Q2 2021 Open Lending Corp Earnings Call
[music].
Good afternoon.
Welcome to open lending second quarter 2021 earnings conference call.
As a reminder, today's conference call is being recorded.
On the call today are John <unk>, Chairman, and CEO, and Ross Jessup, President and C O L and Chuck gel CFO.
Earlier today, the company posted its second quarter 2021 earnings release to the Investor Relations website.
The release, you will find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call before.
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 views as of today August 10, 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 SEC for more information concerning factors that could cause actual results to differ materially from those expressed or implied by such statements and now I'll pass the call over to John for opening remarks John.
Thank you operator, and good afternoon, everyone.
Thanks for joining us for our open London second quarter 2021 earnings Conference call.
To start today by reviewing our second quarter highlights.
Progress we've made on our growth objectives.
Then I'm going to turn it over to Ross and he is going to provide an update on our OEM opportunity and then finally, Chuck is going to review, our Q2 financials and our outlook for the full year 2021.
Very pleased to report another record quarter at open lending.
And Q2 of 2021, we generated record levels of certified loan volume and the momentum has continued into the third quarter.
Q2, 2021 certified loans increased to 148% year over year to 46408 search.
Our core credit Union Bank business generated an 87% certified loan growth year over year in Q2 'twenty 1.
Our 2 OEM combined have grown 136% year to date in 2021.
We also reported revenue of $61.1 billion.
It was an increase of 177%.
And adjusted EBITDA of $46.1 million.
It was an increase of 199% as compared to the second quarter of 2020.
In addition, we signed an agreement with a third insurance partner American National on a strategic accomplishment for us.
These results were driven by strong execution by our team signing new customers and further penetrating our existing lender customer base as.
As well as growth of the underserved market that we target.
That's a tremendous opportunity of over $250 billion worth of loans originated annually by borrowers that are classified as near Prime.
We've only penetrated about 1% of this massive market.
Additionally, near Prime consumers and these are consumers with FICO scores between $5.66, 90, non cannot obtain loans from prime lenders.
As a result, these borrowers often get credit from subprime focused lenders that come with higher interest rates and lower approval about what is appropriate for their credit score.
What we do is enable lenders to make loans to consumers.
Otherwise not make deepening relationships with our existing customers and helping forge relationships with new customers.
During the quarter 22 contracts are executed with new lenders and we currently have over 380 active lenders on the platform that have generated certified loans over the past 12 months.
Of the 22 signed accounts in the second quarter, 7 where tier 1 accounts classified as over $1 billion on asset and 1 was a large regional banks with assets over $9 billion.
We are focused on the tier 1 accounts and believe they are the greatest opportunity to continue accelerating our growth.
Momentum has also continued into July with 5 Activations in 6 new contracts signed with over 15 live implementations underway.
In certain cases, where permissible we will announce the names of these large new customers once they've gone line live on our lenders protection platform.
Our top 10 lenders, excluding Oems have increased their certification volume by 140% year to date 2021.
Compared to 2020.
On 6 of them have hit an all time monthly circ volume record in June.
During the quarter, we added 5 new credit unions and banks to refinance program and now have over 20 financial institutions that are acting as funding sources behind these refinance channel partners.
On a refinance volume with nearly 20% of our total search in the second quarter of 'twenty, 1 hitting record volume during June.
As a result of our flexible business model, our refinance channel has accommodated consumers by allowing them to modify their existing terms and lower their payments.
We also continue to explore third party funding sources.
Purchased these loans as part of our long term growth strategy.
Wanted to clarify that open lending.
Working with third parties on this effort and we will not have any ownership or take any balance sheet risk.
While the initiative is early we are encouraged by the progress to date of these third party funding institutions utilizing our lenders protection platform to underwrite and decision on these loans.
As you know, we provide a tremendous value to our lending partners as well as our insurance carrier partners.
We provide a consistent flow of unique and profitable business and the product sales are completely turnkey operation for the carrier.
The returns generated for the insurer, we believe are well in excess of other lines of businesses due to the high underwriting profitability and low capital charges.
I mentioned earlier, we recently announced that we had signed a third insurance partner agreement with to affiliates of American National Group.
Enabling them to be additional providers of credit default insurance policy for open lending lender protection program.
This has been on an important strategic initiative for us and we're thrilled to be working with such a great team at American Nationals.
We do believe that there is more than enough volume to support additional insurance carriers, while continuing to deepen our valued relationships with our 3 existing carriers.
So we're extremely pleased with the quarter, our progress growing our business and the value we bring to our lending on insurance partners.
But we're even more proud that we can provide the underserved near prime consumer.
Access to a credit from a larger range of lenders with higher loan amounts.
Interest rates and appropriate downpayment.
So with that I'm going to turn it over to Ross.
We view, our OEM business on our progress on that from <unk>.
Ross.
Thanks, John as we have spoken previously the OEM captive market is substantial and a major growth opportunity for us as of today, we serve 2 OEM captives, which we expect to continue to ramp up and take advantage of more of our services. We are also in active discussions with other large scale.
As previously discussed the typical sales cycle for these partnerships take time given their scale, but ultimately we believe we'll be able to penetrate a substantial portion of the $1 billion of addressable OEM captive market.
John mentioned the benefits, we provided lenders and insurance partners associated with the underserved consumer we also provide these benefits to the OEM.
They can facilitate.
Dilatate, new car sales by expanding credit to near Prime consumers, where they are not competitive today. They are also able to support core values by increasing financing availability for used vehicles. In addition continued efforts around subvention functionality for Oems unlock a much larger opportunity as lenders.
We will be applicable to the new car market.
The global Chip sure shortage has been affecting all Oems this year and their ability to keep up production of new cars with the lack of new cars Oems are spending less on incentives than in the past. We expect this shortage to ease eventually and production levels to normalize.
When this happens car values should return to normal levels and create more inventory in our target markets.
This shortage is simply creating a timing shift, but not a change to our eventual certification expectations on growth.
To further expand on this higher vehicle pricing means higher payment to income ratios and in turn increases the required insurance premium associated with the risk based on our experience this correlates highly with default risk.
This leads to higher interest rate offers and increased counter offers for near prime consumers.
Accordingly, this has resulted in lower capture rates than in past quarters.
Again. This is also timing and will normalize with the inventory levels return.
The OEM captives also receive similar benefits other lenders realize from owners protection like higher yields expanded offerings to non prime customers and risk mitigation from default insurance. They also experienced credit loss relief under the seasonal standards offsetting 70% to 80% of the <unk>.
<unk> losses.
Additionally by partnering with us.
The increase repeat buyers and keep consumers in the captive customer ecosystem by increasing customer royalty base.
With that said, let me provide an update on OEM number 1.
In the second quarter 2021, we experienced certification growth of approximately 185% compared to Q2 of 'twenty and sequential certification growth of 33% compared to Q1 'twenty 1.
We are awaiting the expansion to other regions on our expanded loan terms from 72 to 75 months, but initial results have been favorable and we expect this to be underway very soon 75 months terms only represents 5% of their originations as later discuss with OEM number 2 this will grow with the expansion.
I mentioned the chip shortage earlier this is impacting new car volumes as well because a significant portion of their volume as new vehicles.
For OEM number 2 certification loan growth was up 42% Q2, 'twenty, 1 compared to Q1 'twenty 1.
As a reminder, OEM number 2 was offline from April to October 2020, due to the COVID-19 pandemic.
The chip shortage is also impacting this OEM, but we're excited our ramp is working as designed and will be a major part of our growth plan with the chip supply returns to normal levels.
We expanded terms to 75 months in early April 2021, and have seen 75 months low in terms represent about 16% of their origination since April.
As you know we are in discussions with additional OEM prospects. Each of these prospect captives represents $30 million to $100 million in revenue opportunity for us and collectively more than a $1 billion in revenue. However, I want to remind everyone. These are long sales cycles and require a lot of resources in these large cabinets are juggling various projects and resources.
We are actively discussing planning scheduling and sequencing the <unk> projects needed to go live at 2 other large scale Oems now turn it over to Chuck to discuss Q2 financials and outlook in more detail.
Thanks, Ross during the second quarter of 2021, and we facilitated 46408 certified loans compared to 18684 certified loans in Q2 of 'twenty.
148% increase as John mentioned earlier, we executed 22 contracts with new customers in the quarter and have over 15 active implementations with go live dates in the next 60 to 90 days.
Total revenue for the second quarter of 2021 increased 177% to $61.1 million as compared to $22.1 million in the second quarter of 2020.
For profit share revenue represented $38.8 million of total revenue program fees were $26 million in claims administration fees were $1.7 million.
Now we would like to further break down the $38.8 million in profit share revenue in Q2 of 'twenty 1.
Profit share associated with new originations in the second quarter of 2021 was $27 million or $582 per certified loans.
As compared to $13.1 million or $701 for certified loan in the second quarter of 2020.
Average profit share for certified alone was $623 and $619 per certified loan year to date, 2021, and 2020, respectively.
As previously disclosed in April of 2021, we remove the vehicle value discount established as part of our underwriting changes implemented at the onset of COVID-19.
Which had the effect of increasing insurance premiums and corresponding profit share to us during the pandemic by approximately 15% per certified loan.
Primarily as a result of transitioning back to pre Covid underwriting standards. Our average profit share unit economics returned to normal levels in the second quarter 2021.
There are now comparable to pre Covid profit share unit economics.
However, this change in underwriting and increased our closure rates of over 20% driving record certified loan volume and improving our competitive positioning in the market.
Also included in profit share revenue in Q2, 'twenty, 1 was $11.8 million change in estimate revenues from certified loans originated in previous periods. As a result of the continued overall portfolio performing better than we had expected due to fewer defaults and claims and improved macroeconomic conditions.
As a reminder, profit share is paid to us monthly by our insurance carrier partners from the underwriting profit associated with lenders protections risks.
Under ASC 606, we recognize the estimated profit share upfront in the months alone has certified based on our forecast of default prepayments severity outstanding principal and premium on our loan volume basis.
In addition, we have adjustments to our contract assets due to due to estimation of revenue from loans originated in previous periods on a prospective basis.
In our supplemental earnings slides posted on our website today, we included new slides to further explain changes in contract asset.
Profit share revenue and unit economic trends.
We break down on the change in estimates over the past 6 quarters between realized portfolio performance and prospective changes in assumptions for future periods.
We would like to point out that during the last 12 months over 80% of our positive changes in estimates under ASC 606.
Related to profit share revenue.
Due to actual realized portfolio performance.
Basically lower than projected claims in severity of losses in historical periods drove these positive changes increasing our estimate of our contract asset profit share revenues and in turn drive strong near term cash flows.
Continued strong loan performance from a risk perspective will result in additional positive changes in our contract assets profit share revenues and near term cash flows.
We strategically shifted our channel mix in the quarter to maximize current market conditions, while profit share unit economics remained strong across all channels.
As Youll recall insurance premium pricing is dependent on risk and we constantly evaluate the best risk adjusted opportunities in the market to deploy lenders protection.
For example, the refinance channel has grown to nearly 20% of total search in Q2 of 'twenty, 1 and exhibits high quality and predictable credit characteristics at a lower insurance premiums and corresponding profit share.
Our channel mix can change from quarter to quarter as we seek to capitalize on growth opportunities on the market.
Now, let me turn on to gross profit gross profit was 57 million in the second quarter of 2021, an increase of 182%.
Driven primarily by 148% increase in certified loans in Q2 of 'twenty, 1 as compared to Q2 of 'twenty.
And $11.8 million positive adjustment in second quarter of 2021 related to ASC 606.
Gross margin was 93% in the second quarter of 2021 compared to 92% second quarter of 2020.
Selling general administrative expenses were $12.1 million in second quarter of 2021 compared to $16.3 million in the previous year quarter.
As a reminder, second quarter 2020, SG&A expenses included $11.3 million in 1 time transaction costs associated with the business combination in Q2 of 'twenty.
Excluding these 1 time expenses SG&A increased approximately $7.1 million in Q2 of 'twenty 1.
The increase primarily represents cost associated with some of the public company, such as professional and consulting services and additional employee compensation and benefits related to head count additions to enhance internal controls financial reporting and compliance functions risk information and information technology for a public company.
Operating income was $44.9 million in second quarter 2021, compared to $3.9 million in the second quarter 2020.
Net income for second quarter, 2021 was $76 million compared to a net loss of $49.8 million in the second quarter of 2020.
Adjusted EBITDA for the second quarter of 2021 was $46.1 million as compared to $15.4 million in the second quarter of 2020.
There's a reconciliation of GAAP to non-GAAP financial measures that can be found on the back of our press release.
We exited the quarter with $261.1 million and total assets of which $57.1 million was unrestricted cash and $111.9 million was in contract assets and.
And $68.3 million on net deferred tax assets.
We had $164.1 million and total liabilities of which a $147.6 million was an outstanding debt after a $25 million paydown on our revolving credit facility in the second quarter of 2021.
In April we completed a follow on equity offering of $10.3 million shares of our common stock at an offering price of $34 per share and we repurchased approximately 613000 shares of our common stock for $20 million, which was reported to treasury stock at cost.
In addition in the quarter, we settled a long term liability of $92.4 million under the tax receivable agreement from the merger at a discounted price of $36.9 million or <unk> 40 on the dollar.
And recognized a 1 time gain on extinguishment of the TRA of $55.4 million from the settlement.
We had approximately $126.2 million shares outstanding on June 30 of 2021.
And we posted an updated second quarter 2021 earnings supplemental to our Investor Relations website, which includes a slide that lays out our current share count.
Now moving to our guidance for 2021.
Despite the potential for their institution of government mandated measures to combat another wave of COVID-19, our guidance remains unchanged.
Based on second quarter results and trends into the third quarter of 2021, we are reaffirming our previously announced guidance range is as follows.
Total certified loans to be between 161000, 206000, which we'd like to point out is over 90% growth at the midpoint of the range over 2020.
Total revenue to be between $184 million and $234 million.
Again over 90% growth at the midpoint of the range.
Adjusted EBITDA to be between $125 million on a $168 million and adjusted operating cash flows to be between $81 million on $111 million.
Now with that wed like to turn the call back over to the operator, and we're happy to take questions from the group. Thank you.
Thank you we will now be conducting a question and answer session.
I would like to ask a question. Please press star 1 on your telephone keypad a call from.
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Your first question comes from Joseph <unk> with Canaccord. Please go ahead.
Hey, guys good afternoon, great to see.
Continued really really impressive results.
On the LTP looks like its just really gaining traction in the market. So just on Oems number 3 and 4 I know Ross and gave us a little bit of color. There I mean, clearly those guys must be seeing some with certain numbers coming from.
2 other Oems and.
I think at this point you know a lot of Oems.
Cars are pretty similar out there.
<unk>.
Just maybe a little more color on 3 and 4 and some other guys out there should be paying attention by now and then maybe I'll have a quick follow up after that.
Yes, Joe and you are right I mean, obviously our success that we've had in OEM number 1 and 2 is resonating with the others and.
And especially from a reference standpoint, and all of that.
Our discussions are going very well.
They're at the for both of them. They are at the <unk> level, where we're working to scope out that endeavor.
We definitely have senior by and to move forward. We are just trying to figure out where that is prioritized in.
In the organization we have base.
Based on phase meetings going on.
With that and I'm really pleased with the progress.
And.
And also just from reviewing of our policy and Red lining of our agreements and all that.
We're making a lot of great progress in.
Im anxious to share more.
When does it when at the appropriate time.
For sure they are seeing the need for that.
And then the fact.
That.
Our company does well with us and new and.
There is certainly a benefit to the Oems for that and I think just the way we've been able to maneuver around and change some of our attention to refinance to help mitigate.
Some of the delay has done really really well for the for the quarter.
Okay.
Sure that's great color on this might be a tougher question to answer but.
If we were if we were on a world where there was no chip shortage I mean.
Clearly results were great this quarter.
Could you kind of kind of handicap, how much do you think.
Non chip shortage environment.
Perhaps.
Volume.
Maybe not.
In Q2, but just how much how much boost for the non ship sorted environment helped the business do you think given its current momentum. Thanks, a lot guys.
I think if you're if you're sitting there and back to normalization, where you had everybody producing vehicles at full scale and and then they were having to use incentives to move metal in the.
Fact that we have that built in our platform and it works very very well.
They would definitely.
Have felt that.
The.
Yes, the urgency to move forward, a little faster, but they're all they're all struggling there.
Meeting surf driver and figure out how are they going to take the chips that they have and allocate that to the vehicles that actually.
Are the best.
From a marketing standpoint, and a lot of those vehicles are the hard dollar.
Suvs and so.
We're just excited that that we're still able to grow in this environment.
Our our Tam is huge out there.
And from the OEM perspective, we can grow within each 1 significantly more.
And definitely.
Expanded to several other Oems over the next few years.
That's great. Thanks, so much Ross.
Your next question Vincent Staunton with Stephens.
Hey, Thanks, Good afternoon, Thanks for taking my questions on a great result.
So first im sure Youre going to get a lot of questions about the Oems I'm going to ask about the non OEM side.
Just wondering if you can kind of go further in the bank and credit Union pipeline that you've outlined.
So the 15 active patients and so forth.
If you can maybe help us I know Oems are larger volumes, but.
If you could help us maybe size up when you think about the bank and credit Union opportunity.
When you add a credit Union Eurobank, how big is that and.
Also you were talking about the opportunities with refi I was wondering if you could talk about the growth you've experienced in refi versus the growth you've experienced on.
The purchase side.
Sure.
This is John <unk>.
Yes, I think what youre going to see and I think we alluded to it a little bit on the.
And the earnings call is that the.
The credit unions and banks that we're starting to sign up that we're getting a lot of interest from our all what we consider to be more of the tier 1 accounts.
We're starting to get the $8 billion credit unions.
Some of the banks that we've just recently signed and again I think we'll be in a position to announce some of their named shortly but yes. These are banks that are in the $20 billion $30 billion asset size.
And a lot of them are very interested in that.
Turn key operation that you just alluded to the refinance yes, if they don't have to go out and create a division to do indirect lending and there is access to flow of consumers that recently bought cars and got too high of an interest rate.
We have some of these banks, telling us that they are our target goals are to do no less than 1000 deals a month.
So some of these are on that bigger size.
I think you've heard us talk in the past.
We've got 1 very large credit Union net.
In the past.
Now 4 months 5 months of ground their search volume from.
450 to 500 starts a month so.
Last month doing over 'twenty 200, and wanting to climb that to 4000 starts a month. So we've got a lot of traction on we've got a lot.
Yeah.
Wins behind us to push this forward.
Ross alluded to seasonal.
Yes, I think a lot of D day.
Inbound calls that we're getting from the larger shops.
Related to the fact that theyre, all going to need to comply with seasonal on 23.
And.
Based on the KPMG webinar that we did together they all have to have probably 13 to 15 months of.
Getting ready for that so I think we've got a lot a lot of big things going on with the larger shops right now.
And I think we're really starting to see the benefits of it.
Okay. Thanks, I appreciate that.
Second question on the profit share I really appreciate the detail you put into it including how <unk> broken out.
On the the additional profit share recognizing on the current portfolio on.
The.
When you on the prospective changes in assumptions I'm wondering if you could maybe describe that in more detail because I guess, even if youre going back to pre COVID-19 levels.
We are still much better than we were in 2019.
So maybe if you could talk about the assumptions and is this something where the actual cash profit share that youre, recognizing but what you've already.
Booked in the past is that something we should be expecting.
Going forward. Thank you.
Yeah, Hey, Vince this is Chuck.
Talk to you yeah. Thanks for thanks for the comment on the slide on the understanding the contract asset and profit share.
Your first question around the prospective changes in assumptions. If you just kind of focus on Q2 of 'twenty 1 the.
$11.8 million that was the.
And estimate under 606.
Helpful and maybe I'll start with the realized portfolio performance is 1 of the things that we wanted to make sure we were clear on and it was a really good understanding is the portfolio, we have conservatism in certain of our assumptions.
100 year worldwide pandemic over the last 12 months 18 months now and what's the Delta variant.
We're all looking at now Theres still some unknowns out there. So so clearly we have some stress built into the model and we also kind of <unk>.
Looking out into <unk> and 'twenty 2 with the portfolio has performed just exceptional from a credit perspective, lower defaults lower claims, which is really what's driving that change in estimate and we thought it was really important too.
Really educate that that's an increase of the contract asset in essence accounts receivable and revenue and it turns to cash very quickly. So on that realized category just that eliminate for Q Q2, net 7.8 million that's realized through June 30 of 2021, so so thats actually realized portfolio performance that we will turn to cash.
Cash very quickly and then if you move to the prospective changes in assumptions.
Just really are kind of near term outlook on things are better. The portfolio has continued to perform better than expected, but we still like I said have a little stressed built out obviously into the future with them on the stimulus stops with the Delta variance of unknowns. So obviously.
Routine process that we run in and obviously.
Based on all of that and work very closely with our risk team and also look at the.
The macro assumptions that are in the model if it's unemployment if its car sales consumer confidence obviously manheim. So all of that's baked into the model in the process. So we felt like this color was really good and it would help.
Folks understand the change in estimate very much matters.
Okay perfect. That's very helpful. Thanks very much.
You bet. Thank you.
Next question comes from James Faucette with Morgan Stanley.
Thank you very much sorry about the background noise here I'm wondering if you can.
On.
Qualitatively walk us through how much effective stimulus itself has had on the business and.
And how we should think about that.
Rolling off impacting your business. It seems like obviously theres good car demand and prices are high et cetera, but wondering how for particular segments of your providing insurance for could be impact on how youre building that into your your business planning.
Yes.
James You said right How're you doing.
Yes.
If you think about the stimulus and I'll go back to the profit share slide that was on slide 5 of our supplemental.
When we originally COVID-19 hit we obviously had a COVID-19 impact that's there on the slide and none of US force all the government.
Really putting our liquidity into the market and as much as they did in half.
And I think that's definitely had an impact.
On a positive way you can see it with.
Our portfolio, our severity of losses or much lower than our historical averages.
As well as our frequency of default. So so I think those items and the stimulus has been a positive.
To the environment and have been very helpful to the consumer that we serve so we believe thats been very positive to not only our credit in our portfolio, but also to the consumers. So I think it's had a huge impact yes. James This is raw Samantha.
To pile on a little bit on that.
Higher car values.
On 1 hand had been very.
Beneficial to us when it comes to what claims have come in.
And the.
The lower claims severity than what we've experienced in the past and Thats part of what we've realized is those are actually claims that have happened in our claim severity is down significantly compared to where we modeled and have experienced in the past. So all of those have been positive.
And I'll jump in 1 more games, and just kind of thinking about the portfolio and some of our comments.
Our portfolio showing similar delinquency and claim trends that other lenders have seen through this this timeframe during the pandemic and due to the stimulus benefit. So so we're seeing similar benefits.
Got it that makes sense, how about as you think about the end of stimulus then what.
What kind of planning or should we anticipate or do you think.
A lot of those elements will reverse themselves on and how does that impact your OEM zone and credit unions in terms of their like <unk>.
Interest in the product and how do you adapt so I guess, that's really what we're trying to get as like kind of what do you think happens going forward.
Well as we think about you just think about our modeling and kind of as we go forward in the business. We're already looking out to assume in the future that from a profit share in the 6% to 6 perspective.
Stimulus wont last forever and it will slow or eventually go away. So so some of the severity of loss as well as the default is we kind of look out into the future because as you know the the profit sharing and claims are paid monthly even though under 606, we have to book it upfront, we monitor forward looking as well in our assumptions.
So we feel like Thats baked in with.
As it relates to car prices in used car values as well we don't have those we did take that into consideration those will eventually moderate as well.
Yes, the 1 thing I would add Chuck.
If you think through it and you look at the Tam of $250 billion Mark that was true.
And youre going to have a lot of consumers.
Just as a point of law does have default the default that were higher car prices.
So youre going to see some people force fall I think the Tam is going to grow.
And look at 3 buckets throughout on crisis.
We're going to continue to buy coffee.
Credit unions banks, yes they.
They haven't become geniuses overnight and underwriting near prime loans on half the data.
We're always going to have that huge opportunity ahead of us to continue to.
Fine tune, what we do.
Continue to have effect on to play in.
We did 2 billion worth of loans last year.
250 billion market. So there is still a huge runway ahead.
That's great. Thank you very much.
Thank you James.
Your next question John Hecht with Jefferies. Please go ahead.
Hey, guys afternoon, thanks very much.
And this is maybe more of just simple the inquiry.
Like from Vincent so forth on the.
Call it the <unk>.
<unk> with the insurance Counterparties day, I guess, what im more ships.
What's the cadence of how you guys are thinking of the normalization of credit and the normalization of price of used.
Used car prices is this are the current assumptions in the insurance underwriting model reflective of getting back to normalized levels of pricing and loss rates sometime next year or how do we think about kind of how are you.
Process that change.
Yes, I think from 1 is the chip shortage.
When is that going to.
To get back to a normal level to help out car production and I think.
You have a variety of opinions on that I think the majority of the folks things at this time next year.
We will be.
Not back to normal certainly trading pretty close to that is going to be a gradual.
Thing its just not hoping it happening overnight and even if it's a balance of next year. We that's what we have modeled that we do believe that as values decrease.
Then our claim severity will increase and again like Chuck said that is all stressed invited into our 600 <unk> calculation.
But I guess.
I'm not asking for guidance on SaaS, but.
If if the normalization of pricing happens at a slower rate than you could have a favorable readjustment in terms of economic value.
It sounds like you are maybe being a little conservative in your forecasting.
Yes.
I mean, clearly I mean.
On unusual time in all of our history right and so so yes, I think if you think about pricing and supply and demand.
Ultimately if you go back to the great financial crisis even.
Pricing went up quickly obviously, there was a not a lot of supply and it moderates and it comes back is and the demand comes back to normal normal levels and so does pricing. So we feel like with all the macro that with Moody's for example, and others that we follow these trends with unemployment in some of that that's baked in.
And we feel like it's the prudent way to look at it in this unusual time, but we do believe we'll get back to normal levels and moderate.
To expand on that day, but we don't we were doing this or you do not have a reversal.
The assets of 606 right.
Alright.
Hopefully we answered your question John.
Yes.
I appreciate that very much and then forgive me if you talked about.
But I'm wondering.
The variance out there and it seems like certain areas are getting disrupted maybe can you talk us through kind of volume trends.
July and August anything noticeable there.
Yes.
Yeah, I'll start and then John and Ross can jump in but.
As John said in the prepared comments to second quarter was a record quarter June was a record quarter.
That momentum has continued into July in our App volumes are very strong.
On lenders protection, we were very encouraged by the growth in our credit Union and Bank line was 87% year over year for Q2 quarter.
So really a lot of momentum in our core business as well as the Oems growth.
A.
A difficult time for the Oems is the shortage gets worked through.
Feel really good about where we're heading into the balance of the year from a search perspective, as well as earnings and cash in and.
While we reaffirmed our guidance and feel really good about the business on the execution.
I appreciate the color guys. Thank you very much.
You bet. Thank you.
Once again, if you would like to ask a question. Please press star 1 on your telephone keypad Youre on.
Next question comes from Sameer <unk> with Deutsche Bank.
Hi, Thanks for taking my question. So 1 of the things I wanted to check on was the insurance feature on our number 3.
How are the volumes trending there.
There was a.
The earlier too that you have to then second is any any color you can provide on the economics for the insurer 3.
How does it compared with the force too.
Sure. The economics are identical to the first 2 that's 1 of the agreements we put in place as they all have to pay.
I have the same economics for us so that Theres no adverse selection for us to be sending 1 application to 1 insurance carrier versus the other.
And we just lost the third carrier on July 1.
So we're just now starting to see the volume tick up.
The beauty of it.
Low capacity.
Excited about underwriting as much as we get to them.
We've got them in the next.
To make sure they're getting volumes that will keep them happy.
They are excited about the business.
Great. Thanks, and then just a quick 1 on the you talked about the unit economics on the profit per share. So it was a it was a little bit lower and probably due to the mix or is there.
Is it like a long term target or like on average that you have in mind that you would.
Like to keep the number at for example last quarter 680 industry. This quarter at $5.80 is there.
On a normalized targets.
Yes Sameer.
Customers, Chuck Yeah, I'll answer that.
1 of the things if you picked up in our prepared comments.
We basically removed our vehicle value discount, which was a 1 of our part of our underwriting standard changes when COVID-19, first started and it was basically a 5%.
Vehicle value discount that basically increased premium 15%.
In the Covid time or they are during the pandemic, we took that off.
In April of this year. So in essence, we're back to the pre COVID-19 normalized profit share in that $5.80 range.
Mix.
Obviously, it's a risk adjusted.
Everything we do at lenders protection in an open lending mix in profit sharing and economics will change from you know from quarter to quarter and vary, but but thats really the biggest impact on your analysis on a quarter over quarter.
Got it thank you.
And 1 thing I would point out as you probably heard on the in.
In the prepared comments that we also improved our closure rate.
Lift of about 20%, so which is obviously part of the record volume in search which is very helpful.
Got it thank you.
Your next question is from Bob Napoli with William Blair.
Hey, this is a deep choudhary on for Bob Napoli.
Just 1 question with them on.
So the company on Super strong cash flow on a sales line you guys are going to continue to build cash could.
Could you talk a little bit about your capital allocation priorities.
In particular your philosophy on M&A. Thank you.
You bet.
Obviously, we generated generates significant cash flow and our operating model in.
You think about.
For the quarter, just a little bit of capital usage and allocation, we bought $20 million of our stock back and participant long buying shareholders.
Use of our capital allocation as well as were very successful buying back to a long term obligation under the TRA.
A significant discount which was about $37 million use of cash and capital and as well we paid down a little debt.
Obviously, we believe for the balance of the year will continue to generate obviously positive cash flow and as we think about uses of that cash going forward. Those are very thoughtful decisions. We work very closely with our board and we will keep the market and everyone up to date as we make decisions on that but but obviously, we want to maintain a very strong balance.
<unk> and ample cash to run and service our debt.
Invest in our business on our human resources and.
On the Conservative financial policy.
By doing that so.
Basically in all of that and our philosophy is opportunistic and focused on maximizing shareholder value.
Great. Thanks very much.
You bet. Thank you.
I would like to turn the floor over to John Flynn for closing remarks.
Thank you everybody, we really appreciate the time and effort you put into your.
Following us.
We love your continued support as you can see we're excited about the future of the company as well as the results.
We have products on our second quarter end.
And we look forward to continue to grow the company with your support I appreciate.
Rate everybody's out.
Yes.
Okay. Thank you thanks, everyone have a great day.
This concludes the teleconference. You may disconnect your lines at this time and thank you for your participation.
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