, our directors, officers, other employees or stockholders
8. 76Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations
9. 77A market for our securities may not continue, which would adversely affect the liquidity and price of our securities
10. 78Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price
11. 79If securities or industry analysts do not publish or cease publishing research or reports about us our business, or our market, or if they change their recommendations regarding our Class A Common Stock adversely, then the price and trading volume of our securities could decline
12. 80We may be unable to obtain additional financing to fund our operations and growth
13. 81Changes in laws, regulations or rules, or a failure to comply with any laws, regulations or rules, may adversely affect our business
14. 82We are a “controlled company” within the meaning of NYSE rules and, as a result, are exempt from certain corporate governance requirements
15. 83The SCG Holders and their affiliates will have significant influence or control and their interests may conflict with those of other stockholders
16. 84debt, amendments to our certificate of incorporation and bylaws, and the entering into of extraordinary transactions, and the SCG Holders’ interests may not in all cases be aligned with those of other stockholders
17. 85Warrants are exercisable for our Class A Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders
18. 86We may redeem unexpired Public Warrants prior to their exercise at a time that is disadvantageous to the holders of outstanding Public Warrants, thereby making the Public Warrants worthless
19. 87There is no guarantee that the Warrants will be in the money, and they may expire worthless
20. 88Anti-takeover provisions contained in the Charter and Amended and Restated Bylaws, as well as provisions of Delaware law, could impair a takeover attempt
21. 89Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities
22. 90Our only principal asset is our interest in OppFi-LLC, and accordingly we depend on distributions from OppFi-LLC to pay distributions, taxes, other expenses, and make any payments required to be made by us under the Tax Receivable Agreement
23. 91Increases in our income tax rates, changes in income tax laws or disagreements with tax authorities can adversely affect our business, financial condition or results of operations
24. 92Tax Risks Related to Our Tax Structure and Taxes
25. 93In certain cases, payments under the Tax Receivable Agreement may be accelerated or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the Tax Receivable Agreement
26. 94increase an existing owner’s tax liability without giving rise to any rights of holders of Retained OppFi-LLC Units to receive payments under the Tax Receivable Agreement
27. 95We may not be able to realize all or a portion of the tax benefits that are expected to result from the acquisition of Retained OppFi-LLC Units from OppFi-LLC Members
28. 96Changes in U.S. tax laws could have a material adverse effect on our business, financial condition and results of operations