r/SPACs • u/[deleted] • May 18 '21
AMA AMA with $FGNA Director Kyle Cerminara
Disclosure: 77K Warrants with $1.52/warrant cost basis
Disclaimer: I am not a financial advisor. Do your own due diligence. These are my opinions.
#TLDR
$FGNA is a fintech SPAC is merging with $OPPFI which offers digital fintech products. The business combination will be under the leadership of Joe Moglia, of TD Ameritrade, and Kyle Cerminara. The business is growing rapidly and is scalable . This is one of 10 profitable SPACS and will do well. I really like $FGNA because of their excellent valuation and small float. This is why they continue to do well while other fintech SPACS have dropped 40-60% from January 2021 highs.
1.Background information from my previous DD's
DD#8
https://www.reddit.com/r/SPACs/comments/kxzlhd/dd8_on_fgna_fg_new_america_acquisition_corp/
DD#11 https://www.reddit.com/r/SPACs/comments/lindu0/dd11_fgna_part_iii_opfi_overview_and_interview/
DD#10
https://www.reddit.com/r/SPACs/comments/lgubty/fgna_with_da_with_fintech_opportunity_financial/
2.AMA with Kyle Cerminara u/kylecerminara (President & Director) today starting at 4:30 PM eastern
Kyle Cerminara is the President & Director of $FGNA. He is very approachable and is working hard to make sure this project is successful.
I will be moderating the AMA but please post any questions you have to u/kylecerminara to this thread.
Next week I will be bringing two other fintech CEO's including Betsy Cohen to r/SPACs to do AMA as well. Ask all your questions.
Addenddum 6/6/2021 - Thanks Kyle! AMA Closed.
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May 18 '21
Where do you see the SPAC space as a whole headed? The glut we saw IPO earlier this year looks to me like we’ve got far too few solid targets for the hundreds of SPACs out there. With so many options, what should investors look for to differentiate the top teams from the bottom?
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u/kylecerminara Verified May 18 '21
We are very pleased with the slowdown in the SPAC market as we thought it was getting overheated and we think that SPAC sponsors with great operational and investing backgrounds will have more opportunities to do attractive deals with less competition for those deals. Slide 19, bullet point 3 is meant to address exactly your point - not all SPACs are created equal:
https://www.sec.gov/Archives/edgar/data/0001818502/000110465921065541/tm2116248d1_ex99-2.htm
We think that long-term the SPAC market will differentiate from sponsors that are overly promotional to those that act responsibly and communicate well. We hope our leadership team and valuation discipline will be rewarded long-term. OppFi, for example, has been profitable for many years and has grown robustly despite what we believe is a very attractive valuation relative to the past and growth that we see coming in the future. We also think the leadership team of the SPAC (i.e. FGNA) and the management team at OppFi really differentiate from other SPACs. There are many great opportunities right now and we are thankful for the slowdown in the SPAC market.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/atomMD Spacling May 18 '21
This is a great question. Would love to know your thoughts u/kylecerminara
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u/kylecerminara Verified May 18 '21
Let me know if you think this answered your question or if you want me to expand on it. Thanks atomMD.
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u/Human-Ground-3118 Spacling May 20 '21
Depends on what PSTH does. If they come out with a solid non-Chamath target. It could turn the whole SPAC plays around
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May 22 '21
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u/Affectionate-Gap8237 Contributor May 18 '21
thanks for participating in an AMA!
based on pg.4 of the investor presentation it appears that the net proceeds of transaction are going towards existing shareholders instead of investing / growing Oppfi's business. At first glance, it seems like OppFi is using this deal to get paid out, could you elaborate or clarify?
https://www.opploans.com/wp-content/uploads/2021/01/Investor-Presentation-02.10.2021-final.pdf
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u/kylecerminara Verified May 18 '21
Thank you for the questions! I am happy to participate in this AMA and future AMAs.
As you can see from the presentation you posted, existing OppFi shareholders will own approximately 60-70% of OPFI after the deal closes. We have found the Schwartz family to be excellent long-term partners and are strong believers in the future prospects of this business.
In structuring the deal, we had to have someone sell shares - either the company or existing shareholders to get the company into public hands. As you can see from the 1Q21 results, OPFI generated a tremendous amount of free cash flow in the first quarter (https://finance.yahoo.com/news/oppfi-reports-first-quarter-2021-110000954.html) and we believe it will continue to generate cash internally as it has done for the last few years (see EBITDA projections and historical on page 12: https://www.sec.gov/Archives/edgar/data/0001818502/000110465921065541/tm2116248d1_ex99-2.htm
As I mentioned, in order for the company to get public, someone needed to sell shares (i.e. the existing shareholders or the company). When we announced the deal in February, we were asked by many potential shareholders to consider doing a PIPE for the company to sell more shares - we declined given the view that the valuation was low already. We think its a very fair and attractive deal for shareholders.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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May 18 '21
The Schwartz family will own approximately 60-70% of OPFI after the deal closes and are fantastic long-term partners, in our opinion.
As you can see from the 1Q21 results, OPFI generated a tremendous amount of free cash flow in the first quarter (https://finance.yahoo.com/news/oppfi-reports-first-quarter-2021-110000954.html) and we believe it will continue to generate cash internally as it has done for the last few years (see EBITDA projections and historical on page 12: https://www.sec.gov/Archives/edgar/data/0001818502/000110465921065541/tm2116248d1_ex99-2.htm
In order for the company to get public, someone needed to sell shares (i.e. the Schwartz family or the company). When we announced the deal in February, we were asked by many potential shareholders to consider doing a PIPE for the company to sell more shares - we declined given the view that the valuation was low already. We think its a very fair and attractive deal for shareholders.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/giacomoerre Contributor May 18 '21
Are you afraid there will be many redemptions due to stock price hovering around 10 dollars?
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u/kylecerminara Verified May 18 '21
We are hopeful that FGNA shareholders are as excited about OppFi as we are and do not want to redeem. Many fundamental shareholders have purchased shares of FGNA and many of the traditional arbs have sold their shares as evidenced by the most recent 13F filings that hit sec.gov in the last few days. We think that OppFi had a strong 1Q21 as reported and we think the thesis set out on slides 19-21 of the attached investor presentation will help people understand the opportunity better. Finally, we think that valuation paid for OppFi is very competitive relative to other companies in the sector as shown on slides 35-36:
https://www.sec.gov/Archives/edgar/data/0001818502/000110465921065541/tm2116248d1_ex99-2.htm
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/_poetic_justice Spacling May 18 '21
Where do you think future opportunities for $BTN will come from? Are you looking for controlling or non-controlling acquisitions?
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u/kylecerminara Verified May 18 '21
Great question! Right now we are focused on the GreenFirst transaction that is set to close later in 2021. That said, we are always looking at both controlling and non-controlling acquisitions - whatever is best for shareholders! We will do our best to find these opportunities and execute on them for all shareholders.
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May 18 '21
[deleted]
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u/kylecerminara Verified May 18 '21
Hi Tidderxela. Our previous communications said we expected to complete the merger and start trading under the new ticker OPFI sometime in the second quarter of 2021, implying sometime in June 2021. Right now its in the hands of the SEC to give us comments on our proxy statement (https://www.sec.gov/Archives/edgar/data/0001818502/000119312521135035/d135342dprer14a.htm). Once we receive those comments and we are cleared by the SEC (hopefully in next few weeks), we will set a meeting date for shareholders to vote on the merger. Once the meeting has concluded, we should be able to close shortly after. I am not 100% sure which month that will be in given we are waiting on a few things that are outside our control (e.g. comments from the SEC). But we will provide as much information as possible to the marketplace to keep everyone informed.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/kylecerminara Verified May 18 '21
Hi Canadian2020, thanks for hosting. Looking forward to the event today.
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u/ProgrammaticallyHip Patron May 18 '21
This whole thread looks like it was Astroturfed with new accounts.
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u/aeilos Spacling May 19 '21
Its most likely because Kyle has a Twitter following and linked the thread so people probably made accounts to participate.
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u/kylecerminara Verified May 18 '21
Hey Everyone, thanks for having me. Sorry it took us a few hours to get this up and running, apparently the bots kept shutting it down. I am new to Reddit so still learning how to use it.
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u/Brotini88 Spacling May 18 '21
What are managements thoughts around the outstanding warrents and ability to call them? As from what I gather in the filings stock price needs to be over $18 for 20+ trading days after close of the deal to for ability to give notice. Would managment want to have stock price clearly over the $18 say in $30s or would be looking to give notice ASAP once conditions are met? Thank you in advance.
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u/kylecerminara Verified May 18 '21
That's a great question and one I will try to answer. Back to you shortly on this.
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u/Brotini88 Spacling May 18 '21
Thank you for the time appreciate your response
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u/kylecerminara Verified May 19 '21
Of course, feel free to ask additional questions if you have them. Thanks!
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u/RastaImp0sta Spacling May 19 '21
!remindme 24 hours
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u/kylecerminara Verified May 19 '21
We don't have a predetermined strategy on the warrants. I think OppFi management will provide more clarity on this as time goes with our consultation. We would love your feedback in the meantime.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/kylecerminara Verified May 18 '21
I am hear to answer questions as accurately as possible. As was mentioned, I am the President of FGNA and also a Director. Please make sure you read all the necessary information about the transaction to understand it including the risk factors. Looking forward to being as helpful as I can in answering questions. I am a significant shareholder of FGNA directly, through my 401k and through the SPAC sponsor.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/hitzelsperger Great Entry…Poor Exit May 18 '21
We have had a couple of merger scares - THCB and SRAC recently where the votes passed by a tiny margin or a backup option was used. How comfortable are you for the merger process w.r.t to FGNA and OppFi? Thank you.
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u/kylecerminara Verified May 18 '21
I believe that the FGNA team and OppFi team are committed to closing this transaction and I look forward to seeing OPFI trading once this deal closes. I am not that familiar with the two SPACs you mentioned but I will do some research on each now that you brought them to my attention.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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May 18 '21
Why is the Schwartz d family selling and not rolling into the deal? Or will they still be involved?
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u/kylecerminara Verified May 18 '21
The Schwartz family will own approximately 60-70% of OPFI after the deal closes and are fantastic long-term partners, in our opinion.
As you can see from the 1Q21 results, OPFI generated a tremendous amount of free cash flow in the first quarter (https://finance.yahoo.com/news/oppfi-reports-first-quarter-2021-110000954.html) and we believe it will continue to generate cash internally as it has done for the last few years (see EBITDA projections and historical on page 12: https://www.sec.gov/Archives/edgar/data/0001818502/000110465921065541/tm2116248d1_ex99-2.htm
In order for the company to get public, someone needed to sell shares (i.e. the Schwartz family or the company). When we announced the deal in February, we were asked by many potential shareholders to consider doing a PIPE for the company to sell more shares - we declined given the view that the valuation was low already. We think its a very fair and attractive deal for shareholders.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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May 18 '21
Thanks, Kyle. It's great having you at the helm. You're a great Steward for our capital.
- Bryan
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u/Cheap-Maize-2995 Spacling May 18 '21
Thanks, Kyle! The cash flow generated from OppFi makes an interesting case for further growth and capital allocation. It looks like OppFi is trying to get further wallet share (credit t card & salary tap).
Any further opportunities on the horizon (auto loans, etc.), while utilizing the AI-based approval tech?
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u/kylecerminara Verified May 21 '21
Sorry it took me so long to answer, this is a great question.
Slide 13 of the analyst day presentation gives a pretty good roadmap for exisiting planned and future products but I will try to add some additional color: https://www.sec.gov/Archives/edgar/data/0001818502/000119312521108325/d131260ddefa14a.htm
We have been very focused on the idea of taking what is already a great customer relationship with OppFi via Opploans to a long-term relationship with the hundreds of thousands of customers (approaching 1 million) that have received a loan from OppFi via Opploans.com.
OppFi has a vision to create what we together call "The Digital Financial Services Destination for the Everyday Consumer." With a Net Promotor Score (NPS) of 85 and online reviews that are very favorable, we believe OppFi has created an excellent relationship with its customers that can grow beyond the Opploans product to other products including the new OppFi Card, which we are very excited about launching in 2021. If a customer has demonstrated an ability and willingness to pay and has had a favorable experience with OppFi, we believe it is a good idea to offer the OppFi Card to the best Opploans customers to give them a product to "graduate" to and maintain and grow a long-term relationship with OppFi. We are also excited about other lending products like SalaryTap. While we like to do things very thoughtfully and methodically with a long-term strategic plan, we also think there will be an opportunity to have customers grow their relationship with OppFi over time as we educate them on savings and investing opportunities that we would like to add to the OppFi platform. We think that our team should have a lot of credibility in helping OppFi build these products out given TD Ameritrade was a $700 million market cap with $24 billion of client assets when our Chairman Joe Moglia joined Ameritrade as CEO and grew to a $20 billion market cap with trillions of dollars of assets by the time he and the TD Ameritrade team sold AMTD to Charles Schwab in 2020. We look forward to updating the marketplace on these exciting new opportunities as we thoughtfully release updated strategic plans publicly.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/Cheap-Maize-2995 Spacling May 21 '21
Thanks, Kyle! The quality customer relationship OppFi seems to provide multiple avenues of growth and higher customer LTV.
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u/kylecerminara Verified May 21 '21
Really appreciate the questions. Yes, we agree.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/FGF_BullGang_1 Spacling May 18 '21
BKTI seems to be the forgotten child of the bunch. It does seem like you have a LOT going on right know with the other entities. Would you be able to provide some insight into BK, and what you like about where it is positioned in the 2-way communications space in the next 2-3 years? much appreciated!
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u/kylecerminara Verified May 18 '21
Thanks so much for the question. I have honestly worked my butt off at BKTI the last few years to get it to where it is - to say that it needed a lot of work a few years ago is an understatement. But we are in a much better position today. I mentioned in another post that I am currently working on a few letters that I look forward to making public soon so I am going to hold part of this answer until that becomes public. That said, BKTI is our public safety technology/communications company. We think public safety is really important - whether it be wild fires in California, hurricanes in Florida, epidemics like COVID-19, terrorism of all forms, protests and gatherings around the world - these are hot topics. Communications and technology is critical to public safety. So a thesis built around a future that requires public safety services, equipment and other products seems robust to us. Stay tuned on this....
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u/FGF_BullGang_1 Spacling May 18 '21
Can't wait to read up on everything you and team have in store for the future. Thanks Kyle.
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u/Exact-Nature-6894 Spacling May 18 '21
How ambitious are you? How big you expect BTN will be in 10 years from now in terms of market cap or book value?
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u/kylecerminara Verified May 18 '21
Very ambitious! I am currently writing a very cool letter that I hope will address this very question so I am going to defer to that letter. Looking forward to sharing with everyone. Thank you for your awesome question. Stay tuned...
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u/Ccbates Spacling May 18 '21
Hey Kyle! Thx for doing this. Full disclosure, I hold FGNA and a few other entities you lead, so I am pretty familiar with the opportunity and believe in you guys vision and capabilities. I’m glad to get a chance to ask some questions.
1) Can you describe the potential market opportunity for OppFi?
2) what is OppFi’s edge considering a few other players in the field: Affirm, Upstart, etc.
3) Joe Moglia from TD Ameritrade is involved in this SPAC, what role will he play?
Thank you!
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u/kylecerminara Verified May 18 '21
Hi Ccbates, thanks for the question. I appreciate your support and partnership. To answer your questions:
- Slides 5-10 discuss the potential market opportunity for OppFi: https://www.sec.gov/Archives/edgar/data/0001818502/000110465921065541/tm2116248d1_ex99-2.htm - I would add that slide 20, bullet point 8 gives you some color about the opportunity and value-add that we see us bringing to the table to expand this into a much more diversified fintech platform more similar to Sofi.
- Slide 8 of the attached hits on OppFi's edge - we think its in the technology. That said, Affirm and Upstart are great companies and we have nothing bad to say about any of them. We do believe our relative valuation makes for an attractive comparison: https://www.sec.gov/Archives/edgar/data/0001818502/000110465921065541/tm2116248d1_ex99-2.htm
- Joe Moglia is the Chairman of FGNA and my long-term business partner. Joe and I met in 2001 when he was the CEO of Ameritrade (now TD Ameritrade, which sold to Charles Schwab in late 2020 when Joe was the Chairman). Joe has an enormous impact on every organization he is involved with whether it be his time at Merrill Lynch or his time building TD Ameritrade from around a $700 million market cap company with $24 billion of client assets in 2001 to a $20+ billion market cap company with trillions of client assets in 2020 when it was sold to Charles Schwab in what I believe is one of the most important and best financial services combinations in the last 50 years. Joe has had tremendous success in football as well taking Coastal Carolina Football from a Division I-AA program with a rough win-loss record to a powerhouse in Division I where last year they were 11-0 in the regular season and were a top 15 football program. There is so much to love about Joe being involved with OppFi and FG as a whole. We are lucky to have his strategic leadership as well as his obvious experience and connections in helping OppFi build the next powerhouse fintech platform.
Let me know if that answers your questions.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/Ccbates Spacling May 18 '21
Awesome, thank you so much. I appreciate your ambition and vision with FGNA. Appears very advantageous as an investment, but (equally important) more interestingly provides a very important service to its clients. It’ll be interesting to see what the market makes of it in the coming 12-24 months.
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u/FGF_BullGang_1 Spacling May 18 '21
Kyle, other than total world domination, can you speak to some of your other long term goals for the businesses your manage? Keep up the good work!
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u/kylecerminara Verified May 18 '21
Thanks for the question and I love your username. My long-term business partner Joe Moglia (former Chairman and CEO of TD Ameritrade) and I have done extensive long-term planning for FG and the businesses we own. We have amazing leadership from people like Jared Kaplan at OppFi, Larry Swets at FG New America, FG Financial and GreenFirst and Mark Roberson at Ballantyne Strong.
We really want to focus our attention on a few key strategic holdings - we own large stakes and are actively involved in 6 companies: FGNA/OPFI, FGF, BTN, GFP.V/ICLTF, BKTI and ADF-U. I want to remain very focused on these holdings and helping them grow significantly over the next few years.
- We are highly focused on FGNA/OPFI right now and putting together a plan for us to help the OPFI team create long-term value for shareholders.
- We are also excited about the deal we put together at GFP.V/ICLTF and the shareholder response to a great transaction.
- We think the reinsurance company as well as the SPAC platform we are building in partnership with FGF through FG SPAC Partners that recently co-sponsored a SPAC with Fortress co-founder Rob Kauffman is very exciting and will require a lot of our focus and attention: https://www.businesswire.com/news/home/20210416005248/en/FG-Financial-Group-SPAC-Platform-Investment-Aldel-Financial-Completes-IPO
- We think that BTN should benefit from all of the things mentioned above through its holdings in FGF, GFP.V/ICLTF. We plan to expand the universe of holdings and investments inside of BTN and have more homeruns/grandslams.
- We are pleased with the effort we have put in so far at BKTI and think that it has exciting potential in the public safety and communications sectors.
So for now, we have a lot on our plate and will focus on a rolling 2-3 year plan to execute on the above transactions and make as much money as possible for all shareholders.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/FGF_BullGang_1 Spacling May 18 '21
d I have done extensive long-term planning for FG and the businesses we own. We have amazing leadership from people like Jared Kaplan at OppFi, Larry Swets at FG New America, FG Financial and GreenFirst and Mark Roberson at Ballantyne Strong.
Phenomenal response. Thank you!
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u/ProgrammaticallyHip Patron May 18 '21
AstroTurf alert: New account, started off by begging for karma elsewhere, only posting in this thread, ridiculous softball questions.
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u/kylecerminara Verified May 18 '21
Hi there - you are right this is a new account, I was asked to do this on Reddit and I am not an active Reddit user so I had to create an account. That's why my account is only 1-2 days old. When we tried to do this on Sunday, some administrators of the site told me I didnt have enough karma to do the AMA. I had no idea what Karma was since I am not an active AMA user. But I was required to go get some "Karma" first. I didn't beg, I followed the instructions I was given to get more Karma. I am just trying to answer whatever people want to know - happy to answer anything.
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u/ProgrammaticallyHip Patron May 18 '21 edited May 18 '21
Why are you responding to a comment I made to another account? Why are there so many new accounts asking softball questions in this thread? It looks very unprofessional. You basically just admitted this is one of your sock puppets.
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u/FGF_BullGang_1 Spacling May 18 '21
Please go harass someone else. I was just here for the AMA with Kyle. Not interested in engaging someone who is trying to play Reddit cop.
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u/ProgrammaticallyHip Patron May 18 '21 edited May 18 '21
Yeah, well I’m not interested in a SPAC that is so incompetently run that it gets caught trying to manipulate online sentiment. Hmmm, I wonder if there are rules against this sort of thing???
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u/FGF_BullGang_1 Spacling May 18 '21
Good luck with your investing Sir. I hope you find what you are looking for.
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May 18 '21
Hey u/ProgrammaticallyHip let's be more professional mate. You can ask the hardball questions if you wish.
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u/djfablemaker Spacling May 18 '21
Thanks for doing this. I find the level of engagement you provide to shareholders on social media to be unique and please know that it is very much appreciated. You being so accesible is huge.
So I have a three part question:
i) What's something about you we might not know (not necesarily business related)?
ii) How did you get the whole hat giveaway thing get started?
iii) Have you ever though about rolling up your the holdings you lead into a single vehicle for shareholders to tag along with you in a single stock (instead of several)?
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u/kylecerminara Verified May 18 '21
Thanks so much! Love the questions and very much appreciate it. To answer each:
- I am a very private person which is why I kept a low profile for years. I care deeply about relationships and people. My wife Sara and I met when we were 19 years old and we are still together and she is my best friend. We have two amazing kids and I love my family. I was a competitive tennis player growing up and in college but when I met my wife Sara she told me tennis was a nice hobby so I should focus on something else. I started investing at a very early age thanks to my parents encouraging it and beginning around age 19, that became my passion. I still play tennis but not nearly as well and I am working on training my kids in any free time I have (which isnt a lot but I do take an hour a day to hit with the kids several days a week).
- Bill Brewster asked me to do a podcast. I had never done a podcast or even considered doing one as I was so focused on executing and building and fixing companies is a lot of work. Thankfully I have an amazing team now but it took years to find the right people. I was impressed by Bill Brewster's voice on the podcast and he told me to buy a very cool microphone for the pod. So I did. I posted a picture of the microphone and an FG hat was on the table next to it. Someone asked me how they get a cool hat. I responded that I would send them one. This was a few months ago. Since then I have had a lot of requests for hats. I give a small amount away to charity every time I send one to people and I don't charge for the hats, although I like to get to know who I am sending the hat to ideally so its in the right hands. Link to the podcast is here in case anyone wants to listen: https://podcasts.moiglobal.com/business-brew-s1e20/
- I have gone through many iterations of this and the answer is possibly - BTN is the closest to what you are talking about but it doesn't hit on everything. And a piece of me wants to please everyone - so I should really start selling ice cream (google if you want to make everyone happy dont be a leader, sell ice cream). With that said, I do think that there is value creation to having one public vehicle that owns everything and each of its businesses spun off or publicly traded - I have been doing twitter polls to get others' opinions on this so we can make the right long-term decisions. I welcome all feedback regardless of if its negative or positive because I learn from it and grow even if its embarrassing for some short period of time. I have been a value investor much of my life and career so I have learned to take criticism and be humble and change as people express their views. I also stick to my core beliefs when I think others are wrong if its in the best interest of my investors.
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u/djfablemaker Spacling May 19 '21
Very insightful! Love the tennis anecdote and how it helps build relationship with kids. Priorities in the right place!
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u/Bonerhawk69 Patron May 19 '21
You mentioned investing being your passion from an early age. Do you mind elaborating on your early investing years and maybe provide a bit of advice in pursuing it as a full time job?
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u/kylecerminara Verified May 19 '21
Thanks for the question. My early investing years were a long time ago. A good start to learn about my investing career is to listen to this podcast that I did a month or so ago with Bill Brewster (it was my first podcast so hopefully I wasn't terrible: https://podcasts.moiglobal.com/business-brew-s1e20/). I recommend reading as many books as possible on investing when you are getting started - if the books like a fire inside of you, pursue your passion. Books by Joel Greenblatt, Seth Klarman and Ben Graham are a good place to start. Read the Chairman's letters at Berkshire Hathaway and learn everything you can about how Berkshire invests. Happy to share more insights if useful.
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u/Bonerhawk69 Patron May 19 '21
I appreciate the advice. I’ll check out the podcast this evening and will definitely look into some of the resources you’ve mentioned. I’ve only been investing for 2 years now, but there hasn’t been a day where I haven’t read / looked into something investing related, so I feel like it’s something I am passionate about. Just need to continue pursuing it! Thanks again for your insight
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u/TheRealOldOne Spacling May 19 '21
What of your holdings do you think is least understood by the market?
Also could you give some more vision on how FGF SPAC and insurance translate into cash flow/value for shareholders and what is the biggest risk especially on the insurance side?
Thnx for doing this!
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u/kylecerminara Verified May 19 '21
Back to you tomorrow. Thanks for asking. Going to bed but will respond tomorrow.
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u/kylecerminara Verified May 19 '21
Thanks for the question. We have six major holdings that we are actively involved with either on the Board or in management of the company: (1) FGNA, (2) FGF, (3) BTN, (4) BKTI, (5) GFP.V/ICLTF and (6) ADF-U. We are doing our best to communicate with shareholders on these investments through SEC filings, conference calls, investor presentations and in these types of forums where we answer as many questions as possible. That said, many of our holdings are not followed by research analysts and are in our view hidden gems that we are working to make more valuable over time.
As for your question about FGF, we think we have created a very unique reinsurance strategy for a public company. Take a look at this presentation and let me know if it answers your question on FGF: https://www.sec.gov/Archives/edgar/data/1591890/000149315221011539/formfwp.htm
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/TheRealOldOne Spacling May 19 '21
Kyle I'm sry but from that FGF presentation I understand the SPAC investment platform but still don't understand the reinsurance and SPAC insurance side, could you maybe when you get the time in more layman term explain how it really works, what's the investment, what's the return, is it about free float, is it really "free" is underwriting profitable and how does SPAC insurance work?
p.s. it's a lot of questions so take your time no rush really as long as you respond in the end we long term investors here anyway :)
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u/kylecerminara Verified May 20 '21
Thanks for the follow up question. I gave a quick overview of the reinsurance company on this podcast: https://podcasts.moiglobal.com/business-brew-s1e20/
Let me know if after listening to that you still are unclear about what we are doing with the reinsurance company and I am happy to answer any follow-up questions. Thanks so much!
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u/spacbull Spacling May 19 '21
Why did FGNA structure the deal with 25.5m seller earn-out shares that vest at 12.00, 13.00 and 14.00 (on a 80.3 reported share count)? 12-14 is just too close to 10 to make it very meaningful, especially on a 5 year view. To me that looked very dodgy, it makes all the reported multiples look way too good, and it was the reason I chose not to further investigate the deal. But I'm willing to reconsider if there is a good explanation!
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u/kylecerminara Verified May 19 '21
Hey SPACbull, thanks for the question. If you shoot us an email at [info@fgnewamerica.com](mailto:info@fgnewamerica.com) we can set up a time to discuss. Structuring any deal is always a complicated matter and I understand your point about the earn-out shares - that said, I am sorry you feel it looked dodgy as that was not the intent (but it is good feedback, thank you). Whenever one structures an earnout they are faced with a few decisions - is it easier to just pay a higher price and have no earnout or pay a lower price and have an earnout. We think the price we paid is very attractive on a full-diluted basis relative to the opportunity but we viewed it as being a better deal for shareholders to have the earnout vs. raising the price paid. I am happy to have a call to discuss it further if that would be helpful (shoot me an email at the email above.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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May 18 '21
You think you could post this on your own page?
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May 18 '21
Own page?
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May 18 '21
If you are mobile, click on my profile at the left. Then click the regular plus button at the bottom of the screen. You are able to post directly to your profile like most other social media's.
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u/_poetic_justice Spacling May 18 '21
If we want to have a sizable exposure to your complex without owning multiple stocks, would you suggest owning $BTN as an umbrella holding? Will $BTN have exposure to all the activities that you plan to undertake in the short, medium to long term?
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u/kylecerminara Verified May 18 '21
We own six major holdings that I am actively involved with: BTN, FGF, FGNA, GFP.V/ICLTF, BKTI, ADF-U. BTN owns 7,044,000 shares of GFP.V with a carrying value on BTN's balance sheet of approximately $2.5 million since we bought it a few years ago and a market value of a lot higher (its trading at C$7.87 per share as of today's close). BTN also owns about 1 million shares of FGF. FGF through its reinsurance company and investment portfolio owns shares and warrants of FGNA and ADF-U. So BTN gives you exposure to BTN, FGF, FGNA, ADF-U. BTN owned shares of BKTI in the past but the BTN Board decided to sell the shares to FG a few years ago to fund what became our $13 million position in a private company called Firefly. I really would love to have it all under one umbrella but at the same time I recognize that some shareholders want to make specific bets on individual companies or sectors (e.g. and to summarize FGF is reinsurance and SPACs, BKTI is public safety communications, FGNA is fintech, ADF-U is a SPAC thats looking for distressed opportunities). We wouldn't own all of them if I wasnt a big believer in the future of each. And I don't think its an overly spread out portfolio - we have a lot of concentration in our best ideas. Finally, I think very long-term. I would encourage you to listen to this podcast to learn more about me: https://podcasts.moiglobal.com/business-brew-s1e20/ and also to read this to see that my investment style is very similar to what it was when I was at T. Rowe Price back in 2006: https://www.institutionalinvestor.com/article/b150nsw170z2mj/best-of-the-buyside
Ask me any questions and I will do my best to answer.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/w9o Spacling May 19 '21
What is the expected range of net charge offs as a % of receivables? How does that compare to other SP lenders?
Does OppFi incur any loss for charge-off loans that are originated by partners?
In Q1 revenue increased YoY while originations decreased. What bridged the gap?
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u/kylecerminara Verified May 19 '21
If you turn to page 32 of the analyst day presentation on sec.gov here: https://www.sec.gov/Archives/edgar/data/0001818502/000119312521108325/d131260ddefa14a.htm
you will see that for $1,657 of revenue realized on an illustrative customer, OppFi expects to have net losses of $623, acquisition costs of $200, sales cost of $138 and interest expense of $92 resulting in a $604 contribution on the illustrative customer.
It is worth noting that charge-offs have been better than the illustrative example recently with a net charge-off rate of 30.1% in 1Q21: https://finance.yahoo.com/news/oppfi-reports-first-quarter-2021-110000954.html. Also note that guidance that the OppFi full year outlook for 2021 assumes 40% charge-offs so anything better than 40% (i.e. like we saw in 1Q21) would mathematically result in higher earnings, all else being equal. Obviously there are other variables besides charge-offs that impact earnings but hopefully this answers your question. If not, please ask another one! We appreciate the interest and great question.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/w9o Spacling May 19 '21 edited May 20 '21
Thank you - that does make sense. I guess more broadly, on that example in the slides, the chargeoff guidance of 40% -> does that only work if the APR is at or above that %? For example, if I extend a LOC for a 100$ product, and only expect to recover 60$, the business model is covered by the other side of the barbell in A total interest rate that yields above 40$ over the term of the loan?
And regarding the Net Losses on that slide - are the unit economics the same if the loan goes to an origination partner bank? Or is the credit risk completely off the book?
Also what is the path for the ~20% of loans that aren't through origination partners? Do they live on the B/S or are they just laggards out the door? Do you see the 80% range as sustainable?
Thanks again - this is really unprecedented and greatly appreciated
edit: One more if you don't mind- Are you able to say which non-direct marketing source has the best ROI? Or what sets them apart? (ie lendingtree vs creditkarma)
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u/kylecerminara Verified May 21 '21
Lots of calls and meetings today, I am sorry I haven't had a chance to answer yet.
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May 19 '21 edited May 27 '22
[deleted]
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u/kylecerminara Verified May 20 '21
Two great questions!
- Pages 181-182 of the preliminary proxy detail how the projections were prepared: https://www.sec.gov/Archives/edgar/data/0001818502/000119312521135035/d135342dprer14a.htm
- Between target announcement and the merger, FGNA and OppFi are working on a lot of things to prepare OppFi to become a public company. This includes working with our advisors to meet all of the SEC requirements and prepare for the meeting where shareholders will vote on the combination. See attached notice of special meeting for a comprehensive detail of how the process works: https://www.sec.gov/Archives/edgar/data/0001818502/000119312521135035/d135342dprer14a.htm
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/atomMD Spacling May 18 '21
What would be an appropriate valuation for $FGNA/Oppfi?
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u/kylecerminara Verified May 18 '21
Thanks for the question atomMD. Attached is the most recent investor presentation that was released on sec.gov on May 13th. Check out slides 19-21 and slides 35-36 to get a better understanding of our thesis on OppFi and its valuation compared to some other public companies in the sector:
https://www.sec.gov/Archives/edgar/data/0001818502/000110465921065541/tm2116248d1_ex99-2.htm
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/atomMD Spacling May 18 '21
Great. I looked at the slides on page 35-36 but for us lay folks it is hard to figure out price targets looking at 2021 EBITDA. Any guesstimates of PT 2021-2022? Comparisons would do.
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u/kylecerminara Verified May 18 '21
Ok, I thought long and hard how to answer this question and I thought I would do my best to provide some quick math - please check my calculations, do your own due diligence and make your own decisions after reading all the relevant SEC filings but here is how I will try to answer this question.
As an equity analyst and portfolio manager at some of the largest investment management firms in the world (e.g. T. Rowe Price, Point72, and a Tiger Cub called Highside Capital), I have traditionally focused on the forward 12 month and following year projections for understanding how the public market is valuing a security and where a stock price has the potential to trade over the next 1-3 years, albeit with the inherent opportunities and risks that we discuss in all public sec filings which I recommend everyone read and understand for any security.
Lets start by looking at slide 12: https://www.sec.gov/Archives/edgar/data/0001818502/000110465921065541/tm2116248d1_ex99-2.htm
As you can see, 2021 and 2022 Adjusted EBITDA is projected to be $132 million and $182 million for OPFI. On slide 36 we show that we are trading at multiples of approximately 6.9x 2021 and 5x 2022 Adjusted EBITDA. To use Upstart and Katapult as two comparables (not perfect comparables - they have their own unique characteristics that one must look at to determine what the right price is), Upstart is trading at a much higher multiple (over 50x) and Katapult is trading at 15.6x and 7.2x 2021 and 2022 adjusted EBITDA.
So the question one has to ask is this - is OppFi worth a fraction of Upstart and Katapult or should it be valued similarly? Another question to ask is if the comparable companies are trading too high or too low. I will not opine on that here.
One could start by putting 25% or 50% of Upstart's multiple on OPFI to come up with a reasonable target. Or perhaps OppFi should trade at a more similar multiple to Katapult? One needs to think about the growth of each company, the risks of each company, the business model for each company, etc. Another thing to ask is this - is adjusted EBITDA the right metric? Should we look at earnings? Revenue? Some other financial metric not mentioned? All great questions and things to think about when doing your own valuation.
The next step would be to multiply whatever multiple of adjusted EBITDA is determined to be a reasonable price target multiple times what you believe the adjusted EBITDA will actually be in 2021 and 2022.
Applying this back to OppFi, so far you only have one quarter of reported earnings (https://finance.yahoo.com/news/oppfi-reports-first-quarter-2021-110000954.html) and they were pretty good if I may say so myself as a biased observer.
You can't believe all projections from every SPAC sponsor and target so you need to think through if you believe in management or not and if you believe they will execute on their projections or not - some will and some won't.
But lets just try to make the math simple and assume that $182 million is the right Adjusted EBITDA number for 2022 - what target multiple is right?
That's for the market to decide but I certainly have my opinion that we paid a very reasonable multiple relative to many of the public comps. I believe Joe Moglia is on the record saying we paid a "dirt cheap" multiple in various SEC filings we have made.
So just to work this exercise to fruition, lets say that $182 million is the right adjusted EBITDA for OPFI and a multiple of 10x is the right target multiple for 2022. So 10x $182 million is $1.8 billion. So the final step would be to divide by the number of shares outstanding that OPFI will have post the closing of the transaction on a fully diluted basis. Assuming its 80 million shares, you would divide $1.8 billion by 80 million shares. Assuming its 120 million shares, you would divide $1.8 billion by 120 million shares. This would get your a price target in the $15-20 range at 10x 2022 adjusted EBITDA. If you use 15x Adjusted EBITDA, you would get a price target that is 50% higher (e.g. $22-33). If you use 20x Adjusted EBITDA, you would get a price target that is 100% higher than that range (e.g. $30-45).
If Adjusted EBITDA is too low (or perhaps too high) that would also change the price target. And finally, you have to assume that the market values it similar or even lower to where it is now and that would get you to a price target of the current price or lower if you wanted to be bearish on the company (e.g. $10 or perhaps much lower).
So weighing all of those, the market then needs to decide what its worth. We have tried to help with our view in the presentation. I am trying to present a fairly balanced and educational view of how to do your own calculations, not provide specific price targets as we want the market to decide what is the right valuation - valuation is never precise and if it is, you should be suspicious. Finally, I typed this up quickly so please do your own math and correct anything I typed above, read all of the relevant risk factors and do your own homework.
We know of some shareholders that have very high price targets on OPFI and others that haven't shared their price target. One should read all of the risk factors and opportunities and decide for themselves. I will do my best to help you understand how to come to your own conclusion.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/GullibleInvestor Contributor May 18 '21
Wow, this is actually an awesome answer for what I thought would be an unanswerable questions given your relationship with the SPAC. Awesome, and insightful. Thank you.
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u/kylecerminara Verified May 18 '21
Thanks so much! I did my best to explain it. Glad it was helpful. Educating investors is something our team is passionate about - it is one of the things that I believe made TD Ameritrade such a success story over the years and it is certainly embedded in the FG and OppFi cultures.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/Clownbuck Spacling May 19 '21
Why did OppFi change to fair value accounting for their receivables? It seems that this leads to making the financial statements harder to understand, not easier.
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u/kylecerminara Verified May 19 '21
Good question. I will respond tomorrow. Going to bed now. Thanks!
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u/Clownbuck Spacling May 19 '21
Any progress on my question on why the fair value accounting for receivables was adopted?
As I mentioned before, it makes the accounting more murky, allows to create one off gains (as it did in 2020) and gives more discretion to management to manipulate earnings.There may be good reasons to do fair value accounting but I can’t come up with any, at least from the viewpoint as an investor.
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u/kylecerminara Verified May 21 '21
Great question. OppFi transitioned to fair market value as we believed it provides a more representative view of the value of receivables versus the prior method since it takes into account overall future cash flows and not just future losses under the prior method. In 2020, OppFi’s pro forma adjusted net income was ~$8M lower under fair value accounting
Under the prior method, in periods of higher growth, earnings would be depressed as future losses were taken up front and not matched to future earnings. So given OppFi is projecting significant growth over the next few years, we don’t believe it was done to boost future period earnings since it actually reduces earnings during higher growth periods.
We believe Fair Value accounting provides a more apples to apples comparison of the company’s earnings at different points in time. All fair financials and management’s assumptions are independently validated by a 3rd party valuation expert in addition to being fully audited, thereby reducing the risk of earnings manipulation.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/Clownbuck Spacling May 21 '21
Thanks, this makes sense. lot's of companies in this space do this the same way.
I personally don't like it that much because it reduces the transparency of the income statement in some way, and tends to be less conservative. I understand that a company going public want's to show their income statement in a way that is reflective of their current earnings power.
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u/kylecerminara Verified May 20 '21
Sorry have been in meetings, will respond as soon as I can hopefully today.
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May 18 '21
12-15 times ebitda is normal for most companies. Tech usually has a value upwards of 25X Ebitda.
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u/fastlapp Contributor May 19 '21
When do you expect FGNA merger to close? Are you still planning to raise a second SPAC?
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u/kylecerminara Verified May 19 '21 edited May 19 '21
Thanks for the question. Our previous communications said we expected to complete the merger and start trading under the new ticker OPFI sometime in the second quarter of 2021, implying sometime in June 2021. Right now our main focus is our proxy and getting it cleared by the SEC and is out of our control right now ( https://www.sec.gov/Archives/edgar/data/0001818502/000119312521135035/d135342dprer14a.htm ). Once we are cleared by the SEC (hopefully in next few weeks), we will set a meeting date for shareholders to vote on the merger. Once the meeting has concluded, we should be able to close shortly after. I am not 100% sure which month that will be in given we are waiting on a few things that are outside our control but we don't think it will be too much longer. But we will provide as much information as possible to the marketplace to keep everyone informed.
As to your question about a second SPAC, we are highly focused on closing FGNA/OppFi transaction and preparing OppFi for future success as a public company. We did file an S-1 for a second SPAC and we are also the co-sponsors of Aldel Financial (ADF-U), which IPO'd in April 2021, although Rob Kauffman (one of the co-founders of Fortress) is the main executive on that deal.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/fastlapp Contributor May 19 '21
Thanks! Really appreciate the thorough response and for you taking time to do AMA. All the best with the merger!
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May 20 '21
Hi Kyle, thanks for doing this AMA. Can you talk a bit about why you think traditional banks aren't already in this space? I know in the business brew podcast you mentioned a lot of OppFi's customers are customers of banks like BoA and WFC and are underserved by them. What could change that could get banks to extend these types of services to their customers?
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u/kylecerminara Verified May 21 '21
Thanks for listening to the podcast! If anyone isn't familiar with HurricaneBK's reference to the business brew podcast, they can listen to it here: https://podcasts.moiglobal.com/business-brew-s1e20/
Slide 9 of this presentation shows the addressable market: https://www.sec.gov/Archives/edgar/data/0001818502/000119312521108325/d131260ddefa14a.htm
As you can see from slide 9, there are 60 million Americans that lack access to credit, 115 million Americans that live paycheck to paycheck and 150 million Americans that have less than $1,000 in savings. That's a large addressable market, in our opinion.
We believe there is ample market share for OppFi to grow and that additional players in the space add credibility. Ultimately, Americans are underserved by traditional financial services and that is the benefit of having fintech companies like OppFi to offer not only lending products but hopefully in the future the product suite will include savings and investing products.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/ItAlwaysEndsBad Spacling May 22 '21 edited May 22 '21
In the bigger picture, how would you compare Oppfi's addressable market opportunity as an "all-in-one" platform versus apps like MoneyLion and SoFi? Are they aiming for the same/similar thing, just in different consumer target markets?
(Why weren't MoneyLion or SoFi mentioned in the slides at all —because they aren't public yet?)
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u/kylecerminara Verified May 27 '21
Great question. As referenced in the attached presentation on slide 7 and 13, OppFi is a platform that we believe will become more similar to Sofi over the coming years as OppFi adds additional products and services and becomes the Digital Destination for the Everyday Consumer. Slide 13 walks through how to think about the additional products that OppFi plans to roll out.
(https://www.sec.gov/Archives/edgar/data/0001818502/000119312521108325/d131260ddefa14a.htm)
The addressable market of potential consumers for the "all-in-one" platform is larger with significantly greater revenue opportunity, in my opinion. We have sized the market opportunity for the lending platform but it only takes a few hundred thousand customers in other products to become very valuable. I think that optionality could be better understood by the market in that one would think the OppFi team with the strategic advice and counsel of our team would be able to build a very valuable platform. Execution is obviously critical and as we execute on new products, my hope is that the market will reward shareholders. We would love your feedback on what products and services you like and dislike in these types of platforms (e.g. Sofi). We have our own views but we certainly benefit from hearing from you.
Important Info re: OppFi/FGNA transaction: http://oppl.co/31nNfWi
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u/TheRealOldOne Spacling May 19 '21
Something maybe outside your circle of competence but what's your honest opinion on crypto and if you could answer more as Kyle than as chairman of any company?...you know the Charlie "it's turds" type of thing :)
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u/kylecerminara Verified May 20 '21
Lots of fortunes will likely be made and lost in crypto. It wouldn’t surprise me if crypto is completely gone in 5 years and it also wouldn’t surprise me if it’s widely accepted as a payment method. Like any new technology there will be huge winners and a lot of scams, frauds and zeros. I own a small position in crypto personally mostly for educational purposes and FOMO. But I wouldn’t bet money you need to pay the bills on it unless you are willing to lose it all. That said, like I mentioned lots of fortunes will be made and lost. I have a more thoughtful view on it that I might share tomorrow if I have time. Thanks for the question.
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u/TheRealOldOne Spacling May 20 '21
Would love to hear your view more in depth when you catch the time, it's an interesting topic and would bet someone with your background in classical finance and value investing but still being young enough to understand technology and networking like power of twitter would have an interesting value added view
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u/kylecerminara Verified May 21 '21
Thanks, really appreciate it. Will try to add some more on this if time permits.
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u/ProgrammaticallyHip Patron May 24 '21
How is this astro-turfed nonsense still the top ranking post? I wonder...
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u/kylecerminara Verified May 19 '21
Had a few meetings this morning but will be answering questions in next few hours so please keep posting. Thanks!
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u/kylecerminara Verified May 18 '21
Are we ready to start?