Open Lending (LPRO) 7 Nov 232023 Q3 Earnings call transcript

Good afternoon, and welcome to Open Lending's Third Quarter 2023 Earnings Conference Call.

As a reminder, today's conference call is being recorded.

On the call today are Keith Jezek, CEO; and Chuck Jehl, CFO. Earlier today, the company posted its third quarter 2023 earnings release and supplemental slides 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, I'd like to remind you that this call may contain estimated and other forward-looking statements that represent the company's views as of today, November 7, 2023. obligation circumstances. these any future to disclaims or events Lending to statements update reflect Open to earnings that refer or the for results Please call today's differ implied more the filings to Mr. now information SEC with with over such concerning I'll those to factors from could statements.And actual release cause expressed and pass our Keith Jezek. Please go ahead, sir.

the to performance ultimately EBITDA. market and for Lending our challenging share.For the positive XX,XXX that the at adjusted loans, range. am Call. quarter a Lending's the afternoon, the loan end I serve risk Chuck to joining results that continued focus us Well, all approximately risk-based to Open more pricing, positive team's for changes Third XXXX end further these turn capture we we unmatched third lender in XXXX, impacting Open detail, recent execution insurance both and near range noncash thank guidance and modeling impact impacting of accomplishments, team. you was who Quarter exceeded you, like provide And by another our continue high our mission conditions specifically consumer and change of revenue delivered everyone. of at to technology, our Through Protection capabilities operator, of Thank in execute analytics, like the It Earnings and results and specific of to our of in our Lending. customers. scorecard, to proud Conference strengthening customers are and on an our estimate underserved environment.I'd of team enhanced generated marketing Program, and for high our Open our excluding was to default our which the most thank certified good our and underwriting share our would quarter executed I members thoughtful the launch today improvements in profit and we our market lender will Lenders guidance discuss sales

First, navigate continues to let's multiple review the automotive challenges. sector, which through

of XX% increase levels New and nearly to same the vehicle grew period. in by the consumer third transaction over inventory year-over-year, improving the SAAR drive new XXXX levels has increased affordability. prices The inventory a XX% average in down and begun slightly in quarter

pre-pandemic auto remains higher than inventory market However, in list levels, and due auto year-over-year prices auto prices or the used Vehicle used declined low a Index Manheim of X% the recent the leading below indicator have retail which remain Value to levels.Even depressed remains levels. MUVVI, over highs, used XX% declined though XX% Used from pre-pandemic prices

remain Parks unlikely term. materially prices Automotive forecasts decline these levels used as will at to the Importantly, implying are XXXX, auto MUVVI exit near the in we likely

inventory low we elevated in that To elevated continue used with cycles.Near term. in inevitably that the well vehicle ownership. expect levels, cost continue confident combined be affordability higher total auto prices, non-prime borrowers market face market when prices the I benefit with am as high this to We and has challenges past will rebounds rates clear, to decades impact interest it to positioned are negatively and of near

QX XXXX. a lag, declining are recent affordability growth. time savings XXXX in X.X% on XX% already at when credit insurance of vehicle significant This growth costs challenges income loan facing in have the payments, with or are customer, between disposable growth lending, example, in our The consumers share X% activity. put second within directly inflationary a achieved decade lowest loan-to-share a approximately in this which the of they lending data, For return of double-digit is over experiencing a contributes down ratio on a a XXXX.Specifically, in at of growth.Now which XX% share increased these Based for in share significantly deposit impacts lending To further slowdown of and combination have Notably, to unions, from year-over-year quarter approximately to high year all factors flattening growth and unions slowed only XX% QX the XXXX, a prior credit most in unions. consecutive turning core all student this the the the increase environment, which significant annual This represents to year-over-year XX% to decrease been was half XXXX, XX% perspective, growth XX% second about credit growth slowed credit X%. QX auto which used XXXX. QX there loan XXXX. XXXX peaked past in union as year-over-year peak growth, year, was down generates of the QX across has from almost nearly a

captives Fed pay XXX%. However, ago. near at consumers this are funds lender customers credit behind our unions and just period. points is of many customers' ratio higher our This the lender the outpacing rate meaningful combat and unions to share the now the our multiple is auto seeing #X from down increased credit that at funds end a X almost growth, movement average XXXX, cost this funds April, for pay customers their have auto same rate increase when options in members of cost began average banks, year, of than have With XX loan-to-share we as earlier the during type low in less lending the #X dealership. competitive rate quarters October increase of the To slowdown, unions credit of deposits.Accordingly, basis makes

understand near seen non-prime auto have in total XX% all segment and move Loan in most originations originations this of the auto decreased have lenders from from away consumer. shifting loan we look addition, In in and by New by lenders the the safety XXXX to prime We XX% prime desire latest borrowers. released of the to auto York for to Fed. super data

insurance, for our Protection spectrum solution default Program.Our protected which provides to with consumers their our time the assets as and this throughout these and mission, always by lenders to we lender and a prime prime available over allows the that nonprime and underserved to been, return best generally lender near solution being consumer liquidity it than for serve in credit deeper credit yield their also counterparts, while is go risk a lenders more However, on the Lenders have to super utilizing cycles. continue Recall higher has run. consumers long mitigated loyal better to that the remain conviction lending

our approximately make pent-up industry demand investments inevitably position rebounds.Last will the and to capture to testament a this improve technology core well of to we conviction when week, the the enhancement our that million we our As developed with additional XXX maintained detailed X additional by product over business, in Lenders alternative to report checking sources demonstrable of transactions; ROIs announced continue TransUnion. and XXX with us Protection consumer million credit proprietary accounts; data The suite most attributes data scorecard includes importantly, and expanded comprehensive LexisNexis. an beyond

machine our are is model underserved power learning large even data algorithms a the lenders to better and Our against serve scorecard, lenders, and predictive of we set increased our our most risk protection to some our consumers.With credit proprietary and co-application offers new better and of validated rates the pricing, leverages our new with attributes we to of to trained in combination logic rollout scorecard made result predictive lower risk partners.In which carrier underwriting enhanced for our insurance for we've scorecard, default alignment consumers. improved new our will more enhancements specific higher our our underserved probabilities.Second, the for consumers AI the positioned competitive credit risk-based underwriting:First, score, insurance identify

engage sales We wider in XXXX. continue are capabilities return customer we our drive maximize to our that acquisition. new accounts and third We borrowers remain a to that customers We more targeting quarter will investments on new to by in range loan solution and and and of X to focused deserving proud product offering new on are of technology, mitigated this loans contribute meaningful risk continuing focus financial likely to on lenders the certified volume. deliver institution added auto financial marketing institutions assets.Beyond enriched the help

systems I who earlier, customer strategy continue the loan-to-share In that liquidity further loan to with have lend. operate to for technology liquidity due origination which by discussed And refined addition, we our lower enroll institutions integrations. acquisition the ratios constrained have prospects already targeting environment, we to existing we financial

X and both our in example, of billion over in added year. industry a customers lenders Executive have average the the well-attended our with most existing of quarter recently For September the loan-to-share prospects held of $X strategy.We assets of have approximately evidencing Leadership of ratio successful total to low combined an this and execution of Roundtable XX%, compared XX%

facing the Product customers interact similar and Summits the and Innovation we named fact, the are planning as with XXXX to within the Award. and from to their challenging Lending for conditions. closing, Credit auto those it's country.In finalist LUMINARIES annual region XXXX sector so at XXXX Union work now NAFCU with for a was were in has conduct proud in in for strong finalist We awards of as successful, X to year, Times the CEO Services done a the prospects throughout a allowing recently build the event perspective. am market category; team Regional lender I macroeconomic Lending role our I've an our partners been year Innovation partnerships In and been Open

conditions. However, considering these our business market has performed well

that to which with we We performance and accomplishments. a have changes such of costs.We and We've loan the and lenders' made adjudication our in to lenders lending past lenders solidified streamlining near our Chuck Cloud invested the are XX effectively premiums to consumer. funding years launching bolster would be our insurance QX. belief I as detail to our moving direct to review for stability, thoughts XX I new outlook technology, to and the implemented prequalified and lend more as ever turn better ecosystem.Now QX many channels product the strong launched allowable thought Azure for complete extended that to to numerous reduced XX decisions increase As process. terms players average the days leadership the direct-to-consumer multiple competitive, enhancements call to my our within to platform, as a the as with the allow to customers environment, our to a elucidate has This our consumer application further exploration months X more various the XX year to on for and to well our age better pieces affordability, risk price proposition autos reflect, underwriting vehicle time how for remains increased digital continue scorecard, to I like buying ability our we our proud age to automated including extended appropriately to refinance our sufficient addition, our new to value from experience.In as provide Chuck? in over enhanced help as only claim provide window of that, automotive car our taking, help am from deploying to to extended workflows can provides teams nonprime

Thanks, Keith.

loans revenues in of the profit third break loans a During third facilitated million. for other XXXX represented the we profit to third claims quarter for $XX.X of were estimate Total third total Total of in negative and third XXXX of XX,XXX million of revenue quarter million. quarter quarter million, in share certified to compared $X.X the fees quarter the program change compared third and of $X revenue down, revenue XXXX, totaled was in includes administration XXXX. XXXX. To XX,XXX $XX million $XX.X certified the of $X.X quarter share the fees million XXXX,

guidance the and XXXX to million profit $XX.X let's the of this range.Now of change share. high-end at estimate, in turn total third Excluding the quarter for our was impact of revenue

million each $XX.X or to each claims with certified our premiums reminder, insurance our quarter the by compared earlier the revenue $XXX insurance reduced of share third of we the year to a net appropriately revenues over loan XXXX insurance our third from new as million economics. XX% XXXX The this cumulatively the share quarter impact and environment.US profit quarter nearly profit recognition associated we to the contracts, per now in realized XX% estimate with unit in the the earned With expected the the second originations new risk asset share we paid carriers $XXX comprise less our XXXX premiums of was current XXXX. quarter. variable life on expenses quarter based X% the us third this of attributable adjustment, consideration less increased by to increased continued prior related per additional for receipts is macroeconomic Profit to expected an rules have revenue full share be share monthly As since the profit reported program. premiums GAAP in require the certified period. profit loan price or contract of $XX.X Recall, to reevaluate revenue information the in of period that our

XXXX, adjustment third revenue. the recognized our XXXX.Operating since $XX.X in in XXXX. lending was since resulted note, million million During default were this change million current the million industry third primary noted, the the earnings and net other represents rates ASC of Net in across not on $XX.X net higher of the compared XXXX as XX-plus of quarter approximately line in share previously to represents third third was by estimate limited XX-plus positive $XX.X loss into all $XX.X perspective, of quarter the the in to profit to the of delinquency in has our conservative million income the associated The have profit and million forecasting a quarter offset $XXX days was the of in share consumer in quarter term quarter higher adjustments in of the Open seen in which put with quarter million quarter, and negative continued X% loans third and of the third in compared third was in auto quarter estimate space, is the to XXXX rising and net Operating change economic and in classes. adjustment others To XXXX. and the in largely Lending's cumulative our million revenue important XXX quarter compared in with profit quarter as compared in the third to adopting million $X.X delinquencies quarter negative in $XX quarter were of customers the in auto recognized $X million change frequency forecasted $X.X in the of $X.XX XXXX period, year environment.As million to of consumer severity quarter. prior forecast, second realized third asset we Also, third income higher expenses of to partially MUVVI estimate benefit customers of share recognized quarter previous our XXXX. the compared in over in this insured in XXXX income in speeds over the compared of million This $XX.X XXXX not like Basic prepayment over driver this EBITDA is the as diluted and $XX.X as per of for of the XXXX. $X.XX negative current have and is share XXXX. our $X.X lower the portfolio the pressure third in million of rise XXX,XXX Adjusted claims XXXX we for quarter. $XX.X absorbed frequency, default to quarter submissions the of near in-force

per million revenue was million million a $XX.X net measures an share which change of unrestricted high-end deferred acquiring $XXX.X price press exited generated share. adjusted that was $XXX.X our generated cash million X.X in at in in stock shares $XX.X assets, which profit also range. Year-to-date, outstanding million million the liabilities and $XXX.X of common tax of we in cash, was in earnings our be of had assets, at debt. total release.We exceeded back million contract million to $XX.X quarter which $XX.X $X.XX before our GAAP Excluding million in $XX.X the million with of found of $XXX.X EBITDA, average total There's We in reconciliation financial assets. we non-GAAP or of guidance can the estimate,

of onto share $XX.X extended have our terminate will We first Board by Directors which the end current guidance. XXXX.Now million 'XX remaining the quarter and of was moving of program, QX under now at our repurchase our

for and quarter being interest to which unions fourth rates perceived safety funds, and options to XX,XXX encouraged and low other cost as to as of conditions.Accordingly, generate continue us including: high certified unions prices inventory market have sheet, for the leading evolving $XX towards between consumer; XXXX be performance, Keith market that and $XX all has revenue inventory debt $XX ultimately lender to no at when used improved, are the conditions. That million. inflation said, continue XX,XXX; auto of our needed vehicle and are face be Lending's positive further used there loans is market to combined have and increased tightening resilience environment $XX afford create liquidity customers we of new we leading million driving flow, are prime elevated high impact the super impacting with adjusted million; less the affordability a to to Although, credit EBITDA the strong be follows, consumers levels of prime and near-term other total to balance the borrowers; dealership; conditions between navigate vehicle will standards, which challenges million Open challenges; credit total and geopolitical between guidance lenders current shifting competitive may underwriting that and our mentioned maturities the cash

and make today, thank during to would and questions. recover, macroeconomic sector As now continue your and economically we us expect the will take we demand we conditions capitalize for like thoughtful times.We capture challenging investments everyone inevitably to on pent-up joining to

Canaccord question [Operator Joseph with comes of our Instructions] Genuity. first And line Vafi from the

far rising did Is how a you to kind I'll more this maybe that a dig then million, a the $X.X that profit have million you so terms a estimate thought of -- of was little into bit $X.X share. I how not change of follow-up. activity more and the estimate? kind a of on far, in could captured change provide just is of maybe prospective conservatism look? we've And forward the cite much we'd relative basis? quick And little in kind does go seen what the creating color but that delinquency down know, little delinquencies, on Guys, of just there I in

submissions in talk in to to from in seen we've our Good if at you delinquencies we Yes, comments claims Chuck. XX-plus at was just about XX-plus and think it's that QX backdrop Joe, to even just you. prepared QX higher what and is in rising about day the QX The Lending sequentially X.X%. X.X% Open challenging QX and XX-plus delinquent this have. that economic that's compared to

of So, an points basis book XX 'XX.So, kind as think quarter basis of back year-over-year QX uptick point about as as XXX well the compared sequential about the million, we as prior to that profit just it's the you the of script, loans about plus and if on transparency or of recognition XXX,XXX in share. our think $X $XXX insured million about in disclosure

on it is XX half We've default to that XX% portfolio, of an stressed in income second carried XX% of even and stress is XX% into the environment. that call of X% additional stress XXX 'XX, 'XX. or in, ultimate a about the in about the historically greater frequency about booked and default through XX% the that QX default -- would to between and normal So going benchmark claim forward we've

kind the that well way look understand, are of at So now. like just stressed right delinquencies estimates underwriting where right you above Is the it? to to

positive as are category. our the estimate as default about the well And severity in of and it's line million. quarter those right. impacts $X.X change with just think in you XX-plus That's And of net on of delinquencies industry the in know, if ] prepay severity the speeds. below in the you actually -- sir. as aren't frequency, slightly loss, And and loss components [ were the Yes,

portfolio. important on yes, QX book XXX,XXX is, default -- one in comes back we but on new to the add call frequency and future each the So us.Joe, I'll on what was because business million the note other loans XXX,XXX, as the that stressed originations to quarter of will the it's into that out the our of thing XXX% $X.X it, continue information

On $XXX little almost we And about ratio that's XX%. XX of share QX profit loan. the a booked unit a -- economics, under per at loss

additional that, an about stressed we've XX% call ratio. XX% our So it, of loss benchmark from

we price and increase, about we've the that unit XX% information, it, recently well. we've we've of did last book economics rightsize defensive share $XXX not unit XX%, economics, QX X year. call and this And insurance and on our the and quarters as new taken maintained $XXX So only preserve premium stressed increases ramped back based the between profit to over those moves in fully but X% then, with originations

unit protecting So our economics. we're

Much appreciated.

sir. Yes,

the Our line Caintic Stephens. next Questions. question from of with comes Vincent

on follow-up a actually -- share. Just the profit

now second assumptions what -- pricing that then, pricing you're quarter and that in I quarter appreciate sort that an like have wondering was how -- you're impact an putting what you call. it's all the if the mid-quarter I in wondering have drove anything of stress on be assumptions, gave loans guidance in So the to appreciate in more sounds specifically maybe making and now. I you're volume? was in so your underwriting detail that. the has just earnings of assuming the that there your that And the does It impact the given that

in mean, pricing second price of Yes. let Vincent. I My and $XXX the call the comment Yes. the there the, last cert quarter to economics. Joe premium year. premiums. increase increase with unit on it, about we per and start the also after X% took [ me maybe the last ] That's

that's and economics. baked underwriting, our that's stressed into a So unit

$XXX-plus it, the unit.And to the note of older better the than vintages it, we book, performing XX% of the put price in, or that it's new on put the those books second roughly increases And per the were the think, on stress since that quarter call peak are Manheim. put new way, 'XX, would the at be, we share MUVVI the I originations. profit unstressed by important call

in. baked price is the yes, So

X it. this good quarter. Appreciate lenders question, so the about to And hear then Okay. new second

I'm of should in the that more just and force. your you've talked a growth? wondering sales about past, ramping expecting productivity should be expecting be terms think lender we sales we what in new I pipeline? So

we've Yes. approximately address XX%. front serve prior those we've that pipeline of calls We the segmentation, X,XXX around X/X unions massive The opportunity around of underserved in remind around that talked us. loan-to-share, is stronger about opportunity runway their And strict Certainly, after are credit asset than to so their favorable and really, things front this on XXX, that and and accomplished, And in Keith. of been in their it, And means like then LTS we I'll U.S. us. position. sizes, call that, have a in like ourselves serve ever I'd of is around around it's There's the the LOSs, to segmentation a need roughly even before. the and really larger that.

the at So of coming the pipeline about XXXX. funnel, we sales those now good the are performance feel of really future into are so QX in bottom heading right we the about into good that Many prospects. feel and

[Operator Instructions] from with our next question And BTIG. Jessurun Lance the of line comes

UAW Just supply, one affecting you've et terms on guys? Any of strike. and quick how there? about industry talk a to color impact the heard Can in Any you outlook super you cetera. that's

that, that this for Glad impact to take and behind happy to Keith. for no sure. Yes, is Really see is us. us one, that

largest Xx And the direct Detroit average had here supply there. impact. the vehicle any U.S. the that interesting the days new note X no manufacturers the supply of in As be you'll XX% manufacturers XX%, so days in also recall, on out days of was then And their fact, supply other we're most to use, roughly side, maybe an

manufacturers. the to much handle lead And resolution of than all. that So helps. that going they the swift hope strike is at to think were other to positioned I better not impact I

backdrop? Got talking a union But terms Obviously, and OEMs side, be color demand how deposits. in you're a the some of on great. very about job product, interested their of there, of are the great. credit talking And well. be in for you going hearing would as OEMs side of good from about the tougher hearing demand it. their I'd cost talks given then That's your did That

to again, take Keith, happy one. Yes. that And

we growth of we year-to-date up has #X is As see market continuing pipeline of mentioned, captive unions is that And that that moved as OEM lenders to We our the to actually our so to in #X other see credit growth segment the volumes there. the captives. volumes. moving #X, from as of is improve. our ever share strong of customers, XX%, The it's been. strong And

I about the been. it's report is that fact count the think, that calls, in highest I've higher. past is to that, pipeline talked that, account Happy even

course, the Our value say finally proposition of are them path of by enterprises, that be accounts to with ever to in it's that is that these pipeline, very the many time. a and and large approvals as would achieved then All been, launches segment.And and offering milestones multiple to our the global the strong some as the fact I just to we've sale. take way caveated really of on important a can large

with of question again next comes Caintic line from our the And Stephens. Vincent

question. more one Just

repurchases? industry about also the very of share under has long-term thoughts understanding that The in It seems company. of like like pressure. looking optimistic it under Just difficulties, terms aftermarket, there's sounds it's maybe and trajectory been -- the pressure your but stock some it's you're macro

leverage and cash low a had good balances. You've

wanted to the about thoughts and just So do think you how updated the company. repurchases get value of share about your

have we extended quarter, weeks there. current $X.XX our that we the about $XX stock acquired that's of under here end million $XX of about a Yes. a quarter. million $XX going still currently and in a out plan mean, Thanks, our couple to the authorization at Yes, And Vincent. was to Board-authorized million we third of and it have the our first I expire Board share in

good as of see we use to stock. capital obviously, that a investment a So and our buy good

Great. Okay.

and Thank questions for back further you. remarks. turn gentlemen, Ladies there are management like time. to closing would the no I to at call this

Well, thank you.

this lead all attributes in Open saying company, Day Keith look compelling conclude, just for Let by great remains Lending I as ever, speaking and me exhibits company. as said is as I have that to the opportunity X from this the a

this large And low. importantly, penetration total into our We and remains a market addressable have growing market.

We joining I'd have a and model profound leverages the competitive that business advantage and X.With both like everybody entry thank significant for barriers and today. call to that, X to a

This concludes today's conference.

disconnect your now this lines may thank at for time, and your you You participation.