Open Lending Corporation (LPRO) on Q2 2022 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to Open Lendingâs Second Quarter 2022 Earnings Call. As a reminder, todayâs conference call is being recorded. On the call today are John Flynn, Chairman and CEO; Ross Jessup, President and COO; and Chuck Jehl, CFO. Earlier today, the company posted second quarter 2022 earnings release to its Investor Relations website. In the release, you will find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call. Before we begin, Iâd like to remind you that this call may contain estimates and other forward-looking statements that represent the companyâs view as of today, August 4, 2022. Open Lending disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to todayâs earnings release and our filings with the SEC for more information concerning factors that could cause actual results to differ materially from those expressed or implied with such statements. And now Iâll pass the call over to Mr. Flynn. Please go ahead. John Flynn: Thank you, operator, and good afternoon, everyone. Thanks again for joining us today for Open Lendingâs second quarter 2022 earnings conference call. I will briefly discuss the highlights of our results for the quarter and how we are performing given the current industry and economic conditions. Ross will then discuss current auto industry trends and Open Lendingâs relative performance in prior cycles. And then lastly, Chuck will go over the financials and thoughts for the remainder of the year. For the second quarter, our results were in line with our expectations despite continued challenging economic and industry headwinds to our business with our results modestly growing quarter-over-quarter. The industry is still facing low levels of dealer inventory due to the continued global semiconductor chip shortages and the supply chain challenges. In addition, and equally significant, our inflated used car values impact on affordability to the near and non-prime consumers. When we began the second quarter of 2022, there were indications that fundamentals were beginning to stabilize and then expectation that the second half of the year would lead to higher auto transaction volume compared to the first half of the year. Instead, continued lockdowns in Asia and the effects of Russiaâs invasion of Ukraine, collectively dampened the supply to fuel recovery. Even more notable has been the impact of 40 year high record inflationary conditions and the impact on consumerâs budgets and the Federal Reserveâs monetary tightening response of 75 basis point hike in both June and July. The results of high inflation and higher borrowing costs have pushed consumer sentiment at the lowest level seen in our companyâs history. Despite these industry headwinds, our business has performed well. Our current expectations for full year 2022 auto originations at Open Lending are projected to be in line with full year 2021. While the current run rates at many of the universal banks implies auto lending originations will be down over 20% year-over-year. So we remain focused on what we can control, including investing in our go-to-market sales strategy to capture more of our significant and growing TAM. In the first half of the year, we increased our sales and account management teams by 23%. The individuals weâve hired have deep experience in the auto loan origination space in particular with credit unions and banks. While some players in our ecosystem are holding flat or even reducing their employee base during this period of economic uncertainty, we are actively hiring high quality talent and positioning ourselves to take market share. Although early, we have seen good tractions on these investments. It is worth noting that during the second quarter, our non-OEM business, primarily credit unions, grew certified loans 27% year-over-year. During the quarter, we signed 18 new customers and had 10 lenders certify their first loan in the quarter. We also further grew our existing customer base with our top 10 non-OEM customers increasing their certification volume by 33% in the second quarter of 2022, as compared to Q2 2021. Another area of focus has been on enhancing lenders protection by continuing to invest in the platform and the infrastructure to support our growth, as well as improving lender onboarding, reporting and claims administration capabilities and investing in development resources. Early indications support improved onboarding and cycle times from contract signing to our first certified loan and revenue. These initiatives and associated investments are all to support our large growing TAM, which according to a recent assessment prepared for us by a third-party now totals approximately $270 billion for auto loan origination, which is up 8% from the study prepared prior to our public listing. In addition, there is approximately $40 billion in TAM related to the auto refinance opportunity, which represents 32% of our certs test quarter and is expected to continue to perform well, even with the current macroeconomic backdrop. Based on the recent TAM analysis, we have penetrated less than 2% market share, leaving a significant room for growth. As you know, we bring together the various players in the auto retail ecosystem offering a very compelling value proposition to each. We enable lenders to make loans to consumers that would otherwise not make deepening their relationships with other existing customers and helping forge relationships with new customers. The loans made through our Lenders Protection program provide yields that often exceed that of our customerâs prime portfolio with lower risk to the lender. The ultimate beneficiary is the underserved near and non-prime consumer who receives access to credit from a larger range of lenders with higher loan amounts, better rates and appropriate down payments, which is even more important in todayâs environment where consumerâs affordability is being squeezed. The benefits we offer are needed now more than ever. In addition to the massive underserved and growing TAM and our mission to help both lenders and consumers, we have considerable moat around our business with over 20 years of proprietary data, a 5 second underwriting decision and our exclusive relationships with 4 A-rated insurance partners. This moat continues to widen as we make strategic investments in new data, technology and talent. We believe our value proposition to the various players in the auto retail ecosystem supports our confidence in the resiliency of our business through any cycle and gets us even more excited about our long-term opportunities. A few reminders about our business as we head into potentially slower economic growth. First and foremost, we will maintain our discipline and rigor at all times in our underwriting process during this economic contractions. And in the second quarter, we adjusted our underwriting models to optimize for the health of our portfolio from a risk perspective. As you were all aware, we do not take balance sheet risk and we will continue to prudently manage our balance sheet to ensure we maintain financial flexibility. In the end, we will continue to target growth rates in excess of industry growth rates, but never at the expense of our commitment to managing risk. Our business fundamentals and our long-term outlook are strong. I would not like to turn the call over to Ross who will provide more details on what we are currently seeing in the auto lending industry, as well as the comparison to how the industry performed during the recession of 2008 to 2009. Ross? Ross Jessup: Thanks, John. As John stated, I would like to focus on two topics today. First, let me turn to auto industry trends. Manheim used vehicle value index prices in June decreased 1.3% from May 2022, but weâre still noticeably up 9.7% compared to June 2021 and for the year remain at historical 25 year highs. Wholesale used vehicle prices continued to increase in the first half of the year. Average used car price is now $28,000 versus $19,000 pre-pandemic, an increase of 47%. New vehicle inventory is building at a more measured rate compared to expectations we began this year. The 2022 new vehicle SAAR industry estimates have been revised downward 3x and by 1.6 million units this year, clearly an indication of continued supply side challenges. Average incentive dollars per vehicle, a leading indicator of inventory availability are noticeably below historical levels. In June 2021, OEMs weâre offering $2,700 per vehicle incentives as compared to approximately $1,200 per vehicle in June of 2022. While these are headwinds currently facing our industry, the number of new vehicle sales is forecasted to grow 5.2% per AUM over the next five years, but could clearly grow more quickly considering the new vehicle SAAR has been running at 2 million to 3 million units below historical levels. And finally, the average age of a vehicle on the road is as high as itâs ever been at over 12 years old, further adding to the number of units of pent-up demand and the opportunity for us ahead. Now to move on to my second topic. We continue to compare and contrast current economic conditions against prior recessions, specifically 2008 and 2009. During that time credit unions grew deposits in loan volumes each year in the last recession, suggesting that volumes can continue to grow through a downturn. And while the value of used vehicles declined and used auto sales decreased in the last recession, both return to pre-crisis levels within a year. Given the tight supply, our current belief is that price levels will not decline as precipitously as it did during the great financial crisis. 90% of the lenders using lenders protection reached their targeted goals. The lessons learned from the remaining 10% have enabled the company to improve its risk-based pricing model thick versus thin versus normal and LP score. Some prime customers will fall into the near-prime market due to the economic conditions, creating growth in our total addressable market. We expect the carrier appetite and capacity will not be an issue as defaults need to increase 2x the levels in the great financial crisis to create an economic loss for our insurers. Auto lending has typically performed better than other consumer asset classes as cars and car payments are prioritized over other consumer discretionary spending. Thereâs an industry adage that you can sleep in your car, but you canât drive your house to work. Accordingly, we are optimistic about our core competencies in the auto lending space. With that, I would like to turn the call over to Chuck to review Q2 in further detail, as well as to provide updated thoughts on the full year 2022 outlook. Chuck? Chuck Jehl: Thanks, Ross. During the second quarter of 2022, we facilitated 44,531 certified loans compared to 46,408 certified loans in Q2 of 2021 and 43,944 certified loans in Q1 of 2022. In addition, as John stated earlier, we executed contracts with 18 new customers during the quarter and had 10 new lenders certified their first loan in the quarter. Total revenue for the second quarter of 2022 was $52 million as compared to $61.1 million in the second quarter of 2021. I would like to point out that if you exclude the ASC 606 change in estimated revenues associated with profit share from each quarter, Q2 of 2022 revenue is flat year-over-year on a lower number of certified loans as a result of our focus on higher average unity economics and quality of credit in our portfolio. To break down total revenues in the second quarter 2022, profit share revenue represented $29.2 million, program fees were $20.7 million and claimed administration fees and others were approximately $2.2 million. Now to further breakdown the $29.2 million in profit share revenue in Q2. Profits share associated with new originations in the second quarter of 2022 was $26.3 million or $591 per certified loan as compared to $27 million or $582 per certified loan in the second quarter of 2021. Also included in profit share revenue in Q2 of 2022 was $2.8 million change in estimated future revenues from certified loans originated in previous periods, primarily as a result of positive realized portfolio performance due to lower claims and lower severity of losses, which was partially offset by higher prepaids and increasing severity of losses expected in future periods. Change in estimated future revenues was $11.8 million in the second quarter of 2021. Gross profit was $47 million and gross margin was 90% in the second quarter of 2022 as compared to $57 million and gross margin of 93% in the second quarter of 2021. Selling, general and administrative expenses were $14.1 million in the second quarter of 2022, compared to $12.1 million in the previous year quarter. The increase is primarily due to additional employees to support our growth with a focus on our go-to-market sales strategy and investment in our technology with both of which John mentioned earlier. Operating income was $32.8 million in the second quarter of 2022 compared to $44.9 million in the second quarter of 2021. Net income for the second quarter of 2022 was $23.1 million compared to $76 million in the second quarter of 2021. As a reminder, second quarter of 2021, we recognized a one-time gain on the extinguishment of the tax receivable agreement of $55.4 million. Basic and diluted earnings per share was $0.18 in the second quarter of 2022 as compared to $0.60 in the previous year quarter. Adjusted EBITDA for the second quarter of 2022 was $34 million as compared to $46.1 million in the second quarter of 2021. Thereâs a reconciliation of GAAP to non-GAAP financial measures that can be found at the back of our earnings press release. Adjusted operating cash flow for the quarter was $34.6 million as compared to $30.5 million in the second quarter of 2021, a 13% increase year-over-year. We exited the quarter with $366.8 million in total assets of which $167.7 million was in unrestricted cash, $106.7 million was in contract assets and $66.5 million in net deferred tax assets. We had $159.3 million in total liabilities of which $144.9 million was in outstanding debt. Now moving to our guidance for 2022. Based on the first half of 2022 results and trends into the third quarter, we are revising our guidance ranges for full year 2022 as follows: total certified loans to be between $155,000 and $180,000; total revenue to be between $175 million and $205 million; adjusted EBITDA to be between $110 million and $135 million and adjusted operating cash flow to be between $115 million and $145 million. Despite the industry headwinds, we remain confident in the resiliency of our business and our ability to navigate through the supply and affordability constraints. However, these industry and economic challenges have impacted our growth outlook in the near-term. In our guidance, we took the following factors into consideration: we adjusted program underwriting with a focus on optimizing the health and quality of our portfolio from a credit perspective; continued disruption in transportation networks and raw material shortages, the global semiconductor chip shortages; low levels of dealer inventory and dealer sentiment; the investments we are making in the business; continued strength of our refinance program and the value proposition it offers consumers; the rate of growth for an index of public auto lender financial institutions, which peaked in the second quarter of 2021 at 21% and contracted to negative 2% in the second quarter of 2022; the affordability index of our target credit score due to continue inflated used car values and finally inflation and rising interest rates and overall consumer sentiment, which perhaps has had the most significant waiting on our guidance considerations. While we model and analyze the industry supply chain and in market field conditions, the visibility on Federal Reserve policy can be less clear. As the Fedâs guidance has changed from a view that inflation would be transitory to tighter monetary policy, consumer and dealer sentiment dropped considerably. With consumer spending slow and dramatically the Fed noted that it will likely become appropriate to slow the pace of increases as they assess how cumulative policy adjustments affect the economy and inflation. We will continue to keep a watchful eye on the FOMC policy in addition to the fundamentals that matter most to our sales outlook. Now, in closing, Iâd like to note that the midpoint of our revised guidance is in line with last year, as it relates to certified loans, which grew 82% and revenue which grew nearly 70% in full year 2021, excluding any impact from ASC 606 change in estimated revenues, we provide a true value proposition to our customers. We have limited near-term capital investment requirements and no near-term maturities on our debt. We will continue to maintain financial flexibility with a strong balance sheet and cash position and an overall conservative financial policy, while investing in our business during a challenging economic time. And we stand ready to capitalize on the pen-up demand. We want to thank everyone for joining us today and we will now take your questions. Operator: All right. Our first question comes from the line of Napoli from William Blair. You may now proceed. Bob Napoli: Thank you. Good afternoon, John, Ross and Chuck. Appreciate the question. John Flynn: Hey, Bob. How youâre doing? Bob Napoli: All right. Hope youâre doing well. So just â I mean, obviously, itâs a difficult environment in the auto space right now. So no huge surprise, I think, on the guidance adjustments. But what are your thoughts on how youâre doing from a market share perspective? And as we lap a tougher year, if you look into 2023 and ongoing, what is your feel for what the right growth rate should be for your company? Chuck Jehl: Yes. Thanks, Bob. This is Chuck. Go ahead, John. John Flynn: No, I was just going to say you can answer the percentage, Chuck. But I think we kind of tried to point out how excited we are about not just the growth ahead of us, but the numbers that weâre hitting given the status of all these other lenders. That credit unions are continuing to be excited about, what we have to offer, how we offer it. Their funding rates are always going to be way below everybody else. And I think given the new TAM that we had gone out and asked to get done from the same company that didnât when we took the company public, I was thrilled to see that itâs actually grown. Itâs up to $270 billion just on the purchase side and $40 billion on the refinance side, those two numbers combined takes at about $60 billion greater than what the TAM was when we started this public path here. So I think that thereâs a huge runway ahead of us. Thereâs â and again, that was primarily in the credit union space, the bank space, the refinance space. And I think with the cars starting to come back up, I think weâre going to see a lot of growth. Chuck Jehl: Yes, Iâll just add though â go ahead, Bob. Bob Napoli: Sure. No, go ahead. Chuck Jehl: I was going to say, what we believe and we have been forecasting is that if you track used car values and how we see them declining slowly, but we see them not being into this â we think weâre pretty conservative on our forecast and realistic as well that itâs going to be in late 2023, early 2024 before theyâre down to a level that will result in the change, in the affordability making our loans a lot more attractive. I believe the near and non-prime folks are on the sidelines. They are â thereâs going to be a pent-up demand. And itâs going to â as soon as supply increases, weâre going to be taking advantage of that. I think in the meantime, we have the ability to pivot and keep going after our lenders to help refinance and put these consumers in a better state. Bob Napoli: What do you think on the credit quality side? Iâm sorry. Chuck Jehl: No, problem. Ross Jessup: Yes. Yes. So our average score in our portfolio is about 640, all right. So with that in mind, I donât consider us to be in the subprime and the non-prime. When weâre looking at â weâre seeing â first of all, on the default delinquency side, we are seeing an uptick, but itâs in line with our expectations and steel is even â our â just this past month and quarter, our expected defaults are actually higher than we actually are seeing. So it is showing up. On the claims side, weâre still at record lows. And thatâs just because weâre still yielding much more at the auction than we have forecasted. So it was kind of a headwind on that. Chuck Jehl: Bob, just real quick on your growth rate, all the things John and Ross both said, the production, the SAAR, obviously, has been a big impact in the prepared comments on the inventory and restocking. But as things normalize and we get back to, as Ross said, the affordability comes down a bit, used price values come down a bit as well as inventory restocks. I mean, this business has performed well through challenging times. And as things normalize, we feel, historically, itâs been a â if you look past three years before the pandemic, the 30% revenue CAGR business, and we feel like we can get back to significant growth rates as things normalize. Bob Napoli: Thank you very much. Chuck Jehl: Thank you. Operator: All right. Our next question comes from the line of David Scharf from JMP Security. You may now proceed. David Scharf: Great. Thanks. Thanks for taking my question. Good afternoon. You actually â Chuck, I believe when you went through the guidance, you â I think you answered what I was prepared to ask, which was is the updated outlook on affordability. Is this more a function of elevated used car prices, which have been so stubbornly high? Or is it a function of consumer sentiment? And it sounded like it was the latter. I just wanted to confirm, as we think about, wow, it looks like a $29,000 was the average size loan this quarter, which is much higher than I think any of us are used to seeing for a 640 average FICO. Is â as we think about sort of your comfort level and visibility and how youâre thinking internally about trends over the next few quarters, is it more inflation, broader consumer credit trends and Fed actions that we should be thinking about more than just supply chain issues because there seem to be a lot of inputs here? Chuck Jehl: Yes. No, there are â thanks for the question, David. But yes, definitely a lot of inputs here in as we work through it from a bottoms-up perspective. And I just kind of like to point to maybe just three real big drivers that went into our input is the geopolitical environment has changed notably since we were last on the phone and the war in Ukraine has disrupted the energy sector. Oil prices are at highs and gas prices. And as you mentioned, inflation at 40 years high, the consumer price index at 9%, thatâs a big impact. And then in Asia was lockdown and containment â and in the chip. So that is definitely still a macro chip issue there and getting the auto dynamic back in good orders. So in the auto sector, it really hasnât improved like what we thought when we were last on the phone. So itâs the industry, chips, itâs supply, itâs affordability, itâs the SAAR, itâs just many inputs and much outside of our control. So what weâre really focused on is executing running the business through this and generating a lot of cash flow for the shareholders and the company and continue focusing for the pent-up demand when it comes back, and itâs ready. But yes, itâs really a blend of all of it and probably the biggest factor on the range of the guidance is really the Fedâs action and whatâs the Fed going to do over the next several months here is â are we going to ease on the rate increases and sentiment from the consumer is going to get better and affordability is going to come down as prices normalize on the Manheim. Thatâs really the biggest factors, I think, in the range of that. So yes, and just supply in general just has to improve in the auto space. So I know itâs a long-winded answer, but itâs a lot of inputs to what we thought about here. David Scharf: No, no, no, itâs very helpful. Maybe just as a follow-up, this is more sort of a structural question. Within the profit sharing arrangements with the carriers, does â their portion of the profit share that they keep, does that change at all based on any absolute levels of profit share per cert? As we think about potentially not just credit normalization, which weâre seeing now to pre-pandemic levels. But if we were to actually fall into a true unemployment-driven recession and so our loss rates become significantly elevated in the lower profit share per loan, maybe under $500. Does that trigger any changes in terms of how the splits are calculated? Chuck Jehl: No sir. It does not. David Scharf: Okay. Terrific. Thank you. John Flynn: Thank you, David. Operator: Our next question comes from the line of Joe Vafi from Canaccord Genuity. You may now proceed. Joe Vafi: Hey, guys. Good afternoon. I know you mentioned that you may have tweaked your underwriting model a bit in the quarter, the â itâs got a little more detail on that. And then it does sound like the credit unions and basically, the non-OEMs kind of still grew in the quarter. And I just want to confirm if thatâs a lot of refi activity there thatâs kind of keeping things really high. And I guess, to finish that equation off, it does sound like probably the OEM channel is the one thatâs clearly down the most at this point? And then maybe one quick follow-up. Ross Jessup: Yes, Joe, as far as underwriting in April when we â weâre just trying to address things that we canât control, we launched 84 months. We expanded our loan amounts for indirect. I was just looking and the uptick has been definitely in line with our expectation. Itâs growing. Weâre actually seeing improved capture rates, which was our overall intent as well. So instead of countering and basically not getting that opportunity, our capture rate continues to improve, and we expect that to continue to improve from here on out because it takes a while for some of our institutions to adopt our larger underwriting box. And so yes, we are excited about it. And when we continue to look at other underwriting changes that we can help navigate through this. As far as the refi and John can speak to it, itâs still â itâs â we have new accounts that are coming on that are â weâre expanding our kind of wallet share with how we serve and new refi opportunities. We have accounts that just have signed up and launched doing refi-only initially before they look at other channels. So â and I think thatâs just whatâs great about our business model is the ability to pivot when originations because of supplies is limited, weâre able to still help the consumer out by getting them in a payment fits their credit quality. Chuck Jehl: Yes. And Joe, Iâll jump in. On the refi, it was 32% of our quarter, so about 14,000 certs of the 44,500 we generated. So still strong performance there. And then the core credit union business was actually â or actually it was up about 27% or really back up the non-OEM business. So your point about the OEMs being down. Theyâre down the most â as you look at the customers and â but it should be expected with supply and where things are with incentives and inventory. So thatâs where we kind of rounded out. But the core business performed very well. Yes, just the cost of capital. John Flynn: I think the only other thing is, when you look at some of our funding sources that may be running out of a little bit of liquidity. Weâve got some new funding sources lined up that are totally interested in the refi channel. And the fact that theyâre sitting there waiting to get some of the value, I think, is awesome. I donât think weâre going to see a huge downtick in refinance at all. I think if anything, those applications are going to continue to come in stronger than they even did in the past because of whatâs going on with the economy. And I think it was David that asked the previous question about the â I forget how it was worded, but the economy and the things weâre thinking about with unemployment and things like that. If you look at â we recognize some of those things are happening. The unemployment rates, all these different things, delinquency, but we have over 2 million unique risk profiles that we look at. And as these consumers scores fall or as their performance gets a little worse, all theyâre going to do is fall into a higher-priced bucket, if you will. From a premium standpoint, theyâre still going to be able to help them, weâll still get the loan, but itâs going to â it might perform a little differently, but weâre collecting enough premium to make sure that the profit share stayed where it needs to. So even though those outside factors are happening, weâre pricing for that in every category. Joe Vafi: Yes. That makes a lot of sense. Thanks, John. And then just do we have an update on new OEMs at this point? And has this macro changed their kind of view on a time line here on adopting the Lender Protection program? Thanks guys. Ross Jessup: Yes, Joe. No, we still have a lot of activity going on in discussions going on. Thereâs really not a lot of change from the last quarter, except just trying to â what we are seeing is some folks are starting to see some losses, which actually ironically is a good thing. As far as the â showing the value prop of ours. And so I think with the used car index where it is now and the new originations that are out there, they have a lot more risk because of the decline thatâs going to happen compared to the timing of when losses are going to happen. And so we look forward â we continue to pursue the ones weâve been talking to, and thereâs still a lot of interest. So we weâre trying to get on the radar and â but weâre pleased where we are at this point. Chuck Jehl: Joe, Iâll add one more thing. Just kind of your comment about guidance and maybe Davidâs comment and kind of if you think about the most significant impacts to the outlook, the guidance outlook, incentives, as Ross said, in the OEMs have bottomed, the SAAR has bottomed. We believe prices peaked, sector dynamics are improving. And thereâs 5 million pent-up demand units that, as we said in the script, that we stand ready to capitalize on because our business fundamentals are, we believe, are very strong and ready for that when things normalize, but things are improving. Joe Vafi: Thanks, guys. Chuck Jehl: Thank you, Joe. Operator: All right. Our next question comes from the line of Pete Heckmann from Davidson. You may now proceed. Pete Heckmann: Good afternoon, gentlemen. Thanks for taking the question. Just looking at the implied revenue per loan and your updated guidance, it certainly seems to imply that you expect the profit share per loan that continue to run pretty solid, $570 million to $590 million something like that. Is that â and obviously, the per â the origination fee is also going up as the average price of the car goes up. But is that the right way to think about how youâre thinking about uptick in default rates? Chuck Jehl: Well, on unit economics, yes, as you relate to program fees and profit share, yes, we feel good that $560 million to $600 million thereâs mix at times. Not at all risk is created equal on the premiums. But yes, that $550 million to $600 million feels good from a modeling perspective. And then program fees, as you pointed out, are up a bit year-over-year, just loan amount of increases and also mix of business. So yes, we feel good about those numbers. Pete Heckmann: Okay. Okay. And then just thinking about refi and sorry if someone already asked this, but I think the absolute number of refinanced loans was down about 18% sequentially. Was that â does that correspond with like a mailing program or maybe a major mailing program this in the first quarter was not in the second quarter? Or is that a remnant of perhaps just concern over rates, any way to think about that? John Flynn: Yes, I think itâs all driven by a little bit of liquidity issues, not concern over rates, not concern over any kind of mailing or anything. Itâs simply one of our largest credit union funding source is taking a two-month pause on finding excess cash to be able to lend out. They were over 100% lent out. So itâs just a matter of fine-tuning their balance sheet and getting back into it. Chuck Jehl: But John â this is Chuck. You would â yes, we were a little under 40% peak in Q1, but obviously still strong almost 32.5% for Q2. So still a strong piece of our opportunity, as John said. John Flynn: Sure, yes. Pete Heckmann: Definitely, I appreciate it. Operator: All right. Weâll then move on to our next question comes from the line of James Faucette from Morgan Stanley. You may now proceed. Sandy Beatty: Hi. This is Sandy Beatty on for James. Just a conceptual question here, and maybe you had conversations with the credit unions that can help in terms of color. Are credit unions more or less interested? Or do they use the product more or less into periods like this where, letâs just say, expectations for defaults are increasing? Framed differently, how does product demand and usage reacts just on a cyclical basis? And then even factoring in interest rates and pricing into the equation as well? Any color that you can offer there would be great. John Flynn: I donât think they use us anymore. I think theyâve all adopted the program. If you look back in history, credit unions traditionally for prime lenders, very few of them led below a 680 to 690. And when they started to adopt our program, they became more in line with realizing that they could safely lend to the near prime consumer with the safety net of our insurance fees tied to every loan. So in the event of default, they were still going to get the yield they want it. The majority of them, even some of the largest ones, simply didnât have the data to be able to underwrite these loans appropriately. So they simply denied it or conditioned it to the point where they â the poor consumer was sent out and subjected to the Exeters in the Santander. So I mean I do think that as you start to see delinquencies rise a little bit out there, I think weâre going to see some of the shops that weâve been targeting that we havenât even gotten into yet be more prone to want to sign up for our program. And again, Iâll come back to the answer from earlier about and Ross made the point a few minutes ago, as they start to see more losses and more delinquency, we become a lot more appealing. And the beauty to us is priced appropriately from a current standpoint for us to benefit. So I think itâs not â they try not to be cyclical. They try to stay in the game. One of the things dealers hate and weâve seen it with some â the lights of some of the big banks. One day, theyâre buying 620s and the next day, theyâre not. Well, what we get the credit unions, the ability to do stay in the game with the dealers and become their lead source for getting those loans funded. Sandy Beatty: Got it. Thatâs helpful. Ross Jessup: I wanted to add something to Johnâs comment. Basically when John and I could talk about back in 2007 and 2008, our capture rate â we had nothing with credit union clients then. Our capture rate then was double what it is today. So during those times, the demand for our product definitely increased, and we were able to see very, very positive results from that. I think Chuck, do you want to add anything? Chuck Jehl: Yes. And just one more thing. If you go to delinquencies for a second, our FICO 575 and above and only 2% delinquencies and defaults 570 or above are less than 5%. Our FICO score or FICO score is in the 640 range, as John and Ross said. So thatâs in line with the 10-year trailing performance. Sandy Beatty: Got it. Helpful. Maybe a little bit more of a high-level question. Competitive landscape. How has this evolved past three to six? Obviously, the environment is changing pretty rapidly, particularly with respect to interest rates. Refi, obviously, an impact there as well. Anything that youâre seeing competitors pulling back or pushing, obviously, you called out market share in the press release? Any color there would be great. John Flynn: When you say competitors, Iâm not sure weâve identified any other funding sources, some of the likes of the larger banks. We see their numbers, their loans are way down. I donât know if thatâs because theyâve overpriced them or their cost of funds, Iâm sure, is rising. But from a competitive standpoint, weâve yet to identify a competitor that does what we do the way we do it. Sandy Beatty: Perfect. Thatâs good to know. Thank you. Ross Jessup: Thank you. Operator: All right. Next question coming from the line of John Hecht from Jefferies. You may now proceed. John Hecht: Hey, guys. Afternoon and thanks for taking my question. And this is just, I guess, an extension of some of the other discussions weâve had here. But you mentioned that the refi market is pretty resilient right now. But you would expect that rising rates might have some influence on that over time. So I guess the question is, considering rates and considering the direction of used car prices and some of, I guess, your just economic judgments, what happened â and then I guess also on the other side is thatâs a normalization of production from the OEMs. What happens in your guidance, what do you think happens to mix over the next several quarters? John Flynn: You mean the mix of refi purchase? John Hecht: Refi purchase and even channels, OEM versus credit unions and banks and so forth. John Flynn: Chuck, do you want to add anything? Chuck Jehl: Yes, I can start. Yes. John, I think the way to think about it is the OEMs and thereâs more inventory in the dealer as floors increase, OEMs â OEM 1 and 2 will be a bigger piece of our business going forward as that normalizes, and we think the absolute percent of refi. The percent of refi may sustain or go down slightly, but we believe the absolute number of certs could continue to rise even through the rising rate environment. I donât know, John, if you want to add anything to that? John Flynn: No, I would say just exactly that. I think in addition to that, regardless of where the loans are coming from. And I think Ross alluded to it a little bit in his prepared remarks, the economy is going to drive a lot of consumersâ scores lower. A lot of people just canât afford their â to make their payments. So theyâre using credit cards, which is a big factor in your FICO score. And I think what youâre going to find is with the economy getting squeezed, people that are making a $500 a month car payment today that werenât considering a refi in the past are now looking at increased gas prices, food prices are up. That theyâre going to be looking for ways to reduce their monthly outflow, which I think is going to drive a lot of these 18% and 17% interest rate. Weâre still coming back with 11s and 12s using credit union funds. So I think itâs just going to â I donât see it going away or getting it smaller. John Hecht: Great. Guys, thatâs very helpful thanks. Chuck Jehl: Thanks, John Operator: Our next question comes from the line of Faiza Alwy from Deutsche Bank. You may now proceed. Faiza Alwy: Yes. Hi. Thank you. So I wanted to just ask about the EBITDA outlook because you mentioned some investments in data, et cetera. So Iâm curious if most of the change in EBITDA outlook is because of revenue impacts or if youâre embedding some additional investment spending there, too? Chuck Jehl: Yes. Hi, Faiza. How youâre doing? This is Chuck. Yes, obviously, we talked about weâre investing in our go-to-market sales strategy as well as technology this year. And really, the change there that youâve seen from the previous guidance to this is really just more revenue top line. Weâre going to maintain in our guidance approximately 63% to 65% EBITDA margin, and thatâs net of the investments weâre making in the year for 2022. So thatâs all baked in. So thatâs the margin profile in the guidance. Faiza Alwy: Okay. Understood. And then you mentioned several times sort of maintaining financial flexibility and your strong balance sheet, cash position. Like how are you thinking about using that to your benefit during this time? Chuck Jehl: Well, I think Iâll tag on to the investments weâre making right now, first and foremost, in the business and in the go-to-market sales and being ready to capitalize on that pent-up demand as things recover. Thatâs first and foremost. And weâre going to â and when you say maintain financial flexibility, having a strong cash position is in uncertain times is definitely something that, that weâre very focused on and just maintaining that flexibility through these challenging times. Weâll look at other opportunities as the business matures, and we look at opportunities from time to time on the M&A front. But obviously, just investing back in the business right now is the primary focus. Faiza Alwy: Great. Thank you. Operator: Our next question coming from the line of Vincent Caintic from Stephens. You may now proceed. Vincent Caintic: Thanks. Good afternoon. First, I wanted to talk about â if you could discuss the conversations youâre having with your lending partners and with the lending partners youâve signed up. I guess with the â even at the midpoint of the guidance, the implied second half, you do have non-OEM volume shrinking. So Iâm sort of wondering if you could discuss like what â just broadly what these banks and credit union lenders are thinking? And I know you mentioned one credit union maybe reached their limits or taking a two month pause. But are you seeing maybe other lenders may be requiring higher returns or wanting to reduce exposure? Or how do they thinking about this current environment and by your partnership? Thank you. John Flynn: Yes. I donât think theyâre trying to reduce their exposure or even their cost of funds, I donât think itâs that big of an issue. Because even if a credit unions cost of funds comes up 0.5 point, theyâre still going to be the lowest interest rate in town relative to the refinance market that weâre going after. I truly just believe that itâs a situation where those that have been really successful in our program. And weâve seen this over the years, even going back to 2007, 2008, where they get some successful with our program that they just need to find additional cash to lend. So what theyâre trying to do is just kind of reorganize their balance sheet. If you look at where mortgage rates are going and all these other asset classes with the rates climbing on that, theyâre still not â they donât want to hold on to these long-term loans not knowing where rates are going to go. The perfect asset liability mix for our credit union is an auto loan, thatâs got an average life of 2.5 to three years with a yield probably 4x that of a prime loan. So I think itâs just a matter of prioritizing where to get the cash from and where to deploy it. Ross Jessup: Yes, I want to add something, John, is even though we do have a couple of the â our partners in that situation temporarily, we are actively trying to reallocate that to other partners and having calls and meetings regarding that. So weâre â everybody is at work trying to still take those applications and those sources and place them at one of our other participating customers out there. And â but the OEM volume was a little â actually, Q2 was a little up from Q1. So I think for the balance of the year, it should be in line with where itâs trending right now. Vincent Caintic: Okay. Great. Thank you. And just one kind of a follow-up on the balance sheet question earlier. But yes, your cash position is $168 million kind of builds very nicely. I know you talked about investing in the business and M&A, but your balance sheet is very capital light. Just wondering if youâve thought about capital return like share repurchases since you have bought stock in the past at higher prices than where the stock is now? Or are there any limitations to doing share buybacks? Thank you. Chuck Jehl: Yes. Thanks, Vincent. No, no, thereâs no limitations to doing share buybacks. We donât have a current Board authorization to buy stock back. We evaluate that at thoughtful decisions at the Board level for us to think through. And â but again, building cash and maintaining that financial flexibility is what weâre focused on and investing back in the business right now. Vincent Caintic: Okay. Great. Thanks very much. Operator: We have one more question in queue. Itâs coming from the line of Mike Grondahl. Itâs from Northland Capital Markets. You may now proceed. Michael Pochucha: Hi. This is Michael Pochucha on for Mike Grondahl. Thanks for taking the questions. First just a reminder on I think, last year, early second quarter, you dropped the vehicle value discount. Was that an impact year-over-year comparison on like the profit share average there? Ross Jessup: Yes. Last â I believe last April 2021, we actually got rid of the 5% discount. Our capture rates did increase from that. But because basically, we would drop it, that reduced premium and reduce the contract rate in place. Chuck Jehl: But Iâd just point out that higher loan amounts drive higher premium and higher profit share as well. Ross Jessup: And the addition of 84 months came with higher premium rates as well. Michael Pochucha: Got it. And then maybe just on Slide 3. Has there been any vintage to call out on the realized versus prospective performance of loans for that? Chuck Jehl: Can you repeat that, Michael? I didnât follow your question. Michael Pochucha: Sure. Just on the contract asset estimates and the profit share revenue, has there been any vintage segment like call out there have been pretty broad-based as far as the realized coming in ahead of expectations? Chuck Jehl: Yes. I think the realized was just lower claims and severity of loss than we had originally modeled in that $6.4 million component. And then the negative $3.6 million was really just us putting more stress in the forward-looking periods for higher severity of loss with prices, used car values coming down and increased prepayments and the increase as well as increased defaults forward-looking. So thatâs what all that is. Michael Pochucha: Thank you. Chuck Jehl: Thank you. Operator: We have no further questions queued up. Iâll turn the call back over to our presenters for any closing remarks. Please go ahead. John Flynn: As we said, thanks, everybody, for your continued interest and support in the company. I think weâve got great roads ahead of us here to continue to grow and weâre looking forward to doing that, so again. Chuck Jehl: Thank you. Operator: All right. Ladies and gentlemen, that will conclude the conference call for today. We thank you very much for your participation, and you may now disconnect your lines. Thank you.LPRO Ratings Summary
LPRO Quant Ranking
Related Analysis
Open Lending Corporation (NASDAQ: LPRO) Financial Performance and Market Valuation
- Earnings Per Share (EPS) of $0.02 matched the estimated EPS, with revenue exceeding expectations at approximately $24.2 million.
- The Price-to-Earnings (P/E) ratio stands at 72.84, indicating strong investor confidence in LPRO's future growth prospects.
- Debt-to-Equity ratio of 0.66 and a current ratio of 9.42 highlight a balanced financing approach and strong liquidity position.
Open Lending Corporation (NASDAQ:LPRO) specializes in automotive lending enablement and risk analytics solutions. The company is a key player in its industry, providing innovative solutions to lenders. LPRO's financial performance is closely watched, and its recent earnings report on March 31, 2025, revealed an earnings per share (EPS) of $0.02, aligning with the estimated EPS. The company also reported a revenue of approximately $24.2 million, exceeding the estimated $23.7 million.
LPRO's financial metrics provide insight into its market valuation and operational efficiency. The company's price-to-earnings (P/E) ratio is 72.84, indicating that investors are willing to pay $72.84 for every dollar of earnings. This high P/E ratio suggests strong investor confidence in LPRO's future growth prospects. Additionally, the price-to-sales ratio of 3.49 shows that investors are paying $3.49 for every dollar of the company's sales, reflecting a positive market sentiment.
The enterprise value to sales ratio of 2.39 highlights LPRO's valuation relative to its sales, while the enterprise value to operating cash flow ratio of 6.07 indicates how many times the operating cash flow can cover the enterprise value. These metrics suggest that LPRO is efficiently managing its resources and maintaining a solid financial position. The earnings yield of 1.37% further emphasizes the company's ability to generate earnings from its investments.
LPRO's debt-to-equity ratio of 0.66 suggests a balanced approach to financing, with $0.66 of debt for every dollar of equity. This indicates a moderate level of leverage, which can be beneficial for growth without overburdening the company with debt. Furthermore, the current ratio of 9.42 demonstrates LPRO's strong liquidity position, with $9.42 in current assets for every dollar of current liabilities, ensuring the company can meet its short-term obligations comfortably.
As LPRO prepares to release its financial results for the fourth quarter and full year of 2024, investors and analysts will be keen to see if the company can maintain its positive momentum. The upcoming conference call on April 1, 2025, will provide further insights into LPRO's performance and future outlook, offering an opportunity for stakeholders to engage with the company's management.
Open Lending Corporation (NASDAQ: LPRO) Financial Performance and Market Valuation
- Earnings Per Share (EPS) of $0.02 matched the estimated EPS, with revenue exceeding expectations at approximately $24.2 million.
- The Price-to-Earnings (P/E) ratio stands at 72.84, indicating strong investor confidence in LPRO's future growth prospects.
- Debt-to-Equity ratio of 0.66 and a current ratio of 9.42 highlight a balanced financing approach and strong liquidity position.
Open Lending Corporation (NASDAQ:LPRO) specializes in automotive lending enablement and risk analytics solutions. The company is a key player in its industry, providing innovative solutions to lenders. LPRO's financial performance is closely watched, and its recent earnings report on March 31, 2025, revealed an earnings per share (EPS) of $0.02, aligning with the estimated EPS. The company also reported a revenue of approximately $24.2 million, exceeding the estimated $23.7 million.
LPRO's financial metrics provide insight into its market valuation and operational efficiency. The company's price-to-earnings (P/E) ratio is 72.84, indicating that investors are willing to pay $72.84 for every dollar of earnings. This high P/E ratio suggests strong investor confidence in LPRO's future growth prospects. Additionally, the price-to-sales ratio of 3.49 shows that investors are paying $3.49 for every dollar of the company's sales, reflecting a positive market sentiment.
The enterprise value to sales ratio of 2.39 highlights LPRO's valuation relative to its sales, while the enterprise value to operating cash flow ratio of 6.07 indicates how many times the operating cash flow can cover the enterprise value. These metrics suggest that LPRO is efficiently managing its resources and maintaining a solid financial position. The earnings yield of 1.37% further emphasizes the company's ability to generate earnings from its investments.
LPRO's debt-to-equity ratio of 0.66 suggests a balanced approach to financing, with $0.66 of debt for every dollar of equity. This indicates a moderate level of leverage, which can be beneficial for growth without overburdening the company with debt. Furthermore, the current ratio of 9.42 demonstrates LPRO's strong liquidity position, with $9.42 in current assets for every dollar of current liabilities, ensuring the company can meet its short-term obligations comfortably.
As LPRO prepares to release its financial results for the fourth quarter and full year of 2024, investors and analysts will be keen to see if the company can maintain its positive momentum. The upcoming conference call on April 1, 2025, will provide further insights into LPRO's performance and future outlook, offering an opportunity for stakeholders to engage with the company's management.
