Q3 2020 Open Lending Corp Earnings Call
Good afternoon, and welcome to open Monday, <unk> third quarter 2020 earnings Conference call.
Today's conference call is being recorded on the call today are John Flynn, Chairman and CEO Rush, <unk>, President and COO and Shaquille CFO.
Earlier today the company posted its third quarter 2020 earnings released with Investor Relations Web site in the release you will find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call before.
Before I begin I'd like to remind you that this call may contain estimates and other forward looking statements represent the company's views as of today November 10 2020.
Oh, the funding disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to today's earnings release, and our filings with the FCC for information concerning factors that could cause actual results to differ materially from those expressed or implied by such statements.
No John I'll pass the call over to you for your opening remarks.
Thank you operator, and good afternoon, everyone.
Thanks again for joining us for our third quarter 2014 earnings conference call.
Before we dive in I do want to congratulate both for Austin chalk on their respective appointment very.
Very much looking forward to continuing to work with them on growing our business.
They though I'd like to start by reviewing our third quarter highlights and our progress on our growth objectives.
Yeah, Ross will provide an update on our OEM opportunity and finally, Chuck will review, our Q3 financials in greater detail.
During the third quarter, we certified 20696 loans, which was an increase of 8% quarter over quarter.
Also reported revenue of 29.8 million, which was an increase of 35%.
Adjusted EBITDA 19.7 million, which was an increase of 29% quarter over quarter.
Chuck has got to go over our third quarter results in more detail in a few minutes, but we're very encouraged by these results.
As we previously discussed the vast majority of our growth is attributable to our existing lenders that are already on the platform.
Our lending partners, especially credit unions have been very resilient and continue to utilize our platform throughout the COVID-19 pandemic.
We believe that the low interest rate environment, the increased demand and value of used cars and consumers moving out of the cities that are reluctant to use public modes of transportation are driving these positive trends.
We've also seen an influx of cash into these credit unions in bags, but just creating the need for them to lend more money into shorter duration loans typically like a two to three year auto loan.
We also continue to add customers and sign new partnerships driven by our strong value proposition.
During the quarter, we added 11, new customers and we currently have approximately 340 active customers on our platform that are generating search this year.
We continue to bring in additional resellers as well.
We recently launched our first back on the F.I.S. originate platform, which we also believe is gonna open doors for us to market. The other banks they use the f. I asked platform.
We announced a new larger partnerships in the third quarter as well, including a plus federal credit Union, which is a $1.9 billion institution based here in Austin, Texas.
Sound credit Union $2.1 billion restitution instant Tacoma, Washington.
And first investors financial services, which is a 1 billion dollar institution based in Houston, Texas.
One of our key competitive advantages is our exclusive insurance carriers relationships as.
As you already know we currently have two insurance partners and we've identified a third carrier there we're working to finalize terms on which will be similar to the terms, we have with our existing carriers.
I also want to note that adding a third carrier will not negatively impact the volume of our existing carriers.
Well, our core business of helping credit unions and banks make more auto loans continues to grow strongly we are making progress, but some of our other growth objectives.
Our largest opportunity in front of US right now, there's a 1 billion dollar OEM captive market.
I'm going to turn it over to Ross in a few minutes to provide an update here first I wanted to touch base on a few other initiatives that we're working on.
Our enhanced focus on the refinance program to drive additional certified loan volume is working out very well.
This opportunity with near Prime consumers allows them to lock in a lower rate saving them as much as 150 to $200 per month.
This is a huge savings to a family, but just trying to make ends meet and this time of economic uncertainty.
During the quarter, we grew our business with existing channel partners and signed four new credit unions and banks that the reply program.
We've also been working on other funding sources with third parties.
Expands our funding sources outside the banks credit unions and the Oems, We currently partner with.
We're also looking to broaden our offering into adjacent asset classes, such as Lisa and establish a broader auto lending platform and to make our risk decisioning available to our clients beyond the near Prime space.
And with that I'm going to go ahead and turn it over to Ross. So he can jump into the OEM opportunity that we have in front of us. Thank.
Thank you John.
Captive certification originations were strong in the third quarters, which demonstrates tremendous growth. Despite the COVID-19 pandemic. We have good news for both Oems, let's start with OEM number two.
I'm sure you saw the very exciting news about we have number two being back online in October this.
This is a very good sign for our business and they have begun to ramp production back up through out October.
We are encouraged on the number of applications being submitted and the opportunity ahead with oleum number two based on the opposite October trends. It seems like OEM number two we'll get back to its pre cobiz levels very soon.
Moving on to allow them number one.
The nationwide expansion of the OEM number one has manifested itself in certification growth of over 150% from April to September and we are currently seeing applications from over 90% of their nationwide dealerships.
As stated previously we have number one decided to expand their credit spectrum to customers with credit scores up to 679 from their previous gap of 619.
Initially they are sitting astronaut applications, and we'll be adding countered application soon.
This expansion launched as a pilot for three months and one of their four geographic areas with the goal to be expanded nationwide by January 2021.
So starting in late September they are now utilizing our platform for 566 79 credit scores.
This is a great example of our customer has expanded their usage with us and saw tremendous benefit from our product.
We're excited to use this when talking to other Oems and banks that were targeting.
We continue to make progress on our subvention efforts for the Oems.
The work our technology finance teams are doing with OEM number two on the subvention enhancement will allow us to help them Nance new vehicles throughout our lenders protection program, which increases the potential opportunity with the OEM.
This rollout is on schedule and should be ramping over the next few weeks.
As soon as this rolled out well them number one most to explore this as well.
In terms of the Cecil relief, we are very excited that OEM number two received CE Cecil relief from the FCC as well as our independent auditors, we look forward to providing more insight on this next quarter.
We're also working to add multiple OEM opportunities that are in our pipeline and some could possibly launch in 2021.
I want to point out however that the addition of a third OEM is not in our financial projections for 2021.
One way of proving our value to prospective Oems is by completing data studies. These studies show captives the lift opportunity I looking at how many loans they are saying no to today. They can say, yes to through our platform. We're weren't close working closely with a third OEM cap weighted data study as well as numerous.
As other OEM captives that are in discussion evaluation stage.
These studies were very beneficial in the signing up of OEM number one into so we are hopeful this will be the case for other Oems and banks.
I'll turn it over to Chuck to discuss our financials in greater detail.
Now moving to our third quarter results, we facilitated 20696 certified loans and 11, new contracts were executed with lenders during the three months ended September thirtyth.
In addition, we have six active implementations with go live dates in the next 60 days.
Total revenue for the quarter was 29.8 million with profit share, making up 18.5 million, including 3.8 million from performance obligations that were satisfied in previous periods as a result of improved macro economic conditions.
And our overall portfolio performing better than we expected in the second and third quarter of 2020.
Program fees were 10.1 million and.
And claims administration fees were 1.1 million.
Gross profit was $27.3 million in the third quarter 2020, an increase of 35% due to higher levels of loan certified as compared to third quarter 2019, and the legacy six so six change in estimate discussed previously.
Selling general administrative expenses were 7.7 million in the third quarter 2020, compared to 5.4 million in the previous year quarter.
The increase in its DNA cost is a result of incremental costs related to becoming a public company.
In the short term, we do expect to experience an increase in our SGN expenses as we continue implementing the internal control and compliance procedures required to public companies.
Operating income was 19.5 million in third quarter 2020, compared to 14.8 million in the previous year quarter.
The increase is primarily driven by an 88% increase in certified loans quarter over quarter and the recognition of 3.8 million and profit share related to historical vintages as a result in better than expected performance of the portfolio.
As a result operating margin increased slightly to 92% in the third quarter 2020, or 91% in third quarter 2019.
Net loss for the third quarter of 2020 was 71.1 million compared to 14.7 million net income in third quarter 2019.
We had 83.1 million and expenses in the quarter that were associated with business combination.
Specifically the noncash charge as a result of the change in fair value of the contingent consideration earn out shares which were accounted for as liability awards.
All contingent earn out sure milestones were met in the third quarter 2020.
So beginning in fourth quarter 2020, net income will not be burdened by any changes in the value of contingent consideration earn out awards as these shares were issued in the third quarter 2020.
So let me now turn to adjusted EBITDA.
Which excludes a significant charges shows associated with the business combination.
A reconciliation from GAAP to non-GAAP financial measures can be found at the back of our press release.
Adjusted EBITDA for the third quarter of 20 point, he was 19.7 million as compared to 15.3 million in third quarter 2019.
We exited the quarter with 294.9 million and total assets of which 115.1 million was unrestricted cash.
On October 13th 2020, our warrant redemption period expired.
As a result of all warrant related transactions. The company received approximately 105.3 million in cash and issued approximately 9.2 million shares.
We're working very close with our board evaluating the best use of proceeds and will provide an update we know more about use of proceeds.
I also wanted to briefly give you an update on our share count.
We have approximately 128 million diluted shares outstanding as of November nine.
We posted an updated investor presentation third quarter 2020 earnings supplemental to our Investor Relations site.
Which has a slide that lays out our fully diluted share count.
Now moving onto our guidance for 2020.
Based on our third quarter 2020 results and the performance into October we are reaffirming our previously issued fiscal 2020 guidance ranges are the following.
Total search to be between 85000 101000.
Total revenue to be between 89 and 108 million.
Adjusted EBITDA to be between 54 in 70 million.
Adjusted operating cash flow to be between 34 and 41 million.
Our team is continuously evaluating the macro economic climate and we feel still feel confident in our previously provided fiscal 21 guidance.
As the business continues to rebound from April Lowe's, we look forward to sharing a more meaningful guidance update early next year.
With that I'll turn the call back over to the operator for Q Anite operator.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation trends indicate that your line is in the question queue. You May Press Star If you would like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of David Scharf with JMP Securities. Please proceed with your question.
Hi, good afternoon, and thanks for taking my questions.
HM.
I wanted to just a follow up a little on what was a a tremendous.
Kinda profit share a figure and.
Should should we largely be thinking about this along.
The same lines as we thought about so many other lenders during this reporting season, who you know effectively probably over reserved in the early days of Cove. It.
No reset their allowance levels you should you should we view this as sort of a one time kind of event related to potentially.
Overly cautious underwriting if some of those early vintages and.
It is we think about kind of that level of of sheer proceed going forward.
You bet Hey, David This is Chuck good to talk to you you know you know as we've talked about previously you know we have a very disciplined process of quarterly process that we follow it includes our risk team, our chief risk Officer, Ross, John and myself and various people and really the if you think about what we recorded in.
Q3, the 3.8 million in change in estimate is.
It is really just the better performance of the book in the second and third quarter. When we did this and made the estimate back in first quarter. It was a couple million dollar adjustment and that was based on the facts and circumstances. We had at the time nobody really knew about cobot and help you know how bad it was going to be so we really.
I just looked at this in the third quarter and realized the favorability of the period through the third quarter to 930. So so we continue to have stress levels into the fourth quarter into next year, because none of US really know is there going to be another wave of corona or what what we'll have you. So so that's our process.
Yes, it's very disciplined and we will continue to follow that on a quarterly basis.
Got it got it no that's helpful and does it maybe is is one follow up.
On the credit Union side and on the demand front is there the equivalent of almost a well same store kinda growth fit figure I mean for 'em kind of your active credit unions during the quarter like you know the percentage increase in their contracts and.
Well you know I think what you're going to find is we have a lot of credit unions that you know will continue to grow their line of business with us whether its opening up.
Other avenues like the refinance channel or they might go from just doing indirect to direct.
But I think what you'll find is.
Every credit Union has churn in our auto portfolio.
They typically try to keep you know, it's a fixed percentage of their total loans and auto.
It was about a three year average life, what we see as a lot of credit unions once they get their feet wet with our program and see that the yield is higher than their prime okay.
Well continue to increase their volume in our enpro portfolio versus filling that churn with prime loan. So that's a matter of other appetite.
Asset classes versus.
Scores that asset class.
Oh, Yeah, we get a lot of same store sales I can tell you. It's a great one thing to add David do is.
The fact that if you looked at our active skus.
40.
That incremental amount of customers compared to last quarter is not just all new customers that were signed up we have some customers that that you know were affected by coded and now they're yeah, and so it's really yes I think.
Our product has withstand a lot.
Of the uncertainty.
They are seeing the value prop and and step up and coming back and I guess kind of the thing I'd add that comment too. David is we are a credit union right here locally in Austin that.
Satellites, but they're easy to last weekend.
The only a $700 million shop, but they ended up attracting $700 million.
$70 million worth of cash.
The last two to three months just because there were scared of the markets are bringing money into safe places.
Now these guys are calling us and forgetting what could be hot money is why we're lucky.
Your assets to put it back out it.
I think you've seen a lot of growth.
That's where I was going to earlier, yeah. What drives it is if they're getting a bunch of cash and they're going to do a lot more auto loans with our program right I think everything that the markets get a little scared.
Yeah, well consider credit unions to be a safe place to put their money God.
Got it are you finding that influx of deposits is actually leading them to look even further down the FICO spectrum.
Exactly yeah, there's only so many sub prime auto loans and.
Do you mean and what we do as its incremental Wow, they're all looking at these applications are just an eye on them.
Our clients now are utilizing our program are capable of buying down into those lower tiers.
You guys have already got the process is set up.
Perfect. Thank you.
Thank you. Our next question comes from the line of Ashish Sabadra with Deutsche Bank. Please proceed with your question.
Hi, Thanks for taking my question.
Good momentum in the business I wanted to.
Drill down into OEM, and so on we and number two.
Good to see that that back I was wondering if you can talk about the monkeys and create how it's ramping up and once the subvention functionality is implemented how should we think about that run rate going forward and when do we get that get to the normalized run rate of tentacles hubs and so its claremont. Thanks.
You bet good good to talk to you yeah. We yeah. So we're excited early in October.
The division that was doing business with us outside of their dealerships relaunched is going great. The number of applications are coming in.
And even our very first month back they are they.
Exceeded all previous maass, except for one month, so is definitely trending in the right area I think that we should see in the next couple of months them hit kind of the levels that they were back in a in Q1.
Also and moving over to their their division that does business inside.
As you know we've.
We've been in one of their 14 markets in the U.S side, we are launching.
This month.
The used side the route.
The other areas there will be a ramp to that but I would think going into 2021 will be fully.
Ramped in the U.S side.
Later this month you should be.
In one of the markets from launching.
The subvention side, which will help us on the new side, there will be a ramp to that which I assume will be you know a few months. So I think when we start looking at.
Sometime in the second quarter of 2021 third quarter, we should be hitting on all cylinders nationwide Oh yeah.
Yeah, you inside their dealerships as well as a new used and the division outside so it's going very well.
With them every bodies.
Lined up in the training and implementation plan as is underway.
That's great that's great and maybe just one OEM them, but see I was wondering if you could just provide.
An update on that either steady or have you already completed the disparity and what are the next steps for OEM number three.
Yes, so we actually had completed we've delivered.
They have taken it in we actually delivered it in summary form as well as the individual detail application form they are doing their own.
Analysis now looking at the results looking at the pockets. They think that we could be utilized the nm, we shouldn't be hearing back from them.
Very soon ahead of us.
Dr. SKO with the CEO couple three weeks ago, and that went really well so.
The next steps would be hearing back from them discussing the areas that are of interest that provide the most lifted then going from there. So there's a great opportunity here.
That's great and then maybe if I can sneak in a third one just on the Ses is really if I understand you are planning to provide more information next quarter, but I just wanted to better understand quickly the Cecil relieved that we intuit deceived docs would be after you cables for any Oems I need thanks would that be a fair statement.
That that's a pretty good just wondering if you could give any brief color on this call. Thanks.
You bet and so basically.
The way our policy insurance policy a style is to provide them a level of certainty as to what percentage of the deficiency balance we will cover.
And from that they'll get seasonally that mirrors that of the Fccs agreed with that their auditors and basically what it does is it takes the future claims payment that will be making and you can actually offset the allowance account right. There at that line item on the financials. So you show a net number as opposed to record.
Analyzing the future claims payment as other income and so this is a this is something that we're pleased to have it and and behind US now we definitely look to replicate that two other lenders not just Oems, but you know right around the corner is going to be credit unions that are going to have to adhere to say so and so.
I think all the things we're doing today will be will have.
Two or three years of a benefit on some of the new.
Lenders that are having to to adhere to that I mean, you've got the larger banks need to comply today and.
And then credit unions in the beginning of 2023.
So we're gearing up to make that a big selling point.
That's great Congrats once again on such a solid quarter. Thank you.
Okay. Thank you for your time.
Thank you. Our next question comes from Mike Grondahl with Northland Securities. Please proceed with your question.
Hey, Congrats guys on the OEM number two and it sounds like the progress on only a number three that's that's great for the business.
The the six.
Credit unions that you're implementing and the 11 new ones in the quarter does anything stick out size wise compared to the 340, you have or are.
How would you describe all of them and that is the average or anything to call out.
No I think that that's a great question no. We were trying to highlight that and the fact that we think we're signing up for the larger shops now we're getting a lot of interest from you.
Yeah, you heard us talk about the a plus and a sound, they're all up and a billion plus.
Hi, Oh I see.
Of course, starting to attract some of the larger shops that can produce some significantly higher numbers and not in our program today. So.
What we're really excited about the size of the shops that are hearing about us.
Great Great and then the four new refinance partners.
Hmm, mostly re Fi what percent of your business was that they did in the third quarter and how should we think about that going forward.
I think it was about 11% of our a certain volume in the third quarter up from the seven.
In the second quarter, and that's continuing to grow.
Great well guys or I guess I look forward to hearing more about OEM to next time, you report and congrats there take care.
Thanks, Mike.
Thank you. Our next question comes from the line of Joseph Vafi with Canaccord. Please proceed with your question.
Hey, guys, great progress and welcome onboard Chuck.
Thank you.
It's good it's good to see the team expanding so just a few questions here.
Number one John I was interested in some of your earlier comments on business model expansion here.
Including expanding funding sources moving into adjacent asset classes, and you know maybe moving beyond near Prime or art.
If you wanted to kind of provide a little more color on any or all of those about you know what when we might see some of that happen.
And then any other comments you might have on that.
Yeah as far as expanding beyond the near Prime space, We've actually already started that data study, our chief risk Officer, Ken has gone out and started to gather part of data from all three bureaus.
We've been given a lot of data from some of our larger shops as it relates to the performance they have opened their prime portfolio.
So they're all willing to give us data that you would typically have to go out and pay to get as it relates to how these you.
Super Prime and Prime loans are performing with a long history of performance data.
So we're just now starting to model that I can't give you a kind of a date as to when that study will be done, but I know, we're actively working on that right behind.
Obviously subvention for IP team has done first and foremost because that's going to be a big Bang moving.
Moving forward, what the Oems and I think the expansion is clearly going north on the credit side not south yeah, that's where all aimed up more of the prime loans as a more of a SaaS model or something that's already built that's just building the data into it.
And then as far as you know funding sources, even you know.
Prior to taking us public it back in June we were working on working with a number of different.
Many firms that were looking to put some capital together to be a funding source for this segment of the loans knowing that they can generate some significant yield.
And we put that on the backburner just to get through.
Yeah. This back process on going public back in June.
We've got a lot of interest now from people that are looking to put some decent sized pools of money together.
Sit behind yes.
Yeah, what we currently have flowing through the pipeline of application.
We just can't find homes for until we get more lenders are.
I think we've got some significant var.
Volume so we can sell a funding source where there.
There could be backed by our insurance and it's really just really creating another.
Funding source like a credit Union our back it's just a new customer.
Great. Thanks for that and then just on OEM number one I mean, it sounds like that you know the relationship continues to expand and expand you know the FICO score ranges expanding other things how penetrated do you think you are in OEM number one versus where you might go.
[music].
[noise] I think we're just now being noticed inside.
All of them by the by the sea levels for our portfolio continues to grow.
Everything we hear is performing very well, which is exactly why they decided to move north on the credit side.
I think that you.
It's hard for me to estimate, but it's still in the in the two 3% kind of range of.
From the overall opportunity.
But in the in the Nonprime.
But we definitely what was less what they're telling US is our automated decisioning is really saving them a lot on the.
Cost of underwriting.
And providing them the ability not to have to find a partner to refer these loans to heap that person ecosystem. So it's exactly what we promised during our sales process and we're living up to it and we're excited I think just the expansion we received.
From the additional credit.
Tears has it really been hit now you notice in one of their four markets and it started late in the month and so really I think our progress will really be showed here in Q4, and certainly Q1 of next year, where we continue to expand.
Okay, and then maybe I just had one more follow up that may be related to what you. Just said Ross is you know that the guidance on the CIRT range is still pretty wide you know given that were in Q4.
And I I I'm I'm guessing that perhaps that has to do with.
You know OEM ramps from here and what may or May not happen in Q4. It is that kind of directionally correct at least.
Yeah, I think it is and you know really what we're focused on is executing the plan and running the business and once when Kobin first hit and we reassessed our guidance that was out there, but before we were even a a public company.
We went to prepare to sensitivity analysis high low ranges and reaffirmed that guidance and came out and that's what we did today just reaffirm that and a lot of work went into it and we're focused on execution Q3, we're all very excited about the results, we performed well and what we take a prudent view of the economic backdrop in the country.
Again, but we feel like through the performance to Q3 those trends will continue through into Q4, I think Joe looking at 2019 coming out of 78000 starts to where we're going to end up the year and going through what we've gone through.
Yes, I think we're very pleased that were that were in the position. We are right now and certainly November December are going to be growth months as well for that so we're excited about 2021 as well.
Everything we have one off.
Great Congrats guys. Thanks very much.
Thank you. Thank you.
Thank you. Our next question comes from the line of entrance Antech with Stephens. Please proceed with your question.
Hey, good afternoon, and thanks for taking my questions.
I should just first a clarifying.
The profit share. So those are really strong this quarter, but wanted to follow up on David's question on sort of the 12 million in in profit share that you reversed in the first quarter, it's not like you.
Put that back in the third quarter right. So it's sort of.
What we saw in the third quarter is something that's a sustainable going forward in terms of probably true.
That's right, it's benson's Chuck how are you doing.
I think about it this way you know, we we had about a 711 dollar average profit share repurchase or before the change in estimate.
Based on the prior vintages, so that was a little under $15 million of the 18.5, that's on the piano and then we had the 3.8 that was really part of net of the 12 million that was reversed back in March so.
Thats just realized better.
Better than expected performance on the portfolio in the sort of second and third quarter. So the profit share of 896 per cert. If you just take straight search for the quarter and divide into the revenue number.
That number is inflated by the 3.8 roughly that we recognize on prior vintages.
Okay got you so a little so that the 0.8, okay perfect makes sense.
So said another way, we got 9.1 million of that 12 million and we'll file. The 10-Q later this week, but that's you know that's that's not been reversed. So so we're you know we're still you know obviously looking forward and don't have a crystal ball and we run our process even more than that right doesn't during Q1.
Uh-huh 20, we also we had about a million six this any guidance.
As the search it was affected by that as well so yeah.
Okay that makes that that's very helpful. Thank you secondly on the guidance. So so it's been a great nine months, so far and I guess to the prior question about the guidance kind of wide and all the different areas I.
I mean is there when you think about the four different items, what would take you to the low end of the range [laughter] in each of those since it seems like your.
Your performance has been very strong.
You know I think I said when I asked as to enter Joes question, we feel good about the guidance, we reaffirmed that Vincent so the trends going into October we feel really good about into November even now. So you know, we we reaffirmed and feel good about hitting our guidance obviously and.
In really meeting expectations are so I don't want to really go any further into it than that and but we feel good about where we're heading and in October was the trends were really good and it continue into November and we had 67400 starts a year to date September and.
In the ranges 85 to 101. So if you if you just think about the math and what a projected Q4 would look like and you know what will be in the middle of goalpost or where we felt maybe better than that yeah.
Right exactly okay perfect. Thank you and then just a last one for me it's great. All the details you provided on OEM wanting to potentially number three.
So wanting to size what the opportunity set is so for example, when you say over yet another one's going to a FICO score of 679 versus 619 prior.
Is that more.
I guess sizing up maybe what that what the application set is square that because I'm, assuming that's probably more than the 2.2% to 3% that you're capturing now maybe even more than double that and then when you say separately. When you say about OEM number three and looking at the different datasets.
I guess broadly speaking when you sign up and OEM.
Hello applications that were turned down previously you say, yes to so like kind of how much how much incremental upside to that OEM generate thank you.
Yeah. This is Ross so so first of all an LTM number one when it relates to the Fivesixty 619, we actually are seeing pretty much all of their applications. Okay. And then and then when you look at how the upsize the credit going from six to 26 70, not their only sending us they did not outs.
That are coming through now the goal is to add countered apps, where they're asking for a down payment and that's probably running that customer off.
And then with our program they could make that full extension of credit that's.
Thats a next phase is commencing them to add that and then I believe the third piece of that is to try to get them to move up that 619 floor, there's something like a 639 and everything below that so we basically increased the credit score.
Score for everything that we see from them and so.
Today from application standpoint.
You know that increase will probably get it just just that additional lift that they're getting is probably about 30%.
Of our overall, what they were doing in the past and I think that can be much much higher, especially the other in a pilot right now so once they get add to those three markets. We should take their volume we're already seeing it be double today, what it was just three months ago.
And so there's a lot there's lots of opportunity there that's even before we get discussed how to help them on the new car side was there was a mention.
Great. Thanks very much.
You bet. Thanks.
Thank you. Our next question comes from Matthew O'neill with Goldman Sachs. Please proceed with your question.
Yeah, Hi, good evening gentlemen, thanks for taking my questions.
Lot of a lot of the exciting stuff's been asked and answered, but thus far.
That said I was curious is there is there any update on the odd that they start to get into discussions with the potential third ensure that I know we've been we've been chatting about prior.
Yeah well.
We believe in the final stages of that we've had a variable.
Meeting with those guys last week on the phone, where they said that on November twentyth the.
To help you get senior managements complete sign off on it.
And then after that they consider it to be a rubber stamp events at their February Board meeting.
And there.
Terminology they'd like to be writing their first start.
By as early as April.
Oh, that's great to hear it I appreciate that detail and as a follow up to <unk>.
One of the other comments made earlier you were talking about.
Centrally like new pools of capital or investors looking to take to take the did take the loans that you guys are able to originate I was just curious you know you eat it sounds like you've had some good success, adding incremental credit unions and other participants that makes up to 340 with six more in trials.
It is the rate limiting factor on starts at the moment.
The the sort of capital slashed lender side or is it the insurance side.
And when you say the right.
I don't think his insurance side whatsoever, I think some of some of the capacity comes from a geographic standpoint, where there might be some applications in a certain area that we might not have as much coverage as other areas and so we're just trying to fill and possible gaps from that standpoint.
And also you have lenders that do have liquidity issues every now and then and have to kind of come and go throughout the the the loan side of were just tried to the shore of that so we can keep that steady flow.
Hey, they haven't forgotten working.
Now without bringing names and know that you end up with a lot of auto buying services. If you will that cater to the likes of Costco members or Walmart members are at different places like that that are always reaching out to us for if we bring you into here do you have enough funding sources for it so what were trying.
To do has positioned the company to be able to.
To handle both sides of the coin a few well you've got apps coming in that we can inundate, our existing funding source as well.
At the same time, if we can bring.
A large pool of capital so the Mexican stay in the game at these others to Ross's point reach their loan to share balances are now just run out of liquidity, we want to be able to have that cash available and I think Matt one thing you mentioned something about.
US originate we actually don't originate right, we ensure the risk on it. So we're not we're definitely not a lender yeah and this is not any funding sources that we would own any piece of this is Jeff.
Pulling together through a business plan and a white paper to show folks the kinds of returns that kept me.
Using our platform and funding auto loans for that cash.
Right, yes, absolutely absolutely understood on that on that front I.
I guess the last follow.
Follow up I would just ask yes on the last call I asked around you know once the the industry of Oems kind of starts to catch wind of the successes that OEM, one OEM two and three I think I referred to something like a domino effect.
It probably premature to think about an OEM for discussion you know starting to take place yet or or or maybe it is.
It does not at all that we we we we've got lots of discussions going on just.
We only have one that were active on it. They just say now, but we have numerous that we are having lots of detailed discussion not only with the captive but with their OEM as well. So we can you know you.
You actually sell sell the you know the the value prop each way.
You know the Oems see about moving that'll make it more so.
Sales all backend products after after sales and so a lot of lot of great discussions are underway now and I think you hit the nail on the head that with your comment about the Domino effect.
That's exactly what happened in the credit unions based once you bring on a real big one that everybody views as a leader in the industry.
Figure if they decide to do gel due diligence.
What's to prevent them from jumping on the bandwagon.
And I think the first two Oems that we talk to.
One of the first questions. We got was what other Oems do you do business with what.
What do we mess and then the minute you get that one or two up and running.
All of a sudden that it's a great.
You know flagship accounts to go out and show people that it does work and it's working well for the others.
Okay, Yes that makes a lot of sense.
Thanks, so much for taking it taking the questions I appreciate it I'll jump back in the queue.
Thanks, Matt.
Thank you. Our next question comes from the line of Lance just around with Jefferies. Please proceed with your question.
Hey, guys. Thanks for taking my question.
Yes.
Just in the interest of time.
I'm sorry.
Sorry to beat a dead horse on the OEM thing, but.
Realistically and a good and a good upside for you guys.
How many Oems could you look at launching definitive no 20 <unk>.
[noise] Innovatively if all the stars were aligned I mean, India there over the next three years there is a.
More than a handful in.
There's probably seven or eight great candidates five of which we definitely know who we are weve had discussions and we're just kind of.
Going through the the the.
In losses, such as the process with them looking at value prop drive to the answer questions regarding potential Cecil relief and all that.
And that the Ross's point there when he talks about the Oems versus a captive.
Yeah, we're attacking all of these multiple angles not just.
Yeah, the chief lending Guy you know Weve got relationships now with the IP people.
And Ross and I spent an hour on the phone last week.
General minutes agent that is responsible for selling there.
Loan origination platform that.
No the LLS for three of the majors that we're talking to.
And what he wants to do is come up with.
How do you approach them from the I.T. side to show them exactly how this is bill how the watches made and not only that but that is made and ready to go.
So I think that you know the more time, we spend on stuff like that easier. These Oems are to land.
Got you and then you know to ask a kind of a follow up on the ease of use of landing them or how should we think about you know the rate of.
Origination volume with the new Oems.
I know you know koby to put a big hamper on God.
Yes, your OEM, one, but with that how fast OEM one has ramped up how much faster could we expect you know your future OEM partners to try to ramp up.
Yeah, I think back to what John kind of started with one of the keys is having an integration into their loan origination platform and that call, whether we had a with.
The gentleman they actually are the lowest provider of three of our seven or eight targets that we have that we're in discussion with so once we have the integration with their system that is very easy just to Apiay driven.
The integration.
The actually have us our technology platforms talk to each other and so I think that's the first hurdle is is getting on.
Proving the value prop getting on the ATSI roadmap from a project standpoint, but but we are prepared here just to us having to learn and.
Integrate subvention into our technology has been a seven month process and.
The good thing is Oliver discussion, so far with the other Oh, yes is they utilize the same kind of marketing dollars. Their all time base, where this incentive is for this unit for this period of time and so it really fits well with what we already have a develop so I believe.
The first OEM, we launched them exactly one year from the first day, we ever present it and.
But I think once we get the nod from O. he.
A four to six months could be the timeline to get to get them implemented. So if you look at that you could have two a year for the next four or five years.
To get out there and there's if I look at various tiers.
The first OEM that we launched is has that.
You know capability of doing.
A thousand to 2000 loans a month. The second one is that you know eight to 12000 range and then.
The other ones were talking to or you know are of equal size is Oh, you number two and then summer that same a sweet spot. The OEM number one is as well so it's a big big Pam.
Awesome. Thanks, so much for taking my questions guys.
Thank you. Thank you.
Thank you. Our next question comes from Peter Heckmann with Davidson. Please proceed with your question.
Hey, most of my questions have been answered thanks for staying on long, though can you just maybe talk about some of the major variables that play in to some of your estimates and and how you see some of that macro data trending in terms of unemployment used car values told.
Total new and used car sales in it and how to maybe additional unemployment stimulus or direct stimulus plan to send those estimates and how you think about 2021.
Yeah, I think when we look at you know the.
The six so six calculation the things Weve factored in of course the unemployment.
Vehicle values.
The bulk trends.
Whether you legally can go out and repossessed vehicle at this point in time.
The fact that what's the supply demand of new cars, which impacts used cars. All these things are considered so I think that you know before we started working with the Oems, 85% of our business used cars and so it's a fantastic market what we're seeing now.
And a lot of our lenders are benefiting from it now that the Oems are manufactured cars are still pent up demand.
Out there for new cars, which is forcing the values of used cars to be due to increased we also have not.
We were pretty conservative not knowing what the impact of the hertz situation with their bankruptcy into the supply.
Of the of the used cars coming off lease and I think.
Fortunately there is the new car production was so low it's all set a lot of that.
Risk so I don't know in Manheim, yes year over year is up 16%. The used car value index I think it's up 167 deal only happened in April one is amazing how the vast lever very quickly recovered a.
Yes.
I think everything has gotten better than we had originally thought so.
But we're all excited about the future and the other thing we cap here until even during these.
Yes times, where there was a extensions being granted we've reached out to most of our shops and they were telling us that the consumers that address carloads weren't even looking for extensions they were continuing to make their card payments.
Yeah, just receives of them from our chief risk officer today, we all received it looking at our expected claims over the last four or five months comparative was actually come in and we still even in you know.
As of last month are you know 35, 40% below where we thought they would be so we definitely have it.
It's it's probably a combination of you know it's not as bad as we would have expected on one hand and.
Yes, there you still have we have some that are out there, but it but our delinquencies are in check and so we're real pleased with how things are going now.
That's great and I assume your price continued to review the data for another quarter or two but I guess it would there be a consideration of potentially reversing the pricing increase from earlier in the year.
We'll go through the same process that we that we went through the quarter and what we do is we meet as a management team and we we take the same inputs and we look at how that is as Jeff explained and and we we come to conclusion. We also have our service providers like KPMG in a while about on that as well.
I appreciate it thanks much.
Thanks, very much for that.
Thank you. It appears we have no additional questions at this time, so ladies and gentlemen, this does conclude.
Today's teleconference. We thank you for your participation and you may disconnect your lines at this time.