Q1 2021 Open Lending Corp Earnings Call
Yes.
Okay.
[music].
Good afternoon, and welcome to open lending first quarter 2021 earnings conference call. As a reminder, today's conference call is being recorded.
On the call today are John Flynn, Chairman and CEO and Ross, just the President and C. L O and Chuck Yale CFO.
Earlier today the company posted its first quarter 2021 earnings released two of its Investor Relations website.
On the released you will find reconciliations of non-GAAP financial measures. The most comparable GAAP financial measures discussed on this call.
Before we begin I'd like to remind you that this call may contain estimates and other forward looking statements that represent the company's view as of today May 11 2021.
Open lending 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 S. E. C. The more information concerning factors that could cause actual results to differ materially from those expressed or implied by such statements.
Yeah.
And now I'll pass the call over to you John for your opening remarks.
Thank you operator, and good afternoon, everyone.
Thanks, again for joining us from our first quarter 2021 earnings conference call.
I'd like to start today by reviewing our first quarter highlights as well as the progress we've made on our growth objectives.
Then we're also going to provide an update on our OEM opportunity along with some recent changes to our underwriting.
And finally, Chuck is going to review, our Q1 financials and our outlook for full year 2021.
During the first quarter, we certified 33318 loans.
Was an increase of 19% as compared to the first quarter of 2020.
We reported revenue of 44 million, which was an increase of 152%.
Adjusted EBITDA of $30 3 million, which was an increase of 217%.
Paired to the first quarter of 2020 as well.
The first quarter was a record quarter for the company in March was especially notable.
It was a record month in our company's history from a certified loan perspective.
We certified over 14500 of loans in March and the momentum has continued into the second quarter.
We also continue to make solid progress on our growth opportunities.
During the quarter 14 contracts are executed with new customers.
And we currently have over 360 active customers on our platform that of generated certified loans in the past 12 months.
We announced the new partnership with notable credit Union, which is the 1 billion dollar of institution based in Fresno, California, and we've also recently signed six other large institutions, which we will announce once they go live on our platform.
We continue to show progress on the credit Union the fraud, and we believe we still have a huge runway for growth ahead of us.
We continue to have productive conversations with multiple regional bank prospects.
And we are currently working on two data studies for these types of institutions.
We've begun making traction with companies in the online lending channel who funnel applications. The funding sources. We are currently working on a day to study with one of these institutions to look at their applications that were not funded in the last quarter, which represents approximately 270000 applications had very.
As credit scores.
Also during the quarter, we added seven new credit unions and banks to the refinance program and have 28 credit unions that are acting as funding sources behind these refinance channel partners. We noted of an uptick in volume and it was the greater than 75 per cent increase in applications in March of.
2021 as compared to March of last year pen Fed credit Union has grown its third volume from approximately 700 loans in February to over 1000 in March.
In March we co hosted a webinar with KPMG.
The published a whitepaper on seats the relief that can be found on our website.
The webinar had over 100 attendees and has generated positive feedback and inbound calls from current and prospective OEM Bank and credit Union partners inquiring as to how we can help.
We plan to do more of these webinars and an ongoing basis to educate the potential partners on our offerings.
As the seesaw deadline approaches for credit unions. We believe this is of great growth opportunity for us to expand our wallet share.
And then lastly, we continue to make very good progress on adding additional insurance carrier partners to our platform.
We are in active discussions with various top insurance carriers, because we feel there is enough volume to support of third or fourth the insurance carrier without jeopardizing our relationship with the other two carriers.
This is an important initiative for us and we will continue to provide a more meaningful update on our progress as we execute this initiative.
So with that I'm going to turn it over to Ralph to review, our OEM business and our progress on that front as of.
Well, let's talk about some of the underwriting changes that we're currently making.
Thanks, John.
We've spoken previously the OEM captive market is substantial and of major growth opportunity for us as of today. We currently serve two OEM captives, which we expect to continue to ramp and we continue our ongoing discussions building on our pipeline of other Oems for the future.
Now, let me provide an update on our progress growing OEM number one and two of them number one we experienced certification growth of approximately 164 per cent in the first quarter 2021 as compared to the first quarter 2020, we were very happy with this progress and growth volume number one is true.
Utilizing our platform for an expanded credit score offering which is 560 to <unk> 79 in all four regions of the service.
They launched one region in January and the remaining three regions last week for the credit score range is 626 79.
We anticipate this could add an additional 300 search per month, taking OEM number one to approximately 1300 search per month once fully ramped.
In addition, this week, we are launching expanded loan terms from 72, the 75 months in one of their four regions initially as a pilot.
Moving on to OEM number two.
As you May recall, we have number two launched the originally in October 2019, with their captive finance arm and pause doing business in April 2020, due to the COVID-19 pandemic.
They came back online in October 2020, and production is ramp to near pre COVID-19 levels.
Certified loan growth was approximately 60 per cent in Q1, 'twenty, one as compared to Q4 'twenty.
We are now active for both new and used.
Across the nation for all of them number two.
Production continues to ramp up and we're making good progress moving forward towards the school ramp of eight to 10000 and search per month by the end of 2021.
We launched intervention in January in one market and were delayed from the February launch due to the Texas storms.
As of early March we were alive of across the nation with subvention.
We expanded terms the 75 months in early April and the initial feedback is very positive so for both new and used the we're ramping in line with the expectations and we are excited about the opportunities to continue to broaden our services with them as the relationship grows.
William number three as.
As we previously disclosed we completed the data study really of the number three.
And it included a 51% increase in approvals demonstrating a strong value proposition to their business.
We both are encouraged by the results and we'll update you as it relationship moves forward.
Moving on to the AUM number four as previously disclosed we completed our day to study, which included a 57 per cent increase in approvals from applications. They're denying we were also encouraged by these results and the progression of our discussions.
And we will update you as well on the relationships as they move forward.
Moving on to the update on the underwriting initiatives.
When COVID-19 hit last year, we tightened our underwriting standards by incorporating a 5% vehicle valuation discount which resulted in higher loan to values ltvs debt increased premiums and improved the quality of the credit of our book during that the dam pandemic and.
And we changed our income verification of thresholds.
With the macro economic environment, improving we felt it was the appropriate time to change the standards back to where they were pre pandemic as we have had fewer defaults and claims than expected.
We removed the five per cent of vehicle discount and the mid April and are removing the proof of income for 626 80 credit scores for direct and the refinanced channels in may.
We expect both of these changes will increase our certified loan volume through more attractive rate offerings.
And now I'll turn it over to Chuck to discuss our Q1 financials in more detail.
Great. Thanks Ross.
During the during the first quarter of 2021, we facilitate of 33318 certified loans and 14 contracts were executed with new customers.
In addition, we have nearly a dozen active implementations with go live dates in the next 60 days.
Total revenue for first quarter, 'twenty, 'twenty, one increased to 152% to $44 million as compared to first quarter 'twenty 'twenty with.
With profit share, making up $27 7 million of total revenue.
<unk> $5 1 million from from performance obligations that were satisfied in previous periods. As a result of improved macroeconomic conditions and the continued overall portfolio performing better than expected due to fewer defaults and claims as compared to a $12 million reduction in performance obligations satisfied in previous periods.
In the first quarter of 2020.
Profit share associated with new originations in the first quarter of 2021 was $22 6 million or $680 per certified loan as compared to $15 8 million or $564 per certified loan in first quarter of 2020.
Program fees were $14 9 million in first quarter of 'twenty, 'twenty, one and as compared to $12 7 million in the previous year quarter.
And claims administration fees of one 4 million in the first quarter of 2021 as compared to the point 9 million in first quarter of 2020.
Gross profit was $40 6 million in first quarter 2021 an increase of 172% due to higher levels of loan certified as compared to first quarter 'twenty 'twenty and the ASC 606 change in asking estimate discussed earlier.
The positive adjustment in the first quarter of 2021 related to ASC 606 resulted in the $17 1 million change quarter over quarter and represents the continued improvement of our portfolio performance from a risk perspective related to frequency and severity of defaults and prepayments over what we <unk>.
<unk> last year when the pandemic began.
Gross margin was 92% in the first quarter of 2021 compared to 86% in first quarter of 2020.
Selling general and administrative expenses were $11 2 million in the first quarter of 2021 compared to $6 million in the previous year quarter.
The increase in SG&A cost reflects an increase of employee compensation and benefits as we build out our organization. In addition to professional and consulting fees as we continued to implement the internal control compliance and reporting requirements of public companies.
Now moving to operating income it was $29 4 million in first quarter of 2021 compared to $8 9 million in first quarter of 2020.
The increase was primarily driven by the 19% increase in certified loans as compared to first quarter of 2020, and the recognition of the $5 1 million in profit share related to historical vintages as a result of better than expected performance of the portfolio as a result of lower than anticipated defaults on claims.
Net income per first quarter of 2021 was $12 9 million compared to $8 2 million net income in first quarter of 2020.
Adjusted EBITDA for the first quarter of 2021 was $30 3 million as compared to $9 6 million in first quarter of 2020. There is a reconciliation of GAAP to non-GAAP financial measures can be found at the back of our press release.
Now moving to the balance sheet, we exited the quarter with $326 8 million and total assets of which 127 million was unrestricted cash $97 2 million was contract assets, both current and non current and $83 9 million in net deferred tax assets.
We had $286 6 million and total liabilities of which of 173.3 million wasn't outstanding debt and $92 4 million related to our tax receivable agreement liability.
On April six 2021 we completed an underwritten public offering of 10.350 million shares of our common stock at the public offering price of $34 per share.
All shares were sold by existing stockholders and certain executive officers of open lending.
Upon closing of the offering we entered into an agreement to repurchase from the selling stockholders on aggregate aggregate number of shares of open lending common stock equal to $20 million or 612745 shares at the same per share price paid by the underwriters to the selling stockholders in the offering.
Also.
I wanted to briefly give you an update on our share count we had approximately $126 8 million shares outstanding at March 31, 2021.
We postpone the and an updated investor presentation, and first quarter 2021 earnings supplemental to our Investor Relations website, which includes the slide that lays out our current share count post the April secondary offering.
Before reviewing our guidance for 'twenty 'twenty. One there are a few items I wanted to point out in.
In March we entered into a new credit agreement, which included of senior secured term loan facility of 125 million along with the revolving loan facility of up to $50 million.
The new facilities were used to refinance the company's existing term loan agreement and will result in approximately 9 million in annual interest expense savings.
In April we paid $36 9 million to settle our long term obligation related to the tax receivable agreement to terminate a $92 4 million liability at 40 cents on the dollar the subtle the TRA holders present and future right to the tax receivable agreement.
Now moving to our guidance for 2021.
Based on our first quarter results and trends into the second quarter of 'twenty 'twenty. One we are reaffirming our previously announced guidance range is as follows.
Total certified loans to be between 161000 and 206000 <unk>.
Total revenue to be between $184 million and $234 million.
Adjusted EBITDA to be between 125 million and $168 million and adjusted operating cash flow to be between 81 million and of $111 million.
Now with that we will turn it back over to the operator, and we're happy to take some questions from the group. Thank you.
Yeah.
At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad of confirmation tone will indicate your line is on the question queue. You May press star two if he would like to remove your question from the accounts for participants using speaker equipment and may be necessary to pick up your handset.
Before pressing the star keys.
One moment, while the poll for questions.
The first question is from Peter Heckmann from D. A Davidson. Please go ahead.
Hey, good afternoon, everyone nice results wanted to ask with the underwriting.
The standard change that's going to take place here in May.
Can you talk about what that might represent in terms of a change in the average revenue per loan.
Or or as well as any other thoughts or for modeling purposes.
Yeah, Peter the this is Ross the the change actually will not affect the average revenue per loan, but should that should change our capture rate, meaning that many more closed loans compared to the number that are that are approved so there.
There is the the change that would happen on a percentage on the revenue side was.
We do have of a reduced amount of premium coming in but I think you know whenever you factor that in as well as of our continual a reduction of <unk> of.
The claims are and.
And and prepayments.
Compared to where we the estimated I think theres a balance in there. So we don't actually think our overall per.
Per search.
Revenue the bid.
It is going to change that materially, mainly which can be able to capture that many more.
Yeah. It is Chuck Pete I would just say on net profit share of I think in that range of that call. It 650 per start which is what we've kind of been discussing kind of longer term for the average there in about 11 50 per certified loan in total.
Okay. That's helpful and then.
My other just as regards the.
The loans by OEM. The did you say you continue to expect already of member to should be able to ramp to.
282.
The eight to 10000 loans per month end and if so what kind of timeframe you're thinking about there.
Yeah, I still think we're right we're tracking right along with that are towards the end of the year.
And so it is eight to 10 number okay.
Okay.
Thank you.
Thanks Pete.
The next question is from David Scharf from JMP Securities. Please go ahead.
Great. Good afternoon, Thanks for taking my question.
I was just wondering you know where we're at the tail end of of reporting season in which.
You know, obviously consumer lenders I'm pretty much across every asset class experienced much better.
Credit performance the than maybe initially anticipated and obviously you're no exception of its reflected in the profit share.
As we think about just some of the puts and takes.
The impact the demand for your service from your lending partners.
Does the sort of this benign credit environment, and perhaps evidence of other lenders EBIT, even though M captives or credit unions potentially loosening some of their underwriting requirements.
That represent any sort of headwind in which maybe their approvals internally.
It could be supported or does it just sort of trying to trying to really understand sort of the puts and takes if you will what whether or not there's any evidence of some of your lending partners might relax and therefore not require.
As much incremental help from you on near Prime borrowers.
Hey, guys just of John Flint.
Take the first stab at that roster.
If you want to jump in.
That's why we talked to on all.
All of our clients are regular basis.
And what we're fine on every one.
One of.
The credit Union.
And in the cash.
The third they're trying to find the all of it yes.
Virtually no yield on an expense.
I'll try to.
Find out how they can get.
No more of your ease at all of them and when you get into what they actually get on a per well.
Nothing I mean, you've gotta be so yeah, the razor thin margins when theyre doing a 1.9.
The interest rate on the new car loan versus being able to generate up to 300 basis points net.
On the near Prime loan Yeah, I had the call yesterday with the gentleman that runs about a $900 million credit Union.
Well I need to find a home for 100 million dollar just flow from the credit.
Yeah.
Sign up the of refinance your channel partner.
Of capturing those people that got stuck with the higher rate.
You know of refinanced the minutes something here. So I personally don't see yeah, right again, some of the banks might get a little bit more competitive there.
They can ever compete with the credit Union a cost of farm the.
The fact that they don't pay income taxes, I think that's a proper.
The opportunity ahead of us with all of the credit unions debt, Yeah, I don't see them selling up the buckets of what theyre buying loans, but that's my sense roster of Chuck do you want of everything.
Yeah, I'll I'll, just I'll add one thing to follow on that John is you know.
A lot of the data studies, we're doing of our are from Tom periods. You know just over the past five six months. So we're still seeing that.
Debt. These lenders are the declining applications that we can that we can improve and help with we also.
We're seeing that from our capture rates that are you know are ticking up so I I don't I don't see that as a current threat debt, but we certainly have our eye on it but to manage.
Got it no no no. That's helpful and then I mean, it sounds like none of it sounds like the credit Union universe is not using the kind of current credit environment to sort of open their funnel and dip down into more near prime themselves.
Just one quick follow up any and any update on just a.
I believe conversions with bank core processors and sort of that channel because I I believe.
You were in the process of you know potentially.
Integrating with with one or more.
In the near term.
Yeah, we are and as recently as last week, we've had a number of.
Really productive call.
What's the.
I think you've heard us talk about is the.
L O S. A at least three of the captive that we're aware of.
And they are the L O F or the one captive debt.
Ross alluded to in the earnings call debt.
Yeah, I'm moving pretty quickly down the path of wanting to do something so.
They heard from NAV captive debt.
They believe in it but from what happened all of the sudden they're all reaching out to get the of.
The specs in places that the spring laid out.
But they help the fourth quarter.
So we've got that one going on.
We've talked the other day with the very large shop.
Our platform down the cap, which is more of an antiquated LLS, but so.
So that's great the large shot of funds.
On the every month.
We are a lot.
The reach out and figure out how to work with the number of the but.
The other one that I share.
Coming to fruition, we launched I think I meant to you.
Yeah Yeah.
Originate within I think well now we have one or two more banks that have come pretty close to the.
Finishing your adjusted I've mentioned that they stay on that same platform.
On a lot of good things going on in that realm.
I had a terrific congratulations thank you.
Thanks, guys.
Yeah.
The next question is from Joseph Bassi from Canaccord. Please go ahead.
Hey, guys. Good afternoon, a really good result.
On a lot of good stuff here, maybe we'll start I think I think you said that the mark of FERC number with 14500.
And if that's right then you know relative to a run rate off of the Q1, that's a big bump for the month.
I was wondering if you could maybe discuss a little bit any more breakout on what happened in March to bring that run rate up so much.
And if it's sustainable and then maybe all of the follow up after that.
Yeah, Hey, Joe It's Chuck Yeah, Yeah, we as we stated in our prepared comments you know March you know Q1 was a record quarter for the company at 33300 search and March notable as a record month end and as we said in the prepared comments you know that momentum.
He's gone into the second quarter. So you know, we're very encouraged by that as we continue to ramp and grow the business.
You know App volume is up significantly in all channels and.
That's driving the increase.
Obviously with the you know the stimulus that's out there in the economy as you know performing even though we're coming out of the a worldwide pandemic.
Our business is doing well and you know I think we proved it in 2020 as well as you're heading into 'twenty. One you know this business performs through cycles and is resilient through the recessions and downturns. So but the volume is driving obviously you know a lot of the the volume and where we're heading.
Okay, maybe just maybe a little quick follow up there, though you know any other color like.
That's the kind of a that's a big bump relative to the total.
Quarter end, so you know with the OEM driven was it more broad day.
You know kind of the more color on what what was the where did those come from and Mark.
You bet I mean, it came from you know came from all channels and you know on our website. We've got on updated our Q1 supplemental on the Kpis Joe.
If you if you think about the credit Union and bank just quarter over quarter and I can also talk to the Q4. The Q1, but you know our credit Union banks are up 16% and then the Oems were up 24% over Q1 of 'twenty and that's what you know on a blended basis, that's 19% start growth Q1 of the 'twenty one over 'twenty.
No I think you heard in Ross is prepared comments about the OEM wanted to they're performing and ramping as well over.
The OEM one is up 164% over Q1 of of of.
'twenty and OEM too.
They came back online in the fourth quarter is up 60% and insert the growth just compared to Q1 of the 'twenty one back to Q4 of 'twenty. So you know it's.
It's across the board of the credit unions banks and Oems are growing and that's what we've expected from the business.
And Chuck the one part of that.
I am glad you remember, we got signed the bunch of accounts in 2020 that we couldn't get launched until the.
First quarter of 'twenty, one just the.
COVID-19 in the house, so I think you're starting to see what we had talked about last year the launch of shops that have.
I had a little bit of it.
Uh huh.
I think of it.
Bringing back of the fact that Chuck alluded to of its across the board.
The simply lots of chart 14, or some of them yes.
That's right, yes, John it's Greg.
Point, you know of the 55, new contracts signed in 2020, we had about 20 of those that came online in Q1 of 'twenty. One so that's driving a lot of of the inquiries and of those 50 552 of them are our live in in writing search and contributing to the growth in Q1, I think you add to it the Jos the fact.
Debt you know tax refunds were a little delayed this year. So we certainly are seeing that momentum continue in.
To the Q2.
Which of which is great.
That's great. So it sounds like pretty broad base, maybe just one more quick one you know the online London channel that I think you mentioned.
Yeah that seems pretty intriguing to all of a whole lot of third potential in.
I know, it's early there, but you know kind of how the how do you look at that versus the kind of your other core markets, which are different.
In some respects the stuff.
To help us understand the frame the opportunity relative to kind of of the overall backdrop. Thanks, a lot of great results guys.
Yeah.
John do you want to handle the one line limb lending.
Part of it I think what we're seeing from the online lending standpoint.
Now a lot of of our refund the channel partner.
Get the applicant from them Yeah, a lot of these guys that they don't have a real fun and of course the.
Hind at the farmers out Oh.
Thank you.
Well you know what the.
What's the Roski analysis.
One of the debt.
To fund sources behind them.
Represented like one funding so well.
Like I don't know the percentage of their boss on the other 30 some percent of one of them just said they weren't kind of go forward with that but I think the beautiful about our model that was the fact, when the napster coming from an online lending source, whether the Glen.
On top of lending truly.
Of channel partners that go on.
And.
Yeah look for two of the use of soft porn people back out.
Too high of an interest rate one day.
When they did the part and then you know.
The market for those people in the us.
We've got over three plus Len.
Lending sources sitting behind these applications.
It has a huge runway ahead of us.
I alluded to the fact that from my comments about the wall on.
Online lending platform that we just set of data before.
At this point of that because they have 275 on apps of Corp.
I'm sure of the crafts, whether because of the rate was too high that they were coming back or they are of.
Requiring kim of a down payment.
And the get inbound calls from the likes of people like that they're looking for us the brain or funding source lots of their platform I think the will continue the growth.
Great. Thanks very much on.
Right.
The next question is from John Davis from Raymond James. Please go ahead.
Hey, Good afternoon, guys just wanted to follow up a little bit on John the starts on the strength of March.
Yes, I think any comments on April specifically I think your guide implies pretty healthy triple digit growth from here on out, but just use the midpoint.
And I'm curious I think the underwriting changes are new so I assume those werent contemplated in the original guide and so I guess theoretically if that does drive higher capture rates that could drive upside to the certain guide, but just kind of curious there of that was contemplated or the thought was the new decision that was made recently.
Yes.
Yeah, John how you doing Chuck Yeah, I mean, if you think about you know I'll start with the guidance and what we reaffirmed today for full year 'twenty one.
You know, we did come off the record quarter of the record month, but I'd also tell you you know of 161000 and searched the 206000 search.
As of the wide range. However, you know our business is running well, it's we're executing against our plan and we feel good going into the second quarter and beyond with the growth and what are you know what.
One of our business can generate.
From a from of adding the the underwriting changes and the impact being that the range is that broad you know we'd like to think that that's built in and.
That's the upside on the opportunity between the low and the high you know I would point to on the low end of the range of that guide.
Is 70% year over year growth on on the high end, it's 120% growth at the midpoint you referenced is <unk> 95 per cent. So you know, we're very focused on continuing to grow the business and it's a tremendous growth at any point in that range.
Okay, Great and anything we should think about just sequentially I think I was saying the the balance of the three quarters, you need even to get the 70% pretty close to the triple.
Did your growth so just as we kind of think about the cadence through <unk> through <unk>.
The growth you just build I mean, obviously Q2, you have the I guess easier COVID-19 related comp, but just curious if there's any call outs of sequentially from here.
Yeah, I think I think Q3, and Q4 will have your growth there and you know we're modestly in the Q2, but but the the businesses again, we feel operating and executing very well.
Okay, Great and then just as a follow up you know we're also the you gave an update on on OEM number three in a number of four yeah.
And the.
The situation now where you just you've kind of done everything you can do for OA and number three and Youre waiting on them and then where are we with all of them for as far as you know you're done with the study are you on this.
The more follow up just any more color you can give would be helpful.
Yeah.
We are we definitely have had numerous meetings with our teams I T wise as well as the.
Financing and I.
I think they have a lot that day.
We're on.
Looking at them and figuring out where we need to be scheduled in I think both of them is really not a matter of of is the win and and certainly of the.
Of the meetings of John.
The alluded to earlier with the the this agent folks will certainly benefit one of those that are that are looking to try to measure out what the I T endeavors are and to get those.
On the table to to discuss.
Moving forward. So yeah, we're very excited about it.
For sure and as well as you know some of the status of other conversations so I was.
Looking forward to being able to report more next quarter.
Okay. Thanks, guys.
Thank you.
The next question is from Vincent <unk> from Stephens. Please go ahead.
Hey, Thanks. Good afternoon. Thanks for taking my questions first question actually on the non OEM side. So you highlighted a couple of opportunities. So the seven units by partners on 14, new customer contracts and sort of getting implemented within 60 days.
With the Oems you've kind of given what you think of is the the upside in the the monthly certification volume I'm wondering.
For this non OEM opportunities if you can talk about the potential of monthly.
Certification volume on what's the what's the upside from here. Thank you.
Yeah.
Yeah.
Yes.
Oh, yes, I I've been to one of the.
The things we buy.
All of it in the past and even more prevalent than the latter.
What are the in this quarter of the.
Finding some of the larger shops versus multiple multiple little shops.
Yeah, the upside of zombie isn't there.
I don't know.
The number to it I know you've done some.
The graphs that show we're on.
Our growth is coming from the July Danny of specifics or no.
No I don't I mean, you know Vincent Hi, Chuck you know from you know obviously the credit union of doing to get to the range of the of the guide the that we've talked about you know of not only do OEM wanting to execute so sort of the core credit Union and bank business. So, but you know, we're not giving guidance out on individual customers at the credit Union and bank Levy.
But but we feel like that business some year over year with the pent up demand.
With the the accounts that came on in Q1 from that were signed last year. You know, we're going to have a really nice growth in the credit Union and bank business as well I mean, you can see in Q1 it was 16%.
That's helpful are you able maybe without talking about specific customer just kind of broadly.
And I know theres different sizes of credit unions, but that's sort of say a typical credit can do.
So a couple of hundred of months versus the bank would be a couple of thousand a month or I'm just kind of wondering if maybe there's a sense of size that you could you could help with us if there's any.
Could offer.
I think the thing.
We're looking at the credit unions that can certainly do a couple of hundred of month for share.
We did just fine and we're getting ready to launch the bank.
We believe once fully ramped.
Are you up to a thought on the month, because there's lots of them.
Net channel partner.
And that's the goal of all they've given us but.
But it's not going to happen on the 90 day, yeah, they're launching it in certain states to get it started and then they'll roll it out of that they got comfortable with it but I think some of the the credit Union side than we're talking about and certainly do.
300 of month.
Some 400 the month.
And you heard me speak to the fact that once you make the Pentagon play launched on just one of the refinance channel partners there.
Third growth went from 700 and the.
February the Wassa over a thousand of March or March to.
The classic.
The months of Arb, but you can see that kind of.
From the summer shops that have the illiquid.
The la Quinta I wanted to get it there, especially since we launched the menu a refinance channel partner.
And Vincent we usually to your credit Union opportunities tier one is the 100 or more.
<unk> 50, or more then we go to 10 or more than below that so so we do that and so we kind of have those tiers that we assigned based off of our expectations and then we kind of double those of round. So I wish it were more 500, a month, but but we like the two or three.
<unk> twos and ones.
Really just more of them.
Okay, Great. That's helpful. Thank you because I don't think I.
It gets underappreciated about the non OEM opportunities since we don't talk about it too much. So thank you for that.
Second question kind.
On the profit share and the expectations. So your profit share was really good this quarter and I saw the the 5 million positive profit share adjustment, but just wondering when you when you think about profit share going forward.
Credit has been great what's built into your future.
The credit expectations like when you think about the loss curves that you put on your slide deck in the past end of the recoveries.
<unk> had has it.
<unk> gotten appreciably better and I'm thinking about it you.
Future quarters in 2000, twenty's or potential upside.
The profit share that you have thank you.
Yeah, I'll start and then Ross can jump in but you know as.
As it relates to the $5 1 million and a change in estimate and profit share in Q1.
As you know attributable to the the business performing better than expected less less defaults and less claims and you know as you know.
As we've talked about on various other calls we've got a very robust process. The John Ross and I are involved in we've got a very talented risk team that evaluates this on a monthly and quarterly basis and you know we believe you know.
You know it was unknown still in the future, but we believe that 650 per sort of on average we thinks of good average to use on your modeling purposes, and you know as.
As it relates to loss curves and things like that you know out into the future.
We look at it quarterly you know how of that robust process that we follow we sit down with the risk team in and we evaluate and if the if the stress that we had in the in the in the model didn't materialize. We will have a positive adjustment, which is what we had in the in the first quarter. So yeah. We all we all know that we're benefiting certainly from the ease of use car.
The index being of a red record levels, which are certainly, helping our ltvs and rates, but it is helping others as well. So you know they're there obviously is a risk out there.
Once the chip shortage.
<unk> is made up and new cars are back being produced and all of that what the effect of that is on used cars and that's one of the reason we continue the distress on the future not knowing when that is going to happen, but having these various of the probabilities are in place to look at that.
And so but clearly we know that there's a there's definitely a tailwind right now.
Okay. That's very helpful. Thanks, so much.
Thanks Vincent.
The next question is from James Faucette from Morgan Stanley. Please go ahead.
Yeah. Thanks for all of the great color on commentary I wanted to follow up on that last comment and that actually was my key question was.
Any way to guesstimate, how much of a benefit you are getting from the right now from the strength of the used.
The used car market and the value of used cars, specifically and then can you outline for us a little bit how you're in your planning, how you're expecting that to normalize over what period and at what rate and kind of how we should think about that impact.
You bet. So I think first of all on on the used car side, one thing the denote that debt. We still are close to 85% used versus new so from an origination and a forecast standpoint.
The effect of the decrease in news.
Should not materially impact us because of I think it will be made up from the us side of it.
On the.
On the underwriting and our profit share all of the I'll, let Chuck the continue on this but but obviously we have stress on what claims severities could be out in the future. When you have that depreciation of value and it's built into our model and.
That's something obviously that we true up poorly.
James I'll jump back in but yes, that's something we as I said at the Vince its comment the wheat.
We look at on a quarterly basis and you know we've got some stress on severity you know throughout 'twenty, one and into 'twenty two in our in our model that are you know that.
We have in there so from a planning perspective, that's how we assess it but we reassess on on a quarterly basis based on new facts and circumstances.
Got it got it and from a as you kind of play that out in and think about like.
That's from returning to the availability of of new cars et cetera.
Do you think that the Hum.
Overlaid with the the people that you're talking to you on the Oems et cetera is that we should see a change on that used versus new car mix.
And of meaningful way.
And and anything we should take into account that way.
Well I'll just tell you when you talk to the OEM. The they they want to talk to you about how much you can help them move metal when you talk to the captive finance side.
They want to talk to you about.
How to monetize some of these trade ins and used cars that are out there and so it really is a win win deal in both sides of it benefit.
Now that we have subvention launched throughout the country for OEM number two.
And as they continue to get.
You used to that in the various tiers that is working and I think that really bodes well for our four Q you know the.
The end of Q3 in the Q4, when we chip shortage of hopefully can get the dip.
Back to the level that that can meet the demand.
And we certainly will benefit from that from from the news on.
That's great. Thank you so much guys.
Yeah. Thanks, Thanks James.
The next question is from Samir cause the change from Deutsche Bank. Please go ahead.
Hi, Thanks for taking my question.
I wanted to get a sense on was the insurers you're working with your you mentioned, you're working with the insurance three and four and any color you can provide on the timelines of when you expect them to be to be live.
John do you want to take the first part of that yeah.
Yeah, well, yeah, we were.
The closely with at least the quarter from carriers throughout the year, our hope would be the at least one of them up and running by third quarter.
So that's our game plan, we're in the process.
On the Gulf State in the final cracks.
The other three savi on that one.
Were all very strong price.
So on finance.
That's just kind of again us being the <unk>.
The timing.
So that we can commit to the amount of premium each of them. So the.
The game, the hopefully of one up and running by the third quarter here.
Got it and the the a quick follow up I had on the on the online channel you've you've mentioned conversations with one and a little bit color on the on the scale of applications.
Any any any sense on.
Any more you are talking to who are at similar scale or other people you were talking to are much lower.
Yeah.
I think of some of its a matter of.
Not all of the 250 to 270000.
Down the order, but I think.
By the nature of the debt, we're aggregating a bunch of them.
There's a significant threat of applications that'll be flow through from.
That <unk>.
Group, if you will.
If you will of online lenders.
And again these aren't just people that are have sites out there like.
The lending clubs lending tree.
That's it.
I mean from the seven different refinance channel partner, we have that go out and target consumers.
As I mentioned earlier by pooling.
The crowd soft pause on.
ZIP code people to be able to find out who within the specific area bought a call or the last six months and they come back with that interest.
And their FICO score and target the consumer directly.
It's not necessarily just the online lenders that are out there the people can jump the likelihood.
People that are actually being directly market to the.
We know can sustain 100 of $150 a month, what's really increase the close rate significantly.
Got it great. Thank you.
The next question is from Mike Grondahl from Northland Securities. Please go ahead.
Yeah, Hey, thanks, guys.
I think you commented that Youre doing of data study for two different regional banks.
How far of you along with that and any guess at sort of how long net sales cycle is.
Yeah.
Well I can tell you the one of the banks would.
We've reached out to US earlier this week and said that we've made the past Sir.
First grouping of due diligence on that.
We're now starting to talk with them about the interface of might look like and things like that.
That one and the other one that we mentioned out of the Houston area, We believe should the alive.
Probably within the next 60 day true.
One of our refinance channel partner so.
That's pretty good for me.
The bank.
The I don't think can generate some pretty good volume.
And the it quickly.
Got it thank you.
Yeah.
Yeah.
The next question is from John Hecht from Jefferies. Please go ahead.
Yeah.
Afternoon, Thanks for taking my questions and many of the had been asked and answered but I'm wondering if you guys talk about.
Tightening your ltvs in the quarter, but I'm wondering if you look out of the overall end markets.
Is there anything you're seeing with respect to the other banks, either loosening or tightening or taking down or up their ltvs and anything that's going on with pricing that debt is worth noting.
Yeah, I think in the past when we talked about tightening the ltvs. When we did that 5% decrease in value that didn't necessarily tightened of ltvs, but it basically put an application and of higher LTV classification, which generated more premium. So you know our ltvs.
Are still I believe are higher.
The most lenders in the first place and that's besides just buying deeper in the expanding on the right side on the LTV is the other side of the value prop in there. So so on.
I would imagine that the vehicle values themselves remaining at it at highs record highs kind of takes care of that and just through the math works out to be higher ltvs than of lender typically would go assuming they use.
In a D a.
The trade or Kelly wholesale on that.
I think the thing I'd add to that.
Alright, I'll, where in essence, the thing is going back the COVID-19 underwriting rules.
Yeah, we've tightened the things up.
The rock mentioned bump them up on the LTV area.
Really just because we weren't sure where COVID-19 was going on our results pre COVID-19 were pretty stellar.
And I think that's not going to hurt us with the facts.
The values of stayed up day adapting.
With that too.
The word come back with some of the COVID-19 underwriting the halls.
I think it's really just kind of help us again, the point earlier get our book the price yellow significantly.
And the area where are some of it was always good.
One on one of the thing to add of John If you recall from our comments earlier, we actually are offering.
A bit longer term than we have in the past where 72 months was our GAAP before and we're going to 75 and we're doing that.
Not only with a couple of the Oems, but initially with the handful of of other customers before we spread it to all of our clientele.
Okay. That's all very helpful and you you've watched the bench and now the two Oems I'm wondering does that.
And it gives you more breadth to take more volume with the does it also allow you to go into different products like leases or is it still mostly lending products.
Yes, so just to be clear subvention is only live in OEM number two we have not launched it in a way of number one that certainly on the table to discuss they've asked us to circle back once we have some experience with that and so we're just we're just waiting for time and experience to circle back, but that clearly is an opportunity that debt.
Can you get them well ahead of that 1300 run rate that they have that we talked about earlier.
And the.
So it really just increases the the.
But I guess, the the opportunity set within the OEM or does it also bring you into different products.
Well I think it just allows us more wallet share per OEM, but I think the leasing side is something that is.
Something that we will explore its not on the radar this year.
But it's a gigantic market if we can figure out how to to underwrite and provide that credit risk for the credit side, but not take on residual risk that's.
That's what we're kind of trying to go through the the process of evaluating now.
Okay. Thank you guys very much.
Thank you.
Yeah.
This concludes today's conference today's conference call on the question answer session I would like to turn the call back over to John Flynn for any closing remarks.
Yes, thank you very much operator, and the again.
Again, thanks to everybody that stayed on the line to ask questions again, we're very excited about one of the companies come to you on where it's going as you know we're kind of an open book. So any questions you have the free to reach out whenever and we're happy to jump on the phone. So thanks again for all of your questions.
Yeah. Thank you. Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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