Open Lending (LPRO) 7 Nov 242024 Q3 Earnings call transcript

Good afternoon, and welcome to the Open Lending Third Quarter 2024 Earnings Conference Call.

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

On the call today are Chuck Jehl, Chief Executive Officer and Interim Chief Financial Officer; and Marissa Vidaurri, Vice President of Investor Relations and Corporate Communications. To get us started, I will pass the call over to Marissa Vidaurri. Please go ahead.

you. Thank us. joining you Appreciate to the the slides the posted this its start quarter XXXX of third supplemental Relations call, earnings Investor company website. Prior release to and you November that financial measures and may today, on financial as release, XXXX. In like of I we contain represent other discussed view find that to of most GAAP the estimates remind this non-GAAP you this the comparable company's measures will X, begin, to statements would call.  Before forward-looking reconciliations call this Open today's implied update actual statements. future cause concerning Lending with such the these statements events or information any obligation or could disclaims to and results with to to circumstances. Please earnings filings more that reflect refer our differ for to from SEC factors expressed release those to will give results in I pass to on business over quarter. call the and Chuck our now the financial update an And third

the and you you, I you would like to us and thank welcome officially everyone, team, Open to for afternoon, Thank Lending today. joining Marissa. good

and more customers our consumers professionals lenders, lender Before Board's to to into near how work built for Lending. I'm CEO honored to like Open who talented insurance partners am would the our grateful founders, on in I with the to need the on we of business, ever. by and our now and carriers team to as nonprime our the and say confidence extremely proud me the next get legacy carry serve our lead us of trust to I continue than and other update

to focused we through navigate ahead. challenging on As conditions, we and to opportunity continue taking steps prudent the the are maximize industry market

we and value the and experience customers focused both new results these Open bring loan the more growth believe inevitable pleased borrowers positioned guidance the partners the report our for the near Lending, are and EBITDA, excluding to lenders, making in Open were business carrier certified and our the profit of I XXXX, to new and customer the associated ultimately market.  With to am our our that we growth certified in to estimate investments end improve their actions acquisitions the loans, customers, driving quarter return high are or and above well of our to with near I from range optimizing revenue and Lending and share. targeted from Open in the third insurance on change we market, negative existing term. Lending Specifically, in lender recovery adjusted

delinquencies our originated to values. Lower an these performance is represent Lending primarily Open not this associated XXXX or to certified headwind of and XXXX, the time $X.X of with in we adjusted delivered were $XX.X mentioned, quarter by EBITDA revenue impacted XXXX estimate. important for our the note and is elevated It XX,XXX We from industry-wide due is that in vintages For to loans. total unique million vintages lender downward to profit third the revision share and defaults negatively change and peak customers. $X million of quarter, vehicle million.  As continues a I results

our we continue past on focused share have Open the we lower-performing we performance of of As revenue optimizing behalf that vintages, performance be lenders. we been volatile.  That to certifying these loans anticipate navigate said, underwriting less Lending's should that and on profit are

that credit previously portfolio. actions will tightening in X As the believe the loans taken improve the we have and we performance years over mentioned, last our of numerous pricing

new data of our we price our to predict for risk, and reminder, the further our a the enhanced these aperture tighten to cutoff and lenders improved premiums minimum proprietary take, targeted risk appropriately price to our a price actions default implemented insurance protection raised included has pockets performance quarter review As on incremental credit scorecard, external probability additional implemented in newly increased our and historical optimization, to lower-performing which credit score leveraging impact internal has analyze ability risk calibration ongoing identify performance, credit XXXX. and late and to we data tightening part of an of scorecard level Through been bands.  As credit review increase net the prices within of of enhanced model. cycle, this our third

our volatile years, ultimately minimizing unit and the carrier committed for volatility these our market our and credit actions while our over We economics and we cycle volume expect several are this we conditions. challenging metrics have overall to loan and approval adjusted impact and rates partners Open optimizing negative our past to pricing lenders, volume.  As certified to throughout on lower a have Lending.  Turning

the We affordability, continue and year-over-year retail all modest in improvement encouraged shown have of in specifically industry, automotive be improvement. the levels, by sales which volumes seeing to trends are we inventory

our continue growth. However, low to be with ratios, loan-to-share growth customers challenged and union elevated core deposit or share low loan credit

automotive the industry. have to levels and Inventory on First, new stabilized. used on both vehicles

up X.X is XX% have year-over-year, a approximately used primarily basis, driven both XX% at on New as auto vehicles used units. That remain and room at improvement levels vehicles units, million XX% inventory year-over-year pre-COVID below said, their improved million trending while Affordability stabilized for been new by have to there declining prices. still X.X levels.

OEM vehicle of improved should pre-COVID last of level year, average over vehicle prices have sign X% returning new vehicle year-over-year.  As new transaction prices X% some turn vehicle is inventory and list sales improving inventories. are of to positive an down increase used which will compared result that XX%. new normalcy, prices market a approaching is in that of vehicles, drive This into a levels, used new to levels vehicle increased this the are For incentives while down transaction average were to X.X% average time eventually

consumers. continues challenge affordability be to However, for a

September, Value its in forecast October forecast effectively line XX.X are take X.X and face Manheim remains XXXX X.X% XXXX.  New increased XX% rates of units. Automotive updated will Cox average prior this XXX.X, Index, mid-October retail and Vehicle of used Fed a to vehicle by flat in be try units wholesale While maximize challenging a at sales in will almost car used XX points elevated to as X% eventually but compared for of forecast lenders and loan sales retail up returns to prices, which through XXXX between the million conditions as delinquencies. The and by sales Interest down, highs, prices, decreased market with funds time full come rate The million serves June Used increased indicator basis in leading new. and the Manheim used XXX.X. measure the of XXXX of recent October of for used to December December auto month rate near

Lending of our XXX.X.  Now, the industry, and Across to Cox ratios union to union let's projecting volume customers. at improvement, capacity growth lending addition, remain lower is core In up of represents into XXXX.  This in XX takes credit loan end improvement XXXX our we are fourth to growth which months to loan-to-share recent continues now a it lift see has elevated, at credit Open Historically, ultimately, QX turn months of which low constrain largest share meaningful a improved capacity average believe as that data, a X.X%, to to they this loan-to-share capacity. as measure increased Callahan in & the unions. Based data of lending loan-to-share data recovery. XX we on X.X% into customer Associates, growth consecutive XX.X% credit high leading now of will share are from to of lending a Share third-party industry a provider ratio, and quarter within our has base. Preliminary industry, from growth translate suggests union compared ratios XX.X%. the the consecutive declined within credit XX

XXXX.  We preliminary growth signs are relatively and our stabilization seeing early with to loan continue enhancing Importantly, of technology QX to on in in QX our X.X%, our at compared operations. focus we data coming XXXX product, flat

the QX targeted we on in lending priorities to loan I the transform Executive to While into the close signed executing fantastic previously order continue challenges challenges XX opportunity pay technology in customers Texas, acquisitions, new annual already and are to we produced investments to we event provided understand drive in opportunities. the with strategy in Austin, we XXX these all-time better XX% of aligned incentives. acquisitions growth, and year, optimize investments. On management demonstrate low conversations, driving in the attendees. basis end and a where challenges.  Additionally, highlighted engage X the for welcoming new to customer On through recently and of new Open attention Lending our in last results XX our can new pleased Lending.  We of loan in a customer meaningful I that certified Roundtable customer customers of auto compared our have the Open make we market, to teams sales a market September, is new of signed changes made light the year. earlier XXXX record the quarter at last that ongoing XX customers signed and compared over account am year-to-date report value to This strategic customer year-to-date challenges a Lenders go-to-market to Protection This an hosted have we demonstrates to in how Lending certified testament the program even represents year. this same over

dedication success.  Now, peers provided Open the to networking customers' attendees industry our it turning valuable Overall, to Additionally, innovative Lending's business technology. and supporting experts, solutions highlighted opportunities, our and allowing conference and product to with connect fostering improve outcomes.

a decisioning, ability through loan, the capital Predictive, borrowers speed alternative recently example lenders lenders execution, we developing to Point to partnership their in our of increasing technology, improve and improve access and to evaluate of science. coverages.  As by our by highlighted, their actively borrower our are enhancing previously explore solutions of with probability and the capacity for lenders' to of insurance dealer and friction, all an increase increase value the expanding to lenders to lending predictive our As opportunities cycles up facilitate announced capturing protection solutions a product experience sources too, minimize of economic experts our we automate

Point multiple income pain similar lenders. making other process for the Predictive our is request. dealer lenders data the of we rate the and eliminate our process. This process, industry-leading as current and a while verification chooses the consumer automate pay different friction may proof is at dealership, proof for stubs, dealer a similar offers is key By receiving increase who or of lenders. The are from close lender tax this the likely dealership can while of be the W-Xs at where We not automating a borrower many a income requires leveraging the to from technology the forms point

Our we employment, the customer win expectation across to ultimately of by pilot technology week, data the the leveraging results, and approved our and base. insights Lending increasing our Open and our quickly automatically data capture launched validate our loans. Based ultimately we and and encouraged lenders rate on Last is our and volume. are by more should income early

We are and lender customers, their value it our excited about to provides the Lending. this partnership borrowers and Open

other continuing to for opportunities enhancements innovative are for customers. look drive We to our

of sources lending alternative to accessing with lenders cycles. economic assisting increase through towards progress their capital early made have we Additionally, capacity

with volumes While delivering lending of continue are ways for our some above-average to capacity. lenders to capacity look increased year-over-year, improve others

dialogue to We increase have Protection will how market in capital that with facilitate best transactions volumes. on been their customers Lenders

Specifically, loan portfolios. flow seasoned we participations assist to to our committed using our capabilities agreements, and customers loan in of forward sales are

report above are XXXX thereby transacted in period to completed assets. at during gain is loans included customers quarter, that certain of these We levels loans. Most pool of a our protection This transactions price par, seasoned the lender since vintages importantly, especially on pleased to resulting during participation union originated of XXXX. were notable sale of pools have of of credit the loans the

and union yield. to help minimize and utilize lenders and non-prime customers We opportunities that credit all personally our near for continue Protection auto I improve automation their to Program risk optimize Lenders the members, can to look continue serve believe serving to their to the borrowers way

quarter on of an XXXX. our Now, the financial third results update for

XXXX, program quarter, includes XXX facilitated ASC $XX.X change our share net XXXX, XXXX XX,XXX the other related During of were for in million, quarter of negative fees in the XX,XXX in negative were third revenues million, $X revenues profit the which XXXX. Total million, previously million. To estimate total third $X million $XX.X of million and estimate break quarter the to in loans in third included we the was change loans $X.X estimate, quarter which vintages $X.X a change million. revenue fee $XX revenue in revenues down profit quarter certified of mentioned of to historic and third claims share compared negative of to were the third in with revenue administration certified associated of an compared

quarter compared certified expected the million quarter the estimate loan the change profit in recorded As the carriers paid was as $XX.X $XXX $X insured revenue million share expected the share certified profit a insurance per the share in share XXXX per in is claims profit previously our only The approach $XX.X income for drive incremental third million of periods quarter compared from January XXXX. in and with operating XXXX our the in-force as X% and our cumulative the quarter third loans portfolio. The measured $X.X incurring revenue XX% to for net million revenue XXXX. per less share and back cumulative in income of reminder, was net profit XXXX net contract in originations change as million asset. Profit total $X.X quarter premiums of current comprises growth. Operating XXXX a share of XXXX. the to were Net was over $X.XX to XXX million and negative near-term in quarter were and compared is negative implementation the quarter million to controlled contracts recognized the of was with the over XXX,XXX loan the result third life or estimate represents receipts of Operating $XXX be expenses that QX Basic of to new third the of program. $XXX third approximately to in expenses us The in of profit of the costs to third of million XXXX. Adjusted ASC of associated earned to attributable of to less third reduces Operating million to monthly quarter $X.X diluted as since in is XXXX, dating XXXX. of XXXX. the associated in date million. the XXXX of $XX.X or to XXXX $X.X in in million third down was EBITDA income expenses income million the $XX.X the third the XXXX compared quarter about $X of million quarter XXXX compared third in $XX.X for $X.X the quarter third of quarter third quarter in $X.XX income compared share

of revenue debt. our adjusted deferred measures and in exited profit assets. Excluding be $XXX.X total the earnings which the million million reconciliation third found EBITDA $XX.X estimate, of in XXXX. There's unrestricted in quarter non-GAAP to back $XX.X in $XX.X change GAAP generated We of press financial the quarter that of at in share a can we third $XXX.X million cash, outstanding $XXX.X total was had million of contract We was with million million in in assets, in net assets million tax $XXX.X which liabilities, release.

continue our quarter elevated fourth in high The to were quarter and guidance. credit our continue cuts that the later levels pre-COVID Continued and consumers. inventory to than year. Lower ratios loan-to-share for XXXX present than higher interest Moving following cut additional factors funds challenges anticipation affordability rate loan the this guidance: vehicle considered prices despite Near historic Fed auto historical capacity. lending to for unions limit XXXX fourth rates

Implementation signed income, continued which drive automated quarter actions of of taken live and and the proof Additional XXXX. of and in in ramp closure should rate improvement XXXX. volume customers third tightening credit went in of

capacity to improve be for we the our between and lender increasing, and course are is between for we term. improvement believe our revenue and quarter. Accordingly, that million we and make as million normal Additionally, quarter adjusted to market customers follows: $XX the we will see is and $X positive. between are inventory fourth investments of intentional total third experience in certified to of EBITDA XXXX million. In guidance and be near and are we and rates levels remain total seasonality $XX to in loans that the $XX be of fourth are when million the Delinquency between $XX,XXX, technology $XX,XXX closing, accounted and continue to market trending stabilizing showing optimistic their well conditions positioned borrowers. for recovers Lending the

record evident We conviction I'm Open to Lending. us partners and Officer level we begin I customers XXXX. I have a move am third by together. forward dedication team ever of consumers the bright want more their nonprime have entire customers their and need role our for quarter thank that personally as to strong their and added near our in their than as new new thank of lenders the the and our Lending and Chief excited grateful I ahead, believe as company future for I for our Executive my support Open support. also to of now

We will take your now questions.

[Operator Instruction] And Joseph we to move Vafi with Canaccord. first

to new on you. to Congratulations both the roles

that see may on of kind some little approval and bit of drill kind follow-up. underwriting standards to mentioned how that expect result of some certain And perhaps you quick your as rates I'll a of affect You a tightening? in down tightening volumes. of a we what that of and then have of Can may terms kind

went I XX% Thanks mentioned, for the think QX If particularly, we question, QX mean, as to we normally guide, to down. factors that the about the Joe. seasonality, X% is into normal QX

you So, QX guiding there, where midpoint a for is little of and down that's below think XX%. the we're

risk close our seen just files, thin team, what higher saw, last have we a had quarters deep on credit history what the we performance credit over obviously and risk. increase in don't few exposure is and and an and credit keep So, are they higher in and files thin a that, eye

in we've tightened, years, through X the looking quality we're to and continued higher as risk. as the looking last loans limit So, we've portfolio for the

that dealership, to consumers tighten partnership, think going to in and eliminate Predictive we go our of and we felt said the and QX the some risk to there it friction prepared you the remarks. Point a if So, see impact that's do, as that's volume. But, and right will quarter thing this prudent the the and ahead was positive definitely at on about

driving move going of on kind We files pricing launched well, positive 'XX that to basically uplift just as there more that. forward those be that a that's we because on as increased XX discussed. we into I So,

rates thing going right be that the it's we're Approval is are do. what probably to X% again, about So estimating. on to down

And lending of whatever demand mentioned, just drill that expansion relevant alternative some of on you how then nice capital down that. may there alternative be model some may sources and your economics and unit may certs think think to with sources What the from kind of change potentially of see see else there? you your Chuck. you you Maybe of capital on business kind partners

Thanks for the question.

As this have union historic ratios been near one, Joe, of loan-to-share cycle, through on highs we've our loan-to-share. credit customers kind seen a

help customers, So, it's into them off. And not that our our looked markets, as as we got getting can we're that we of that job in are future all ways doing also at healthy kind of is and core up at help cycles, just good we've and we team cycles. technology, loan-to-share looked that, loan Steve have with kicked our got heading deep we've credit Mahay And our and future the on the a higher. a and through with our and do for union us institutions that is looking customers then little participations place some and a then and and across relations industry platform we some product larger if the the capital

helps capability helps loans them participation help in So, lent for transactions out. them those may ultimately, our been and have us, flow that back Open institution to that facilitate definitely

sales. expanding forward doing work or it's that if whole and flow forward loan we're to look around about really So, the excited is there transactions

where of we're kind at. that's So,

unit see opportunity unit that, in I customers. that to wouldn't to it's we're our point, relates on it more a more at our this an of economics, economics for of As change just And a volume. providing service

Davis Raymond next our take We'll with James. from John question

updated that have expectations of your driven start on on year just peak you've to later this XXXX. Maybe think during million. thoughts being case claim JD. past revision the with I is the mentioned the you this on cohorts. the to share profit I quarter get be $X into problem if This if heard commentary I all? from still period should or is in But wanted early changed the still the Taylor your mostly passing for think at or just

What are at a the for those we XX really in We're Yes, see vintages through delinquencies months not of pools. history, seeing been the vintages. seen we this. note, think down peak we in think newer coming pools about positive a with we've to that 'XX 'XX, and starting on perspective. as a nothing from performers typical starting these Taylor, normal point that Thanks, the are lower worst down claims. question. as claims XX to those cycle. There's to recent necessarily on peak is they're about I are, those But older working bend is And about we those guess, definitely

on working it's that are, maybe believe through that good to declare where them. there little a but encouraged but So, early is news, we we're we're we

maybe just more. then And one

hear So, elevated signings it of the was during good XX. quarter to the client

unions So curious could I'm you're success, And all? it be whether where you at most just credit just or banks. the size seeing clients these with curious if

a just and and really we it's for Open We're what account we've institutions, success I these in focused and institutions, and quarter, longer more really, the that obviously, our very their about it's execution, the think about a think changes Yes. asset previously a year. sign talked to were a going credit now really and OEMs. And of I Lending value was did I them In sales year of had with size. think resonating ever. were all in those team testament sales to and prop is But the customers, really XX, talked the the which a unions and team or XX $X this are deliver sales management so XX, and team quarter talented implemented. And working We I that in was record. and cycle. Obviously, proud this we've XX a had And quarters. And third on got the earlier We're we quarter. we've our XX, billion-plus Banks provide pipeline, bank are than strong along nice the of larger of several pipeline we in forward. executing. great think that our

with [Operator Instructions] Davidson. We'll to move Peter Heckmann D.A.

this that the a kind been of think you the been we can X Chuck, some Open was quarter resume guidance forward sure as variables with or CEO assumption that not. that else. But struggling annual much of were and guidance? when Acknowledging of you're used a I very get had of to to the with prices I'm estimates see and this difficulties I numbers X row and where do can car the just predicting in negative congratulations revisions is as instead rates mean, quarters a into we has anyone Lending there's the what X of I of on many direction under kind guess profit role. point gone these that just dynamic sharing, market, conservative frustrating.

and quarterly turn. have hear coming where And smaller can level saying look normality certainly, to at much, of and Open more any it of have the stream? So, revenue revisions higher much is back. But you're probability level a some overall to to potential Lending and there hear profit we I it's what a back gets I encouraging that guess, about in sharing I financial earnings we institutions confidence

feel and we've we've I volumes heading the where we we're good And, years you of for if yes, during we Yes. about those think do and about a performers, worst the 'XX beyond. the Pete. question, producing actions and now taken and 'XX that couple the recent 'XX into I really about mean, talked actions, were appreciate

intentionally has going that as those volume a to everybody in going prepared the volatile, the less the comments performers. working I profit work we've through to industry said share and believe we're But done be that think in tightening and that. through point, it to is do I be the slowed there's going is worst I

You adjustments very I had of as we well back things well, were when a that, in multiple do know as 'XX, row. positive quarters in performing

think this through to But we've I through less cycle volatile forward. be will work it. just So, worked I it think going continue and

our we're for risk we're think is for teams us book, actuarial scorecard, you doing delinquency things QX compare helping lot X of and months newer 'XX our seeing performing the they're more be think vintages if is better. And are I back. rate example, of on the with predictable vintage new a on XX% down to and I

believe frustrating not going it's some that's for the So, go been and a year annual to us the visibility about as having And, to back getting level to normalcy, out yes, I to but went to point get to goal. of do going reason quarterly. well, stabilize. And we're is your it's guidance, we

So, I again, things as remarks, the prepared company we and in will, growing we really on can got some I we it get and believe going think said that we the do good which and that.

XXXX. So, long and company to and looking will think but we're it the your answer stabilize question, I forward to do we'll have growing

that something the considering? again, a or And repurchase call. Is late would about that I the release new sorry, Board is there prohibit you something potential from share I'm was the to authorization. be Or that? I that didn't see would hear anything doing in

where We prices stock a expired, a you are our as previous today. authorization is capital not did announce new authorization, we than I buying higher that allocation perspective, from was Yes. at and And know.

capital. not Board a is we with authorization and So, it good I something is Board in that decision and But of have, work the a I Board-level that that closely evaluate. believe on use we think but currently a do it's

will for his questions, to as are I hand Chuck no comments. the gentlemen, and there conference closing Jehl further now Ladies over

good and you has of do would for your all a Lending afternoon. again. joining the to thank members support. dedication I our Thanks all for today. team and you Open hope thank us again, to and everyone And everyone company like And I

today's for conclude does program. Thank participation. This you your

wonderful evening. time, at have a and You any may disconnect