Q4 2021 Open Lending Corp Earnings Call

[music].

Good afternoon, and welcome to open Lendings fourth quarter 2021 earnings call.

As a reminder, today's conference call is being recorded on the call today are John Flynn, Chairman and CEO , and Ross Jessup, President and C O O and Chuck <unk> CFO .

Earlier today, the company posted its fourth quarter 2021 earnings release to its Investor Relations website.

In the release, you will find reconciliations of non-GAAP financial measures.

For 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 views as of today.

February 24 2022.

Open lending disclaims any obligation to update these statements to reflect future events or circumstances.

Please refer today 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 you John for opening remarks.

Thank you operator, and good afternoon, everyone. Thanks again for joining us for open lending fourth quarter 2021 earnings conference call.

I'd like to begin today by reviewing our fourth quarter as well as our full year 2021 highlights and the progress we've made on our growth objectives.

Ross is going to discuss the auto manufacturing in lending landscape.

Then finally, Chuck is going to review, our fourth quarter financials and discuss our outlook for full year 2022.

I'd like to start with our high level financial review of the fourth quarter and full year results.

We're very pleased to report another very strong quarter at open lending Q4, 'twenty, one certified loans increased 59% to 42639 as compared to the fourth quarter of 'twenty.

We also reported revenue of $51 6 million, which was an increase of 30%.

And adjusted EBITDA of $36 6 million, which was an increase of 47%.

Impaired to the fourth quarter of 2020.

We also saw incredible growth in 2021, with an 82% increase and certified loan growth.

98% increase in revenue and 123% increase in adjusted EBITDA for the full year 2021 compared to 2020.

We also added 71, new customers in 'twenty, one which was up from 55, new accounts in 2020 and.

The average size of the lenders that signed up in 2021 exceeded $1 $2 billion in total assets and I think this demonstrates the value proposition of our platform.

And our continued momentum as we head into 2022.

We're also very encouraged by the continued growth on our credit Union and Bank line.

We achieved an 82% year over year increase in search for the fourth quarter of 'twenty one.

This was driven in part by the addition of new accounts, including some that are preparing for CCAR compliance by year end.

Further penetrating existing customers through wallet share.

And continued expansion of our refinance program.

First on the new customer side.

We signed 18, new accounts in the fourth quarter and three of these were tier one accounts classified as over 1 billion in assets.

Of the 71, new accounts signed in the full year 'twenty 'twenty 119 institutions have total assets over $1 billion.

Momentum has also continued into 2022 with seven new contracts signed to date and approximately 15 active implementations underway. So far this year.

Many of the inbound calls that were getting from larger credit unions.

Related to the fact that they have less than one year to comply with Cecil.

For those of you not familiar with <unk>. So it stands for current expected credit losses and is a GAAP accounting standard which is applicable to many of our lenders which will require adoption during 2022.

As a reminder, lenders protection can provide lenders with a preferential approach to seasonal compliance.

Earlier. This month, we hosted an executive steering Committee meeting, where we had executives from our largest credit union customers come to us and them to discuss how open lending can help them further grow their respective auto portfolios, but the real focus on prime decisioning and the importance of seesaw.

It became very clear from these discussions.

Lending partners are looking for new ideas on how to grow their auto portfolios through expansion of their offerings in the face of chip shortages and depleted new car inventory.

We're working on a few initiatives that we plan to rollout this year.

System in these efforts.

We are also in the process of setting up another webinar with KPMG, which is similar to the one we hosted last year, which we'll discuss seesaw compliance and the approach and compliance timeline for credit unions.

Now I'd like to move on to our existing customer side right.

Our top 10 customers, excluding Oems have increased their certification volume by 193% in 2021 as compared to 2020.

During the quarter, we continued to add new credit unions and banks to the refinance program.

During Q4, we onboard at four new accounts to the refinance program with our volume, reaching nearly 35% of our total search in the fourth quarter of 'twenty one.

As a result of our flexible business model, our refinance channel is accommodated consumers.

Allowing them to modify their existing terms and lower their payments.

Program is one way, we've been able to help offset the temporary headwinds that's associated with the affordability due to inflated used car values and inventory shortages.

Mr continuing to impact auto sales, both new and used.

Ross will touch more on this topic in a few minutes.

Credit Union funding sources will continue to have the lowest cost of capital.

Allowing them to offer much lower rates than your typical near and non prime lender in the marketplace.

Continue to see consumers saving as much as 100 to $150 per month are reducing their interest rates by approximately 400 to 500 basis points.

I finally like to provide you with an update on our other long term growth initiatives.

We're sitting on an unbelievably valuable data asset, which makes us very unique to our clients compared to peers in the marketplace.

Secondly, the market, we target is massive and we've only scratched the surface at this point.

We've delivered strong results in 2021, highlighting our resilient business model.

All of these points were making strategic investments to further capitalize on the market potential once things normalize.

Some of these are areas of investments this year will be our go to market sales strategy with new dedicated sales team members to capture more of the Tam and the expanding our account management staff to continue focusing on expanding wallet share with existing customers.

We're going to dig into the bank space with key hires with core experience in bank auto originations and underwriting.

We're exploring other markets for geographic expansion like Canada.

And then finally, we will be investing in technology further enhancing lenders protection platform for our lenders.

That I'd like to go ahead and turn it over to Ross and.

I can give you his update.

Thanks, John clearly are powerful industry, leading credit union customers and exclusive insurance carrier partners.

You need the power performance through temporary bottlenecks and ever changing financial conditions in the industry, a testament to the strength of our business model since 2000.

Today, I will highlight three things one the.

Current and near term U S automotive market conditions and outlook.

Commercial activities with our industry, leading OEM customers and prospects.

And three progress with their current insurance partners.

With regards to current and near term U S automotive market conditions and outlook.

We ended the quarter. We entered 2022, we began to see signs of incremental improvement in a variety of indicators.

Based on our assessment of end market conditions, we remain optimistic that the toughest headwinds facing the industry are behind US we began navigating through the upcoming year more specifically dealer networks across the country, our reporting improving inventory.

Pricing presale orders velocity of pent up demand predictions.

A inventory illustration a representative leadership.

500 vehicles on hand before the pandemic began.

Inventory declined almost 80% of their low point.

Leaving the skew of the 100 vehicles on the lot.

In comparison, while still not it'll be below the typical historical average leadership of this size are seeing an improved rate of restocking.

And almost a doubling of vehicles off the bottom, but they now have closer to 200 vehicles from their inventory.

In terms of pricing at the peak of the inventory shortage dealers reporting that vehicles coming off lease after three years, we're selling above their original MSRP 36 months later.

In comparison, while still very much elevated we are now seeing a moderation in the rate of increase in pricing.

This is a dynamic that we'd open lending have witnessed in prior cycles, namely as inventory rebuilds pricing will begin to moderate.

As for presale orders over the past 20 months.

<unk> room stock was depleted many dealers adjusted to satisfying the buyer behavior with pre sold orders.

In fact at the inventory trough pre sold orders could have made up anywhere from 80% to 90% of all orders.

In comparison, while pre sold orders are still well above historic levels.

Now makes up less than 50% of order flow at the dealerships.

Another item is velocity.

It's a metric that we monitor is the rate at which the dealers are turning over their inventory monthly as a measure of end market strength.

While historically, many dealer would drive towards a 50% to 70% range.

In comparison, many are currently above 150% further evidence of the market for gas over $5 million of pent up demand.

Now continuing with Brooklyn up demand what matters, the most ore blending it which segments of the consumer auto buying market that were underserved during this period of mine supply.

With inventory down 60% year over year.

Based on our data it is clear that the limited supply of vehicles available for sale or being sold the cash and prime buyers.

Many dealers delivered their highest profit margins in history.

This shortage not only affected new vehicles, but use as well.

Legal is the sales price of over 40%.

Year over year. This results in making even used cars less affordable, particularly impacting the near and non prime borrower, which are lenders protection program traditionally served.

In addition incentive spending per unit in January was four $879 much less than the 3400 $50. It was in January 2021.

Brokered lending during this.

A unprecedented lows as soon as you.

<unk> of our subvention offering.

Be less impactful until the pricing moderates further.

Now for commercial activities in regards to our industry, leading OEM customers partners and prospects.

In terms of industry, leading OEM captive customers. We are very proud to have two of the most powerful automotive brands as our top customers as they were a power through the market challenges globally.

Of course, our customers are not immune to the shortage and have seen their loan volumes decrease in 2020 one we.

We track, our volume as compared to theirs and similar credit tiers.

We're 2021 our volume as a percentage of their has remained at a consistent level.

We look at this as a positive sign that as the supply continues to ramp towards normal levels, our volume to increase proportionately.

In fact, there should even be more opportunity for us since near and non prime customers.

Notably underserved over the past year.

We continue to engage weekly with top leadership at our OEM captive customers and their partners or strategic growth operational issues and opportunities. So that they are well positioned as the market recovers.

Now for our insurance carrier.

In an effort to improve affordability for borrowers and after getting feedback from our clients. We are expanding our program offerings for both loan amount and term limits, while maintaining our discipline and rigor and underwriting.

The increase in loan amount and the new 84 month term should have a positive impact on our lending capture rate.

For example in 2021, we countered twice as many applications and asking for a larger loan amount.

Then we did pre pandemic.

Additionally, more than one third of our applications requested terms in excess of 72 months last year.

Likelihood.

Capturing an application on a counter it's much less than one as requested.

The additional term offering will effectively resulted in lower monthly payments for qualified borrowers.

We should also positively impact our capture rates without increasing our exposure.

We plan to roll this out in the next 45 days and Bergland and believe this will help drive continued growth in search.

As you know expanding our insurance partner relationships has been a key growth opportunity for us.

As reflected in our recent press release, we expanded the term on the Amtrust agreement.

Adding five years to the existing term now through 2028.

We continue to make solid progress with the fourth insured scared and look forward to providing more detail in the near future.

As far as loan origination systems, we recently announced an expanded partnership with the POS solutions, our loan origination software for captive consumer finance companies banks and credit unions.

The integration is currently available.

I asked companies.

On the <unk> platform and the expansion includes an integration with our lenders protection platform for Captisol via the the five X L. O S originations product, which will become available in the second quarter.

This means that essentially one click a button any client can start using <unk>.

We believe this accelerates our opportunities to grow through both our OEM and non OEM business now.

Now I'll turn it over to Chuck to discuss our Q4 financials.

Outlook for 2022.

Thanks, Ross despite all the macro headwinds John and Ross mentioned, we were pleased to report 2021 financial results that beat our expectations for the year.

For the full year as compared to 2020 total certified loans increased to 82%.

Total revenue increased 98%.

Gross profit increased approximately 99% and adjusted EBITDA increased to 123%.

In 2021, we signed 71, new contracts with other lenders compared to 55, new contracts signed in 2020 with a continued focus on larger institutions in 2021.

During the fourth quarter of 2021, we facilitated 42639 certified loans compared to 26822 certified loans in Q4 of 'twenty at 59% increase year over year.

We executed 18 contract with new customers and in addition, we have nearly 15 active implementations with go live dates in the next 60 to 90 days.

Total revenue for the fourth quarter of 2021 increased 30% to $51 6 million as compared to $39 6 million in fourth quarter of 2020.

Profit share revenue represented $31 2 million of total revenue program fees were $18 5 million in claims administration fees were approximately $2 million.

Now, we'd like to further break down the $31 2 million and profit share revenue in Q4.

Sure associated with new originations in the fourth quarter of 2021 was $24 7 million for $580 per certified loan is.

As compared to $18 4 million or $686 per certified loan in the fourth quarter of 2020.

As a reminder, in April of 2021, we transitioned back to pre Covid normalized underwriting standards.

That were put in place in 2020.

Therefore, our average profit share unit economics in the fourth quarter of 2021 are now comparable to pre COVID-19 profit share economics.

This change in underwriting standards has improved our closure rates.

Driven record certified loan volumes and expanded our competitive positioning in the market.

Also included in profit share revenue in the fourth quarter of 2021 was a $6 5 million change in estimated revenues from certified loans originated 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 and lower claims severity.

Gross profit was $46 9 million in the fourth quarter of 2021, an increase of 48% driven.

Driven primarily by increased certified loans in the fourth quarter of 'twenty, one as compared to 20 <unk>.

Gross margin was nearly 91% in the fourth quarter of 2021 compared to 93% in the fourth quarter of 2020.

Selling and general administrative expenses were $11 7 million in the fourth quarter of 2021 compared to $12 4 million in the previous year quarter.

Operating income was $35 2 million in the fourth quarter of 2021 compared to $24 3 million in the fourth quarter of 2020.

GAAP net income for the fourth quarter of 2021 was $27 8 million compared to $15 2 million in the fourth quarter of 2020.

And finally adjusted EBITDA for the fourth quarter of 2021 was $36 6 million as compared to $24 8 million in fourth quarter of 2020, an increase of 47%.

There is a reconciliation from GAAP to non-GAAP financial measures can be found at the back of our earnings press release.

We exited the year with $318 8 million and total assets of which $116 5 million was unrestricted cash and $113 million was in contract assets with $65 5 million and net deferred tax assets, we had $159 8 million and total liabilities of which 104.

$46 3 million was in outstanding debt.

We had approximately $126 2 million shares outstanding at December 31, 2021, and we posted an updated investor presentation and fourth quarter, earning supplement to our Investor Relations website, which includes a slide that lays out our current slide or excuse me our current share count.

Now moving to our guidance for 2022.

Based on fourth quarter results and trends into early 2022, we're setting our guidance ranges for full year 2022 as follows.

Total certified loans to be between 195002 hundred 25000.

Total revenue to be between $210 million and $240 million adjust.

Adjusted EBITDA to be between $135 million and $160 million and adjusted operating cash flow to be between $140 million and $165 million.

Despite the near term headwinds as dealer inventories restocked, we are confident in the resiliency of our business and the ability to navigate through the supply and affordability constraints.

In our guidance, we took the following factors into consideration.

Portability index for our target credit score of $5 60 to $6 80, due to continue inflated used car values the global semiconductor chip shortage.

Oems that have streamline their supply chain as we move toward just in time manufacturing processes.

Disruption in transportation networks, and raw material shortages.

Low levels of dealer inventory.

And investments, we plan to make into the business, which John referenced earlier.

With that now I'd like to turn it back over to John to make a few closing comments.

Thanks Chuck.

Before we jump into Q&A I wanted to take a few seconds.

And highlight a few things.

We here at open lending I've had to navigate through periods of low supply and elevated pricing in prior economic cycles and did so very well have.

While the Covid pandemic presented new challenges.

We do see signs of incremental improvement.

Specifically as we've experienced in our history, we've seen the utility and value proposition of our service offerings become even more relevant to our customers during inflationary periods in rising rate environments.

I wanted to make there as well.

For instance, many credit unions are still sitting on notable excess cash today.

And they evaluate investment alternatives. They are faced with a three year treasury yield. It is currently a 170 basis points.

In contrast, after taking into consideration there are approximate 60 basis points cost of funds our lenders protection program results in a yield as high as 250 basis points, providing a two times return with a much better risk adjusted profile in.

In addition, they are in turn helping their members lower their cost of financing, which is consistent with their core mission.

So with that I'd like to thank everyone for joining us today for our fourth quarter 2021 earnings call and we'll now take your questions.

Thank you we will now be conducting a question and answer session.

I'd like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question about the Q.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.

Your first question comes from David Scharf with JMP Securities.

Yeah.

Good afternoon, and thanks for taking my questions.

And then obviously.

More than a handful of unique macro and industry headwinds, you're you're battling it's great to.

See that you are seeing some evidence that the trough is in the rearview mirror I'm wondering.

A couple of things related to the guidance.

You can provide just to give us a sense on.

Where you see a lot of the demand coming from the first is.

Obviously, the pivoting to refi mix has been.

Hum.

Very helpful and has remediated somebody other weakness.

Are you seeing with rates moving up now.

Impact on refi applications is it putting any downward pressure.

The last few months and obviously, we can have more fed action going forward.

No actually you know what we have found over time, David is that you're always going to have as rates go up these consumers are being subjected to higher rates outside relative to what credit unions can continue to offer.

And credit unions have such a low cost of capital.

They're always going to have the lowest game in town.

When you look at the rates that you see from like an exit or a santana are any of these.

Near Prime non prime lenders that.

These consumers have been subjected to their rates are going to be into 'twenty one.

1918 range and when credit unions are coming back with 11 and 12.

There's always going to be that opportunity and when you look at that $250 billion Tam that we continue to talk about.

And the fact that we've only done like $4 billion worth of loans last year.

There's still just a huge.

<unk>.

Pool of applications flowing through that but I don't see that slowing down and I don't see the value prop diminishing at all.

And Dave This is Chuck I'll jump in and 150 in prior cycles, where we've seen a rising rate environment 150 basis point increase in rates just makes as John said, our program, even more appealing to the consumer and to the credit unions.

The other part I think that drives that is yeah occasionally.

See credit unions might run up against.

Limits in their lending policies and things like that and one of the things that all of this excess cash is creating in kind.

Kind of alluded to it in a closing remarks, a little bit when you have credit unions that are huge influx of cash coming in they're.

They're not real risky investors, they're limited by NCUA as to what they can invest in and you'll find most of those credit unions looking for like a three year treasury.

And when I alluded to that 170 basis points. You know that's the yields are going to get on it but when you back out the 60 basis points, they're paying to get money in the door.

There are only generating 110 that yield on that.

Our program if priced right.

Get them, a 250 basis point net ROA with that same three year duration. So I think.

They're always looking at different ways to put that that excess cash to work and going back to you know what credit unions, where even form for which is to help serve the underserved.

It's a great way to get more people to work.

A better asset class, that's a three year average life.

Just solves that problem of where to where they're going to put their cash.

Got it no. That's helpful perspective, maybe just a follow up.

It just didn't get into the numbers a little bit of you know I'm curious.

When I look at the midpoint of the EBITDA and revenue guide.

I come up with the margin that's in the mid sixties kind of reverting back to pre pandemic levels.

And.

If I were to.

Pinpoint.

Primary reason it is it more credit normalization meeting a return to more normalized profit sharing levels or is it attributable more to increased investment spending.

Yes, David.

Our guidance.

Right on the margin profile.

When the guide its about 65% EBITDA margin.

Obviously, you know prior to the pandemic in the pandemic, we had the higher profit share and that was about about $100 per search and incremental profit share component.

Six $676 80 down to.

At $5 80 this quarter. So so that's some of it is just the unit economics and the profit share as well as the program B unit economics as is year over year is down a bit but that's just it.

Based on large customers and the volume discounts that they receive.

For the program fee for the technology fees. So so that's really what it is but we feel good about a 65% roughly plus.

Margin profile in 2022, and and and Thats you know John mentioned investments in the business and sales and marketing and technology and and that's that's built in as well. So so feel good about where we're heading into 'twenty two and the opportunity.

Great. Thanks very much.

Thanks, Dave.

Next question comes from Peter Heckmann with D. A Davidson.

Hey, good afternoon, Thanks for taking my question.

You May have stated it and I may have missed it but could you give a little bit of color.

On each of your two current OEM customers and maybe talk a little bit about how they perform either year over year or sequentially. Just so we can think about the relative contribution.

Okay.

Got it.

Basically when we track their overall.

The amount of loans that they do in a certain credit score that we kind of stimulate.

It seemed like back in March April 'twenty, one was kind of their high watermark and.

And we were right there with the same percentage of that high watermark that we that.

We have seen in the recent months and so we're.

The good thing about it is Pete.

It's like we're doing the same portion of loans were just together.

We actually are just we have to follow them you know we don't generate day. The applications. We just basically are there taken.

Whatever our purpose.

We get of their business and is consistent what we are finding is is that you know credit scores and end in those kind of trends look very appealing that we're gonna have a pent up demand and when whenever their numbers start to increase.

We certainly hope and we believe that that our percentage of that is actually going to be a larger percentage with that pent up demand that underserved consumer that is out there that now we can actually help.

And Pete.

Just from a performance perspective, just Q Q4 of 'twenty one over 'twenty.

We don't Spike out OEM, one or two separately, but the Oems quarter over quarter were up three 5% and then for the year about 129% and as you recall in 2020 OEM to cease to producing there for about five months. So so you know obviously good results considering the headwinds in the inventory.

And the supply. So then you have great relationships with both OEM wanted too.

And what we're seeing also on the on the North American production forecast for this next year is going to be up 17%.

From a from 22% compared to 21 so.

So another positive.

That's good that's good okay and then.

Could you give us a little bit of an update on the OEM.

OEM pipeline I think last quarter, you talked about signing a deal with EE integration partner for OEM number three and it seemed like that was tracking towards yes, certainly making progress.

Would you characterize.

That one at this point.

Yeah. So yeah, we are you.

We did a press release with <unk> solutions about our integration, there's multiple benefits of that integration not just from a prospect standpoint for the OEM, but.

Some of our other customers as well that use that.

We always said that there was a pecking order of priority that had to take place.

And the the what always was in front of us as a new servicing platform that device solution is working on and.

We have not completed that yet so we expect that.

We will follow that once it's actually completed and implemented and we don't really have.

Anything that we can say is what it's going to happen, but it does it is delayed but we were encouraged that our conversations are remaining in.

In place and and.

We still have a pipeline that we're that we're very active in these discussions and these these.

These are you know.

Everybody is focused on the inventory the effect they are having small losses today, but they all recognize that there's a huge need to focus on where those losses are going to be 18 to 36 months out whenever the car values to get down to.

Lower level and those losses are naturally going to increase.

Okay, Okay, but nothing has fallen out of the.

The qualified pipeline.

Nothing has fallen out at all.

Great I'll get back into queue. Thank you.

Alright. Thank you thanks Craig.

Next question.

Well Steven.

Hey, Thanks, good morning, or afternoon Monday, Thanks for taking my questions.

That's done.

Long day, Yeah. So I appreciate your.

Your guidance ranges and I was just wondering if you could talk about the variables to get you to the different points of high end and the low end of the range for example.

Just trying to see how conservative maybe at the low end of the ranges. When you think about OEM production supply chain issues in all all of that if you could talk about the different points of the ranges. Thank you.

You bet Hey, Vincent.

To start with the guidance inputs, obviously as we were building the guidance for 'twenty two.

Portability for the target buyer the continued inflated car values, obviously went into it the chip shortage in the inventory.

Also we believe the inventory levels are recovering and from our growth in perspective, we don't give quarterly guidance, but we just point to the midpoint of if you think about the <unk>.

Q1, maybe 20% of our overall growth of search for the year just to give you a little flavor there.

It's a little more backend loaded on the growth for 'twenty, two as things recover and dealers restock, if you will but a lot of the drivers to the high end.

Ross talked about the 84 month term that we're going to on our loans as well as expanded loan amount.

And it's just it's really just the inventory and the affordability and how things recover to the high end of the range and you know just more of a faster pace. If you will how fast the inventory and the and the restocking happens. So I was just kind of from the low to the high but the midpoint is 22% growth for certified loans.

And both revenue and certified loans and.

We feel good about 'twenty, two and where we're headed I think what we've talked about on the underwriting changes were really excited about we started back in.

At the end of Q3 Q4, we had exactly linear round table, we had over 100 different credit unions and some banks, there and we listen to them and we were able to get that approved by our carriers I mean, just the fact that.

Third of our applications are asking for over 72 months and we weren't able to do it before so you got to think about now being able to do a full approval.

For larger.

Larger loan amounts.

Higher terms and we are of course are our pricing it with the right premium. So we can you know that.

Definitely keep the loss ratios, where we have enjoyed.

Historically, Atlanta, so it's really important to us.

That too.

Did it did not impact negatively our underwriting at all.

And I think that the point that Ross just made.

There was an extensive studies done on the performance of 84 months versus 72, particularly in the near Prime space that we live in.

It showed that the default rates were better than 84, then some 72 month loans in these consumers. It's all <unk> driven not scored revenue and the fact that you can get them into an.

And affordable payment to keep them in the car.

Ross's point I don't think were diminishing whatsoever, what the profit share will end up being as a result of that I think that's only going to help grow that side.

Yeah, and Vincent I'll jump back in on the other input that we look at as I think I mentioned it when Pete previous question about North American production. If you go back to the pandemic during fiscal 'twenty. There were 13 million units, which was down 20% and then if you fast forward into 'twenty, one it's pretty flat at 13 million units.

What we're seeing in 'twenty, two and the forecast for the North American production is $15 2 million, which is up 17% and then 'twenty three is forecasted at $17 million production units. So thats another 13%. So if you think about it.

The high as the low range, that's definitely an input and how fast that happens.

Okay. That's very helpful. Thank you so would it be correct to say that I guess, the low into the range of sort of more of the same of what we've seen but the high end of the range is sort of the actions you're taking for for example, the.

The terms and.

The terms of the size of the loan and all the other things that you're.

Kind of controlling in order to grow.

Okay. That's fair I think that's fair.

Okay. Thank you for that.

Second wanted to refi channel. So it's exciting to see that actually expand from here and I think it doesn't get as much attention, but maybe if you could talk about that when you think about your 2022 expectations and also.

The margins on that product I don't think.

Is close to that one, but if you could talk about the opportunities. There. When you think about 2022 as well as the profitability of that business. Thank you.

Yeah.

Just exactly as any of our other business you know we have our program fee that is the exact same thing as it is for direct or indirect.

The premiums are priced.

Based on the performance of that loan so that the actual unit economics of each one of those transactions are identical to any other part of our business.

What will it perform exactly as direct or indirect we've got a price like theyre direct loans, but we always have the ability to change premium rates, if we see that that's not.

The way it's trending to at this point, that's been very favorable on that side.

We drive a lot of our funding clients toward these refinance channels.

Cause if you look at.

The economics to the financial institution.

When they go out and do an indirect loan they're going to pay at least two points to a dealer to get that paper in the door.

Well they are paying.

Similar fee the refinance channel as they are dealer, but they are getting a lot more volume without even having to processed alone because it's all processed on their behalf.

So the funding sources love it we get the same unit economics, and the consumer gets a much better deal than they got the first time around when they bought the vehicle.

Okay. That's that's helpful. I guess that's.

That's helpful data I think.

I'm wondering in terms of the opportunity for refi as you outlined is very large and get that to 250 billion Tam and it seems like.

It makes sense for the customer to get it.

Save that 500 basis points plus.

You kind of go around the inventory and supply chain issues since the customer already has the car anyway. So.

I'm wondering what's the governor.

Executing more rapidly on the on that Tam opportunity as you're as you're rolling that out. Thank you.

Well I think you'll see that that's been growing very rapidly over the past year.

I don't think that we have any kind of a governor.

Providing slowing us down what we're doing is we've got our existing sales force when they find some time to not be selling new business.

To use their account managers to get back into our existing funding sources.

The one thing that might be a governor to it.

It's really more suited for the larger credit unions that have a national footprint.

Not every credit Union can accept a new member from just anywhere in the country, yes, they had to kind of qualify for that they live in a certain county or a certain state. So our main focus is targeting to larger shops that have a bigger footprint that can afford to take on these members, which I think is evidenced.

Bye you probably heard us talk about <unk> being one of the bigger funding sources on that side that went from 700 deals early last year to 3000 deals at the same time. This year. So I think that's just targeting the right size account that has that field of membership that can accept a consumer.

Okay, Great. That's very helpful I'll get back into queue. Thank you.

Thanks Vincent.

Next question Joseph <unk> with Canaccord Genuity.

Hey, guys, Hey, guys good afternoon.

<unk> on all the good execution, even though it was a tough environment in 'twenty. One I was just wondering.

A couple of questions I know Ross you were mentioning.

Dealerships now have more like 200 cars on the lot.

Is there a level you think when that dealership number.

When that inventory in a lot really starts to help the crew back to your model.

Less on perhaps the pre sold or just.

<unk> buyer scooping up the cars for the near Prime guys get a chance.

You have to be back at three or 400 before you really kind of back in.

A good position relative to what youre offering and how your customers sit in the pecking order in the dealership and then I'll have a follow up.

You bet, Joe Joseph Great. Great question, I don't think the world of 600.

Cars on the lot top 600 cars a lot are going to happen again, we're not we're not counting on that but I do think you've kind of hit the nail on the head I think.

Going back to worse about double where they where they are today and I think the just in time manufacturing and the pre sold orders.

Clearly.

They make a car today, that's not a new purchaser that's typically the free sale. So I think that's the first thing I think that.

We track the Manheim.

The index and the forecast very carefully.

And we do see cars declining in value for.

Several.

Several months to two years until we get to but it's not going to be a fast decline.

Because you've got to get the lease market back to where it is it's an order.

But I think we definitely are encouraged by what we're seeing.

<unk>.

We think the latter part of this year, we should see Incrementals every quarter latter part this year and going into next year is to work with our growth and our ability to capture is going to be tremendous I mean, just just the fact that that the two underwriting rule changes that are going in place.

Some next month some the following.

<unk> will help us make full approvals.

Two.

25% more of our.

The approvals that we're doing today.

It's just a huge amount and so to be able to say, yes in a full way to what someone wants and to price it correctly.

Our capture rates should really be the majorly impacted.

Hey, Joe This is Chuck I'll jump in and kind of kind of follow on Ross.

Demand is strong I mean, we talk about this 5 million pent up demand in units out there.

It's just a function of supply and as that supply comes on it's going to get back to.

Our target credit.

Score as well as in.

Our program so the Saar, which we watch the news our January New car Saar was projected at 15 million units.

Which versus December was 13 million units. So clearly the trough was in December and we feel good about where that new car inventory starts hitting.

The used is at 32 million units, which was flat to December . So so all of those are good facts that as we kind of we will see our business continue to grow with that in the future. So.

Sure Fair enough and then just kind of circling back to just guidance again and I'm sorry, if I missed it is there if you look at the low end I mean, you seem to be implementing a lot of things.

The terms and loan amounts.

New active implementations going on contracts.

<unk>.

Those are all clearly part of your guidance I would imagine.

As.

What do you have an assumption on on on the SAR on inventory levels at the low end and high end is that what would those be.

Yes, I think just what I kind of just went over and what the January Saar from new and used is in.

Warehouse recovered from the from the trough and we take all that in that data as well as our bottoms up work in our model and the new customers added as well as expanded wallet share from existing and all of that's part of the range. If you will.

Sure Alright, thanks, a lot guys.

Thank you.

Next question, Mike Grondahl with Northland Securities.

Yeah, Thanks, guys, Hey, Keith kind of two questions clarifying things a little bit.

With your extended terms going from 72 months to 84 months I think you said, you're expanding the loan amount to roughly how much higher is that going.

And then secondly on.

On OEM number three.

I thought on the last call you said that that pilot was gonna begin late January .

What are you basically saying that that's been delayed.

Because the new servicing platform from that vendor not in place.

And you don't know how long that delay it will be just trying to make sure I understand that.

Yes, yes, yes, Mike first of all on the loan amount.

The main increases in the loan amount are really within the indirect side, where we had.

Smart lower loan limits than we did on the direct but roughly or whatever we were doing before we're increasing approximately 30% to 35%.

A larger loan amounts and so.

And then but on the direct and refi that increases about 10 or 12, but it didnt and we're going to have the same loan amounts for all channels.

In there and and quite frankly, that's why on the indirect side the amount of loans that we countered last year compared to previous Tim Dimock, we're twice as much and so it's going to be a huge impact to us.

For that.

Regards to OEM number three the late January that we talked about was when device solution. We're going to begin the integration work and they told US It was a 60 to 75.

They build somewhere in there and so the pilot was supposed to start sometime in April or May.

And they have not finished their servicing work as of today and I don't think they will have that finished for the next.

A few months I can't really speak to that but but that was always a.

Something that we've had.

<unk> had to have in place before we.

Before our project would take place.

Got it okay. Thank you.

You bet.

Once again, if you would like to ask a question.

Press Star one on your telephone keypad.

Next question comes from John Davis with Raymond James.

Hey, good afternoon, guys I just wanted to start John maybe quickly on the competitive landscape I think last quarter you talked about.

Now.

Some of your peers.

We're at least.

Point of sale, we're being relatively aggressive on pricing.

Below rates that your lenders are willing to lend out so I'm, just curious with rates going up in expectation for Ford current losses, slightly increasing as well if you've seen that kind of calmed down or are people still being super aggressive some of your peers supercuts one price point so.

Oh, Yes, I think the last time and I am not sure. It was price remember I think we talked about was a flat flat that theyre paying they are paying as high as 400 basis points to get that money in the door for a full point.

I've not seen that stay out there I think that was a short term way to attract some money.

But yes, I think youre still going to have people out there paying rate markup versus a flat, yes, that's never been.

Any different than it is today from what I've seen.

Yes Ross.

Cost of funds is increasing and so we are.

We certainly are having to update our clients pricing.

When we work with them to meet that but.

Well, it's not as bad on the credit Union side as it is on right you might think from these places like when you have banks that are paying 40% in taxes.

<unk> got other funding sources that are attracting funds from private equity or other places like that that are higher cost.

Thank the credit unions, again, which I think is evidenced by the.

Extreme growth in our refinance channel and our credit Union volumes, continuing to grow because of that low cost of capital.

I just don't see that slowing down were some of the credit unions, we've talked about signing last quarter and you know what.

Implementing into this first quarter some of the four and $5 billion shops, not the $600 million credit Union. So.

I think that we're extremely well positioned to continue to grow in a great direction with just the main core business and are extreme amount of cash sitting on your balance sheets.

John as Chuck I'll jump in and Echo what John said is on the Apple even on application.

Flow at the company just from December to January sequentially were up 6% so from an application flow perspective.

Also the.

The originations in 2021 were $4 $3 billion that we originated in our average loan amount was about $25000 on that and that was that was over and above 2 billion and originations than in 2000 in 2020. So so obviously still a great demand in.

The platform in the program in an 82% growth in 'twenty one.

Yes.

Okay. No. That's helpful. And then maybe a couple of quick calls for you. Chuck first on I think you said Q1 search would be about 20% of the full year just want make sure I heard that right, which would imply kind of search roughly in line with.

With <unk> levels, and then I think you said that Sars for used cars would be roughly flat and up a little bit for for new car. So I just wanted to double check that the way to think about it as <unk> kind of being 20% of the full year collateral and double check that.

About 20% for Q1, and if you just think about the the.

The forecasting there.

Obviously the production is flat I mean, if you go back to some of the Oems that just reported.

They're basically flat Q1 and growing throughout the rest of the year. So obviously thats from the production units and forecasting, but yes, 20% from the midpoint. If you took that number that's roughly kind of what we're thinking for Q1.

Okay, Great and then just wanted to touch on on free cash flow here, obviously, I think the guide implies free cash flow above 100% this year, which is <unk>.

From 2020 , one so just.

I know there is some timing differences.

Here's a little bit funky, but just.

How should we think about free cash flow conversion going forward is 100% the right way to think about it just any other color around free cash flow would be helpful.

Yes, I think the adjusted operating cash flow, which is a proxy for free cash flow that we reported it is even in our our guide Jon I think thats a good proxy to look at in the.

The difference between that and.

EBITDA. If you will is as you said the accounting 606 is on an accrual basis and that profit share. It comes in on a on a monthly basis.

Cash and.

Obviously, we have taxes and interest on that as well, so but I think I think adjusted operating cash flow is a good proxy for that for you.

Okay, Alright appreciate it guys. Thanks.

Thanks, John .

Next question, James Fawcett with Morgan Stanley .

Great. Thank you very much.

To touch on really quickly.

As we look at the.

I appreciate all your detail that you've given on an assumptions around search et cetera, I'm wondering how you're thinking about the normalization of delinquencies across consumer products in recent months, how that affects the way you are looking at the profit share for the coming year and it sounds like youre expecting to get some benefit as well.

<unk> not be hit by extending to two longer term loans et cetera can you just give a little more color and detail on how youre thinking about the profit share components.

And the different components the different pieces that go into that.

Yeah, Hi, James This is Chuck.

The profit share, obviously defaults and severity defaults in prepaid speeds are the big drivers of that in our assumptions.

Any changes we may have an estimate to under ASC 606, but.

I think we've seen a period of low defaults and low severity and.

As the book continues to perform better than our assumptions in the model. We will have those positive changes in estimate and which we had won in Q4. It was about $6 5 million Bucks.

But we did in the quarter put some additional stress on an accelerating some pre phase out into 'twenty. Two so but when you think that $5 50 to 600 to serve as a good estimate for profit share as you model and think about the business going forward into 'twenty two.

Great I appreciate that detail that's great and then the second question I had is just like how are you thinking about needs to invest.

To kind of keep your underwriting model.

Ahead of where our competition may be going or just changes in the market generally.

Etc is that is that an area, where you feel like you're investing at appropriate levels today or what would cause a change in the level of investing and making and not part of the the capability in operations.

Yes, James This is Ross yes.

We actually have been working with a couple of different parties look to.

To look at our score current scorecard to do some regression testing to look at additional.

Underwriting variables alternative data models that we can.

Basically add to what we currently have been doing and looking at what the lift would be what what deals that we would kick out that that we were doing.

Before and what those results would be and then mainly a lot of those loans that were saying no to today.

We were able to look and see how they performed over the last three years had we had this scorecard in place.

That's exciting so we have that teed up and we basically.

First thing we wanted to do is get with our insurance carriers to make sure that we got our loan limits in terms of.

We wanted to be we got that going on.

And we've got that.

<unk> being done in the next 45 days and the next phase is basically this news.

LP LP to point out.

Scorecard that we look to have.

We've made some investments we've got this additional retirement, but.

We will be coming out with that enhancement here.

Mid year.

That's awesome, that's great detail and nuance color guys appreciate it.

Thanks for the thanks James.

Thank you I would like to turn the floor over to John for closing remark.

Thank you operator.

I guess I just want to thank everybody for taking the time to listen in and you have these great questions. As you can tell we are extremely excited about what the past year, what we've accomplished and where we think we're taking the company into 'twenty two so stay tuned in.

To keep the questions comment. Thanks, Thanks, everybody have a great day. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

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Good afternoon, and welcome to open lending fourth quarter 2021 earnings call.

As a reminder, today's conference call is being recorded on the call today are John Flynn, Chairman and CEO and Ross Joseph.

President and CEO and Chuck deal.

Sure.

Earlier today, the company posted its fourth quarter 2021 earnings release.

Its investor Relations website.

In the release, you will find reconciliations of non-GAAP financial measures.

To the most comparable GAAP financial measures discussed on this call.

<unk>, we begin I would like to remind you that this call may contain estimates.

And other forward looking statements that represent the company's views as of today.

February 24 2022.

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.

Differ materially from those expressed or implied by such statements.

And now I'll pass the call over to you John for opening remarks.

Thank you operator, and good afternoon, everyone. Thanks again for joining us for open lending fourth quarter 2021 earnings conference call.

I'd like to begin today by reviewing our fourth quarter as well as our full year 2021 highlights and the progress we've made on our growth objectives.

Ross is going to discuss the auto manufacturing in lending landscape.

Then finally, Chuck is going to review, our fourth quarter financials and discuss our outlook for full year 2022.

Now I'd like to start with our high level financial review of the fourth quarter and full year results.

We're very pleased to report another very strong quarter at open lending Q4, 'twenty, one certified loans increased 59% to 42639 as compared to the fourth quarter of 'twenty.

We also reported revenue of $51 6 million, which was an increase of 30%.

And adjusted EBITDA of $36 6 million, which was an increase of 47% as compared to the fourth quarter of 2020.

We also saw incredible growth in 2021, with an 82% increase and certified loan growth.

98% increase in revenue and 123% increase in adjusted EBITDA for the full year 2021 compared to 2021.

We also added 71, new customers in 'twenty, one which was up from 55, new accounts in 2020 <unk>.

The average size of the lenders that signed up in 2021 exceeded $1 $2 billion in total assets and I think this demonstrates the value proposition of our platform and our continued momentum as we head into 2022.

We're also very encouraged by the continued growth on our credit Union and bank lines.

We achieved an 82% year over year increase in search for the fourth quarter of 'twenty one.

This was driven in part by the addition of new accounts, including some that are preparing for seasonal compliance by year end.

Further penetrating existing customers through wallet share.

And continued expansion of our refinance program.

First on the new customer side.

We signed 18, new accounts in the fourth quarter and three of these were tier one accounts.

<unk> has over $1 billion in assets.

Of the 71, new accounts signed in our full year 2021, 19 institutions have total assets over $1 billion.

Momentum has also continued into 2022 with seven new contracts signed to date and approximately 15 active implementations underway. So far this year.

Many of the inbound calls that were getting from larger credit unions.

Related to the fact that they have less than one year to comply with seasonal.

Those of you not familiar with CSL stands for current expected credit losses and is a GAAP accounting standard which is applicable to many of our lenders which will require adoption during 2022.

As a reminder, lenders protection can provide lenders with a preferential approach to see saw compliance.

Earlier. This month, we hosted an executive steering Committee meeting, where we had executives from our largest credit union customers come to Austin to discuss how open lending can help them further grow their respective auto portfolios, but the real focus on prime decisioning and the importance of CSR.

Yes, it became very clear from these discussions.

Lending partners are looking for new ideas.

How to grow their auto portfolios through expansion of their offerings in the face of chip shortages and depleted new car inventory.

Working on a few initiatives that we plan to rollout this year to assist them in these efforts.

We are also in the process of setting up another webinar with KPMG, which is similar to the one we hosted last year, which we'll discuss CSR compliance and the approach and compliance timeline for credit unions.

Now I'd like to move on to our existing customer side or <unk>.

Top 10 customers, excluding Oems have increased their certification volume by 193% in 2021 as compared to 2020.

During the quarter, we continued to add new credit unions and banks to the refinance program.

During Q4, we on boarded for new accounts to the refinance program with our volume, reaching nearly 35% of our total search in the fourth quarter of 'twenty one.

As a result of our flexible business model, our refinance channel is accommodated consumers.

Allowing them to modify their existing terms and lower their payments.

Program is one way, we've been able to help offset the temporary headwinds that's associated with the affordability due to inflated used car values and inventory shortages.

Mr continuing to impact our sales, both new and used.

Ross will touch more on this topic in a few minutes.

Credit Union funding sources will continue to have the lowest cost of capital.

Wowing them to offer much lower rates than your typical near and non prime lender in the marketplace.

Continue to see consumers saving as much as 100 to $150 per month are reducing their interest rates by approximately 400 to 500 basis points.

I finally like to provide you with an update on our other long term growth initiatives.

We're sitting on an unbelievably valuable data asset, which makes us very unique to our clients compared to peers in the marketplace.

Secondly, the market, we target is massive and we've only scratched the surface at this point.

We've delivered strong results in 2021, highlighting our resilient business model.

Due to all of these points were making strategic investments to further capitalize on the market potential once things normalize.

Some of these are areas of investments this year will be our go to market sales strategy with new dedicated sales team members to capture more of the Tam and the expanding our account management staff to continue focusing on expanding wallet share with existing customers.

We're going to dig into the bank space with key hires with core experience in bank auto originations and underwriting.

We're exploring other markets for geographic expansion like Canada.

And then finally, we will be investing in technology further enhancing lenders protection platform for our lenders.

That I would like to go ahead and turn it over to Ross.

Havent give you his update.

Thanks, John clearly are a powerful industry, leading credit union customers and exclusive insurance carrier partners.

The power performance through temporary bottlenecks and ever changing financial conditions in the industry, a testament to the strength of our business model since 2000.

Today, I will highlight three things one the.

And near term U S automotive market conditions and outlook to commercial activities with our industry, leading OEM customers and prospects.

And three progress with our current insurance partners.

In regards to current and near term U S automotive market conditions and outlook as we ended the quarter. We entered 2022, we began to see signs of incremental improvement in a variety of indicators.

Based on our assessment of end market conditions, we remain optimistic that the toughest headwinds facing the industry are behind us and we began navigating through the upcoming year more specifically dealer networks across the country, our reporting improving inventory.

Pricing presale orders velocity of pent up demand conditions in terms of.

Inventory for illustration, a representative leadership carries 500 vehicles on hand before the pandemic began solar inventory declined almost 80% of their low point.

This view of the 100 vehicles on the lot and.

In comparison, while still not it will be below the typical historical average leaderships of this size are seeing an improved rate of restocking.

And almost a doubling of vehicles off the bottom.

They now have closer to 200 vehicles in their inventory.

In terms of pricing at the peak of the inventory shortage dealers reporting that vehicles coming off lease after three years, we're selling above their original MSRP 36 months later.

In comparison, while still very much elevated we are now seeing a moderation in the rate of increase in pricing.

This is a dynamic that we'd open lending have witnessed in prior cycles, namely as inventory rebuilds pricing will begin to moderate.

As for presale orders over the past 20 months as showrooms stock was depleted many dealers adjusted to satisfying the buyer behavior with pre sold orders.

In fact at the inventory drop pre sold orders could have made up anywhere from 80% to 90% of all orders.

In comparison, our SaaS, while presale orders are still well above historic levels.

Now make up less than 50% of order flow and the dealerships.

Another item is velocity.

It's a metric that we monitor is the rate at which the dealers are turning over their inventory monthly as a measure of end market strength.

Historically, many dealer would drive towards a 50% to 70% range.

In comparison, many are currently above 150% further evidence of the market forecast over $5 million, a pent up demand.

Now continuing with the pent up demand.

<unk> the most of our blending it.

Segment of the consumer auto buying market that were underserved during this period of mine supply.

With inventory down 60% year over year.

Based on our data it is clear that the limited supply of vehicles available for sale are being sold the cash and prime buyers.

As many dealers delivered their highest profit margins in history.

This shortage not only affected new vehicles, but used as well the average used vehicle is the sales prices over 40%.

Year over year. This results in making even used cars less affordable, particularly impacting the near and non prime borrower, which are lenders protection program traditionally served.

In addition.

<unk> spending per unit in January was 14 $879.

Much less than the 3400 $50. It was in January 2021.

Brokered lending during this.

We have unprecedented low incentives.

<unk> of our subvention offering.

It can be less impactful until the pricing moderates further.

Now for commercial activity in regards to our industry, leading OEM customers partners and prospects.

In terms of industry, leading OEM captive customers.

We're very proud to have two of the most powerful automotive brands as our top customers as they are powered through the market challenges globally.

Of course, our customers are not immune to the shortage and have seen their loan volumes decrease in 2021.

We track, our volume as compared to theirs and similar credit tiers.

For 2021, our volume as a percentage of their has remained at a consistent level.

We look at this as a positive sign that as the supply continues to ramp towards normal levels, our volume to increase proportionately.

In fact, there should even be more opportunity for us since near and non prime customers.

Notably underserved over the past year.

We continue to engage weekly with top leadership at our OEM captive customers and their partners on our strategic growth operational issues and opportunities. So that they are well positioned as the market recovers.

Now for our insurance carrier.

In an effort to improve affordability for borrowers and after getting feedback from our clients. We are expanding our program offerings for both loan amount and term limits, while maintaining our discipline and rigor and underwriting.

The increase in loan amount and the new 84 month term should have a positive impact on our lending capture rate.

For example in 2021, we countered twice as many applications asking for a larger loan amounts than.

And then we did pre pandemic. Additionally.

Additionally, more than one third of our applications requested terms in excess of 72 months last year.

Likelihood.

Capturing an application on a counter it's much less than one asked requested.

The additional term offering will effectively resulted in lower monthly payments for qualified borrowers.

Which should also positively impact our capture rates without increasing our exposure.

We plan to roll this out in the next 45 days and Bergland and believe this will help drive continued growth in search.

As you know expanding our insurance partner relationships has been a key growth opportunity for us.

As reflected in our recent press release, we expanded the term on the Amtrust agreement.

Adding five years to the existing term now through 2028.

We continue to make solid progress with the fourth insurance geared and look forward to providing more detailed in the near future.

As far as loan origination systems, we recently announced an expanded partnership with the POS solutions, our loan origination software for captive consumer finance companies banks and credit unions.

The integration is currently available.

Ask companies.

On the Dubai LLS platform and the expansion includes an integration with our lenders protection platform for captives via the <unk> originations product, which will become available in the second quarter.

This means that essentially one click of a button any client can start using <unk>.

We believe this accelerates our opportunities to grow through both our OEM and non OEM business now.

Now I'll turn it over to Chuck to discuss our Q4 financials.

Outlook for 2022.

Thanks, Ross despite all the macro headwinds John and Ross mentioned, we were pleased to report 2021 financial results that beat our expectations for the year.

For the full year as compared to 2020 total certified loans increased to 82%.

Total revenue increased 98%.

Gross profit increased approximately 99% and adjusted EBITDA increased to 123%.

In 2021, we signed 71, new contracts with other lenders compared to 55, new contracts signed in 2020 with a continued focus on larger institutions in 2021.

During the fourth quarter of 2021, we facilitated 42639 certified loans compared to 26822 certified loans in Q4 of <unk>, a 59% increase year over year.

We executed 18 contract with new customers and in addition, we have nearly 15 active implementations with go live dates in the next 60 to 90 days.

Total revenue for the fourth quarter of 2021 increased 30% to $51 6 million as compared to $39 6 million in fourth quarter of 2020.

Profit share revenue represented $31 2 million of total revenue.

Graham fees were $18 5 million in claims administration fees were approximately $2 million.

Now, we'd like to further break down the $31 2 million and profit share revenue in Q4.

Profit share associated with new originations in the fourth quarter of 2021 was $24 7 million for $580 per certified loan.

As compared to $18 4 million or $686 per certified loan in the fourth quarter of 2020.

As a reminder, in April of 2021, we transitioned back to pre Covid normalized underwriting standards.

Were put in place in 2020.

Therefore, our average profit share unit economics in the fourth quarter of 2021 are now comparable to pre COVID-19 profit share economics.

This change in underwriting standards has improved our closure rates.

Driven record certified loan volumes and expanded our competitive positioning in the market.

Also included in profit share revenue in the fourth quarter of 2021 was a $6 5 million change in estimated revenues from certified loans originated 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 and lower claims severity.

Gross profit was $46 9 million in the fourth quarter of 2021, an increase of 48% driven.

Driven primarily by increased certified loans in the fourth quarter of 'twenty, one as compared to $20 and gross margin was nearly 91% in the fourth quarter of 2021 compared to 93% in the fourth quarter of 2020.

Selling and general administrative expenses were $11 7 million in the fourth quarter of 2021 compared to $12 4 million in the previous year quarter.

Operating income was $35 2 million in the fourth quarter of 2021 compared to $24 3 million in fourth quarter of 2020.

GAAP net income for the fourth quarter of 2021 was $27 8 million compared to $15 2 million in the fourth quarter of 2020.

Finally, adjusted EBITDA for the fourth quarter of 2021 was $36 6 million as compared to $24 8 million in fourth quarter of 2020, an increase of 47%.

There is a reconciliation from GAAP to non-GAAP financial measures can be found at the back of our earnings press release.

We exited the year with $318 8 million and total assets of which a $116 5 million was unrestricted cash and $113 million was in contract assets with $65 5 million and net deferred tax assets, we had $159 8 million and total liabilities of which a 100.

$46 3 million was in outstanding debt.

We had approximately $126 2 million shares outstanding at December 31, 2021, and we posted an updated investor presentation and fourth quarter, earning supplement to our Investor Relations website, which includes a slide that lays out our current slide or excuse me our current share count.

Now moving to our guidance for 2022.

Based on fourth quarter results and trends into early 2022, we're setting our guidance ranges for full year 2022 as follows.

It'll certified loans to be between 195002 hundred 25000.

Total revenue to be between $210 million and $240 million adjusted.

Adjusted EBITDA to be between $135 million and $160 million and adjusted operating cash flow to be between $140 million $165 million.

Despite the near term headwinds as dealer inventories restocked, we are confident in the resiliency of our business and the ability to navigate through the supply and affordability constraints.

In our guidance, we took the following factors into consideration.

Portability index for our target credit score of $5 60 to $6 80, due to continue inflated used car values the global semiconductor chip shortage.

Oems that have streamline their supply chain as we move toward just in time manufacturing processes.

Disruption in transportation networks, and raw material shortages.

Low levels of dealer inventory.

And investments, we plan to make into the business, which John referenced earlier.

With that now I'd like to turn it back over to John to make a few closing comments.

Thanks Chuck.

Before we jump into Q&A I wanted to take a few seconds.

And highlight a few things.

We here at open lending have had to navigate through periods of low supply and elevated pricing in prior economic cycles and did so very well.

The Covid pandemic presented new challenges, we do see signs of incremental improvement.

Specifically as we've experienced in our history, we've seen the utility and value proposition of our service offerings become even more relevant to our customers during inflationary periods in rising rate environments.

Point I wanted to make there.

For instance, many credit unions are still setting on notable excess cash today <unk>.

<unk> evaluate investment alternatives. They are faced with a three year treasury yield. It is currently a 170 basis points.

Contrast, after taking into consideration there are approximate 60 basis points cost of funds our lenders protection program results in a yield as high as 250 basis points, providing a two times return with a much better risk adjusted profile.

In addition, they are.

In turn helping their members lower their cost of financing, which is consistent with their core mission.

So with that I'd like to thank everyone for joining us today for our fourth quarter 2021 earnings call and we'll now take your questions.

Thank you we will now be conducting a question and answer session.

I would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.

Your first question comes from David Scharf with JMP Securities.

Yeah.

Good afternoon, and thanks for taking my questions.

And then obviously.

More than a handful of.

Unique macro and industry headwinds youre battling it's great to.

See that you are seeing some evidence that the trough is in the rearview mirror I'm wondering.

A couple of things related to the guidance.

Hoping you can provide just to give us a sense on.

Where you see a lot of the demand coming from the.

First is.

Obviously, the pivoting to refi mix has been.

Very helpful and as you know <unk>.

Remediated some of the other weakness.

Are you seeing with rates moving up now.

Any impact on refi applications is it putting any downward pressure.

In the last few months and obviously, we're going to have more fed action going forward.

No actually.

What we have found over time, David is that Youre always going to have as rates go up these consumers are being subjected to higher rates outside relative to credit unions can continue to offer.

Credit unions have such a low cost of capital.

They're always going to have the lowest game in town.

When you look at the rates that you see from like an exit or a santana are any of these.

Near Prime non prime lenders that.

These consumers have been subjected to their rates are going to be into 'twenty one.

$19 18 range and when credit unions are coming back with 11 and 12.

There is always going to be that opportunity and when you look at that $250 billion Tam that we continue to talk about.

And the fact that we've only done like $4 billion worth of loans last year.

It's still just a huge.

<unk>.

Pool of applications flowing through that.

I don't see that slowing down and I don't see the value prop diminishing at all.

Yes, and David as Chuck I'll jump in and.

150 in prior cycles, where we've seen a rising rate environment 150 basis point increase in rates just makes as John said, our program, even more appealing to the consumer and to the credit unions.

The other part I think that drives that is.

Occasionally you'll see credit unions might run up against.

Limits in their lending policies and things like that and one of the things that all of this excess cash is creating and I.

Kind of alluded to it in a closing remarks, a little bit when you have credit unions that are huge influx of cash coming in they're.

Theyre not real risky investors there are limited by NCUA as to what they can invest in and you'll find most of those credit unions looking for like a three year treasury.

And when I alluded to that 170 basis points now thats the yields are going to get on it well when you back out the 60 basis points, they are paying to get money in the door.

There are only generating 110 net yield on that.

Our program if priced right.

Get them, a 250 basis point net ROA with that same three year duration.

I think.

They're always looking at different ways to put that that excess cash to work.

And going back to you on our credit unions were even form for which is to help serve the underserved.

Great way to get more people to work.

A better asset class, that's a three year average life.

Just solve that problem of where theyre going to put their cash.

Got it no. That's helpful perspective, maybe just a follow up.

Just digging into the numbers a little bit of I'm curious when I look at the midpoint of the EBITDA and revenue guide.

I come up with a margin thats in the mid sixties kind of reverting back to pre pandemic levels.

And.

Yeah.

If I were to.

Pinpoint the primary reason is it more credit normalization meeting a return to more normalized profit sharing levels or is it attributable more to increased investment spending.

Yes, David.

Our guidance.

You're right on the margin profile.

When the guide its about 65% EBITDA margin.

Obviously prior to the pandemic in the pandemic, we had the higher profit share and that was about about $100 per <unk>.

Incremental profit share.

Six $676 80 down to five.

<unk> hundred 80 this quarter. So so thats some of it is just the unit economics and the profit share as well as the program fee unit economics as is year over year is down a bit but thats just the.

Based on large customers and the volume discounts that they receive.

For the program fee for the technology fee. So so that's really what it is but we feel good about a 65% roughly plus.

Margin profile in 2022, and and and Thats, John mentioned investments in the business in sales and marketing and technology and and that's that's built in as well. So so feel good about where we're heading into 'twenty two and the opportunity.

Great great. Thanks very much.

Thanks, David.

Next question comes from Peter Heckmann with D. A Davidson.

Yeah.

Hey, good afternoon, Thanks for taking my question.

You May have stated it and I may have missed it but could you give a little bit of color.

On each of your two current OEM customers.

Maybe talk a little bit about how they perform either year over year or sequentially. Just so we can think about the relative contribution.

Okay.

Ed.

Basically when we track their overall.

Yes.

The amount of loans that they do in a certain credit score that we kind of stimulate.

It seemed like back in March April 'twenty, one was kind of their high watermark and.

And we're right there with the same percentage of that high watermark that we.

We have seen in the recent months and so.

The good thing about it is.

Peter It's like we're doing the same portion of loans were just to kind of the.

We actually are just we have to follow them, we don't generate day. The applications. We just basically are there taken.

Whatever.

We get of their business and is consistent what we are finding is that.

Credit scores and those kind of trends look very appealing that yes, we're going to have a pent up demand and when whenever their numbers start to increase.

We certainly hope and we believe that our percentage of that is actually going to be a larger percentage with that pent up demand that underserved consumer that is out there that now we can actually help.

And Pete.

Just from a performance perspective, just Q Q4 of 'twenty one over 'twenty.

Don't spike out OEM, one or two separately, but the Oems quarter over quarter were up three 5% and then for the year about 129% and as you recall in 2020 OEM to cease to producing there for about five months. So so obviously good results considering the headwinds in the inventory.

And the supply. So then you have great relationships with both OEM wanted too.

And what we're seeing also on the on the North American production forecast for this next year is going to be up 17%.

From a from 22% compared to 21 so.

So another positive.

That's good that's good okay and then.

Could you give us a little bit of an update on the OEM.

OEM pipeline I think last quarter, you talked about signing a deal with EE integration partner for OEM number three and it seemed like that was tracking towards yes, certainly making progress however.

How would you characterize.

That one at this point.

Yes.

Yes.

We did a press release with <unk> solutions about our integration, there's multiple benefits of that integration not just from our prospects dam for the OEM, but.

Some of our other customers as well that use that.

We always said that there was a pecking order of priority that had to take place.

And the the what always was in front of us as a new servicing platform that device solution is working on.

And they have not completed that yet so we expect that.

<unk>.

We will follow that once it's actually completed and implemented and we don't really have.

Anything that we can say is what it's going to happen, but it is delayed but we are encouraged that our conversations are remaining in.

In place.

And.

We still have a pipeline that we're that we're very active in these discussions and these.

These.

Everybody is focused on the inventory the effect they are having small losses today, but they all recognize that there's a huge need to focus on where those losses are going to be 18 to 36 months out whenever the car values to get down to.

Lower level.

And as those losses are naturally going to increase.

Okay, Okay, but nothing has fallen out of the.

Qualified pipeline.

Nothing has fallen out at all.

Great I'll get back into queue. Thank you.

Alright. Thank you thanks Craig.

Next question.

Well Steven.

Hey, Thanks, good morning, or afternoon Monday, Thanks for taking my questions.

That's done.

<unk> yeah. So I appreciate your your guidance ranges and I was just wondering if you could talk about the variables to get you to the different points behind that the low end of the range for example.

Just trying to see how conservative maybe the low end of the ranges. When you think about OEM production supply chain issues and all of that if you could talk about the different points of the ranges. Thank you.

EBIT Hey, Vincent.

Maybe to start with the guidance inputs, obviously as we were building the guidance for 'twenty two.

Portability for the target buyer continued inflated car values, obviously went into it the chip shortage in the inventory.

Also we believe the inventory levels are recovering and from our growth in perspective, we don't give quarterly guidance, but we just point to the midpoint of if you think about.

Q1, maybe 20% of our overall growth of search for the year just to give you a little flavor there.

It's a little more backend loaded on the growth for 'twenty, two as things recover and dealers restock, if you will but a lot of the drivers to the high end.

Ross talked about the 84 month term.

We're going to on our loans as well as expanded loan amount.

And it's just it's really just the inventory and the affordability and how things recover to the high end of the range.

Just more of a faster pace, if you will how fast the inventory and the and the restocking happens. So I was just kind of from the low to the high but the midpoint is 22% growth for certified loans.

Both revenue and certified loans.

We feel good about 'twenty, two and where we're headed yes, I think that what we've talked about on the underwriting changes. We are really excited about we started back in.

The end of Q3 Q4, we had.

Lindsay round table, we had over 100 credit unions and some banks, there and we listen to them and we were able to get that approved by our carriers I mean, just the fact that.

Third of our applications are asking for over 72 months and we weren't able to do it before so you got to think about now being able to do a full approval.

For larger.

Larger loan amounts.

Higher terms and we are of course are our pricing it with the right premium so we can.

Definitely keep the loss ratios, where we have enjoyed in.

Historically Atlanta, so it is really important to us.

That too.

It does not impact negatively our underwriting at all.

And I think that the point that Ross just made.

There was an extensive studies done on the performance of 84 months versus 72, particularly in the near Prime space that we live in.

It showed that the default rates were better than 84, then some 72 month loans in these consumers. It's all PPI driven not scored revenue and the fact that you can get them into an.

And affordable payment to keep them in the car.

Ross's point I don't think were diminishing whatsoever, what the profit share will end up being as a result of that I think that's only going to help grow that side.

And Vincent I'll jump back in on the other inputs that we look at as I think I mentioned it when Pete previous question about North American production. If you go back to the pandemic during fiscal 'twenty. There were 13 million units, which was down 20% and then if you fast forward into 'twenty, one it's pretty flat at 13 million units.

What we're seeing in 'twenty, two and the forecast for the North American production is $15 2 million, which is up 17% and then 'twenty three is forecasted at $17 million production units. So thats another 13%. So if you think about it.

The higher the low range, that's definitely an input and how fast that happens.

Okay. That's very helpful. Thank you so would it be correct to say that I guess, the low end of the range is sort of more of the same of what we've seen but the high end of the range is sort of the actions you're taking for for example, the.

The terms and.

The terms of the size of the loan and all the other things that you're.

Kind of controlling in order to grow.

Okay. That's fair I think that's fair.

Okay. Thank you for that.

Second wanted to refi channel. So it's exciting to see that actually expand from here and I think it doesn't get as much attention, but maybe if you could talk about that when you think about your 2022 expectations and also.

The margins on that product I don't think.

Close to that one, but if you could talk about that.

Opportunities there when you think about <unk> as well as the profitability of that business. Thank you.

Yes.

It's priced exactly as any of our other business. We have our program fee that is the exact same thing as it is for direct or indirect.

The premiums are priced.

Based on the performance of that loan so that the actual unit economics of each one of those transactions are identical to any other part of our business.

Will it perform exactly as direct or indirect we've got a price like our direct loans, but we always have the ability to change premium rates, if we see that thats not.

The way it's trending to at this point, that's been very favorable on that side.

We drive a lot of our funding clients toward these refinance channels.

Cause if you look at.

The economics to the financial institution.

When I go out and do an indirect loan they're going to pay at least two points to a dealer to get that paper in the door.

They are paying.

A similar fee the refinance channel as they are dealer, but they are getting a lot more volume without even having to processed alone because thats all processed on their behalf. So the funding sources love. It we get the same unit economics, and the consumer gets a much better deal than they got the first time around when they bought the vehicle.

Okay. That's that's helpful I guess.

That's helpful data.

Sure.

I guess I'm wondering in terms of the opportunity for refi as you outlined is very large again that 250 billion Tam and it seems like.

It makes sense for the customer to get it.

Save that 500 basis points plus.

You kind of go around the inventory and supply chain issues once a customer already has the car anyway. So.

I guess I'm wondering what's the governor to executing more rapidly on the on that Tam opportunity as you're as you're rolling that out. Thank you.

Well I think you'll see that that's been growing very rapidly over the past year.

I don't think that we have any kind of a governor provide.

Providing slowing us down.

We're doing is we've got our existing sales force when they find some time to not be selling new business.

To use their account managers to get back into our existing funding sources.

The one thing that might be a governor to it.

It's really more suited for the larger credit unions that have a national footprint.

Not every credit Union can accept a new member from just anywhere in the country. Yes. They had the kind of qualify for that they live in a certain county or a certain state. So our main focus is targeting to larger shops that have a bigger footprint that can afford to take on these members, which I think is evidenced.

Bye you probably heard us talk about <unk> being one of the bigger funding sources on that side that went from 700 deals early last year to 3000 deals at the same time. This year. So I think that's just targeting the right size account that has that field of membership that can accept that consumer.

Okay great.

Helpful I'll get back in the queue. Thank you.

Thanks Vincent.

Next question Joseph <unk> with Canaccord Genuity.

Hey, guys, Hey, guys good afternoon.

<unk> on all the good execution.

So it was a tough environment in 'twenty, one I was just wondering.

Couple of questions I know Ross you were mentioning their dealerships now have more like 200 cars on the lot.

Is there a level you think when that dealership number.

When that inventory in a lot really starts to help accrue back to your model.

Less on perhaps a pre sold or just.

Buyer scooping up the cars for the near Prime guys get a chance.

We have to be back at three or 400 before you really kind of back in.

A good position relative to what youre offering and how your customers fit in the pecking order in the dealership and then I'll have a follow up.

You bet Joe.

Great Great question I don't think the world of 600 cars on the lot top 600 cars a lot are going to happen again, and we're not we're not counting on that but I do think you've kind of hit the nail on the head I think.

Going back to worse about double where they where they are today and I think the just in time manufacturing and the pre sold orders.

Clearly you know whenever they make a car today, that's not a new purchaser that typically the free sale. So I think that's the first thing I think that.

We track the Manheim.

The index in the forecast very carefully.

And we do see cars declining in value.

Sure.

Several months.

Years until we get to but it's not going to be a fast decline.

Because you've got to get the lease market back to where it's an order.

But I think we definitely are encouraged by what we're seeing.

<unk>.

We think the latter part of this year, we should see Incrementals every quarter latter part this year and going into next year is to work with our growth and our ability to capture is going to be tremendous I mean, just the fact that that the two underwriting rule changes that are going in place.

Some next month some the following.

We will help us make full approvals.

Two.

25% more of our approve.

The approvals that we're doing today.

It's just a huge amount and so to be able to say, yes in a full way to what someone wants and to price it correctly.

Our capture rates should really be the majorly impacted.

Hey, Joe This is Chuck I'll jump in and kind of kind of follow on Ross.

Demand is strong I mean, we talked about this 5 million pent up demand in units out there.

It's just a function of supply and as that supply comes on it's going to get back to.

Our target credit.

Score as well as in our program so the Saar, which we watch the news our January New car Saar was projected at 15 million units, which versus December was 13 million units. So clearly the trough was in December and we feel good about where that new car inventory starts hitting.

Used is at 32 million units, which was flat to December . So so all of those are good facts that as we kind of we will see our business continue to grow with that in the future. So.

Sure Fair enough and then just kind of circling back to just guidance again and I'm sorry, if I missed it is there.

You look at the low end.

You seem to be implementing a lot of things.

Terms.

Loan amounts the number of new active implementations going on contracts.

Those are all clearly part of your guidance I would imagine.

Yes.

What do you have an assumption on on on the SAR on inventory levels at the low end and high end. It is that bill what would those be.

Yes, I think just what I kind of just went over and what the January Saar from new and used is in.

And where has recovered from the from the trough and we take all that in that data as well as our bottoms up work in our model and the new customers added as well as expanded wallet share from existing and all of that's part of the range. If you will.

Sure Alright, thanks, a lot guys.

Thank you.

Next question, Mike Grondahl with Northland Securities.

<unk>.

Hi, yes, thanks, guys.

Two questions clarifying things a little bit.

With your extended terms going from 72 months to 84 months I think you said, you're expanding the loan amount to roughly how much higher is that going.

And then secondly.

On OEM number three.

I thought on the last call you said that that pilot was going to begin late January .

What are you basically saying that that's been delayed.

Because the new servicing platform from that vendor not in place.

And you don't know how long that delay it will be just trying to make sure I understand that.

Yes, Mike So first of all on the loan amount.

The main increases in the loan amount are really within the indirect side, where we had.

Small lower loan limits than we did on the direct but roughly or whatever we were doing before we're increasing approximately 30% to 35%.

Larger loan amounts and so.

And then but on the direct and refi that increases about 10 or 12, but it didnt and we're going to have the same loan amounts for all channels.

In there and and quite frankly, thats why on the indirect side the amount of loans that we countered last year compared to previous Tim Dimock, we're twice as much and so it's going to be a huge impact to us.

For that.

Regards to OEM number three the late January that we talked about was when device solution. We're going to begin the integration work and they told US It was a 60 to 75.

Dave build somewhere in there and so the pilot was supposed to start sometime in April or May.

And they have not finished their servicing work as of today and I don't think they will have that finished for the next.

A few months I can't really speak to that but but that was always a.

Something that we've had.

<unk> had to have in place before we.

Before our project would take place.

Yes.

Got it okay. Thank you.

You bet.

Once again, if you would like to ask a question. Please press star one on your telephone keypad.

Next question comes from John Davis with Raymond James.

Okay.

Hey, good afternoon, guys I just wanted to start John maybe quickly on the competitive landscape I think last quarter you talked about how.

Some of your peers.

We're at least.

So we're being relatively aggressive on pricing.

Below rates that your lenders are willing to lend out so I'm, just curious with rates going up.

Expectations for forward current losses, slightly increasing as well if you've seen that kind of calmed down or are people still being super aggressive some of your peers Supercuts, one price point sale.

Yes, I think the last time and I am not sure. It was price remember I think we talked about was a flat flat that theyre paying they are paying as high as <unk>.

400 basis points to get that money in the door for a full point.

I have not seen that stay out there I think that was a short term way to attract some money.

But yes, I think youre still going to have people out there paying rate markup versus a flat, yes, that's never been.

Any different than it is today from what I've seen.

Yes, Ross I think.

Cost of funds is increasing and so we are.

We certainly are having to update our clients pricing.

When we work with them to two.

Meet that but.

Well, it's not as bad on the credit Union side as it is right.

You might think from these places.

When you have banks that are paying 40% in taxes.

<unk> got other funding sources that are attracting funds from private equity or other places like that that are higher cost.

I think the credit unions, again, which I think is evidenced by the.

The extreme growth in our refinance channel and our credit Union volumes, continuing to grow because of that low cost of capital.

Just don't see that slowing down were some of the credit unions, we've talked about signing last quarter end.

Implementing into this first quarter some of the four and $5 billion shops, not the $600 million credit Union. So.

I think that we're extremely well positioned to continue to grow in a great direction with just the main core business and their extreme amount of cash sitting on your balance sheet.

John as Chuck I'll jump in and Echo what John said is on the Apple even on application flow.

At the company just from December to January sequentially were up 6% so from an application flow perspective.

Also.

The originations in 2021 were $4 $3 billion that we originated in our average loan amount was about $25000 on that and that was that was over and above $2 billion and originations than in 2000 in 2020. So so obviously still a great demand in.

The platform in the program in an 82% start growth in 'twenty one.

Yes.

Okay. No. That's helpful. And then maybe a couple of quick falls for you. Chuck first on I think you said Q1 search would be about 20% of the full year just want make sure I heard that right, which would imply kind of search roughly in line with.

With <unk> levels, and then I think you said that Sars for used cars would be roughly flat up a little bit for for new car. So I just wanted to double check that the way to think about it as <unk> kind of being 20% of the full year's cholesterol and double check that.

About 20% for Q1, and if you just think about the.

The forecasting there.

Obviously the production is flat I mean, if you go back to some of the Oems that just reported.

They're basically flat Q1 and growing throughout the rest of the year. So obviously thats from the production units and forecasting, but yes, 20% from the midpoint. If you took that number that's roughly kind of what we're thinking for Q1.

Okay, Great and then just wanted to touch on on free cash flow here, obviously, I think the guide implies free cash flow above 100%. This year, which is a step up from 2020 one so just.

No. There is some timing differences the accounting here is a little bit funky, but just how.

How should we think about free cash flow conversion going forward is 100% of the right way to think about it just any other color around free cash flow would be helpful.

Yes, I think the adjusted operating cash flow, which is a proxy for free cash flow that we reported it is even in our our guide John I think that's a good proxy to look at and the difference between that and.

EBITDA. If you will is as you said the accounting 606 is on accrual basis and that profit share. It comes in on a on a monthly basis on cash in and.

Obviously, we have taxes and interest on that as well, so but I think I think adjusted operating cash flow is a good proxy for that for you.

Okay, Alright appreciate it guys. Thanks.

Thanks, John .

Next question, James Fawcett with Morgan Stanley .

Great. Thank you very much.

Wanted to touch on really quickly.

As we look at the I appreciate all your detail that you've given on an assumptions around search et cetera, I'm wondering how you're thinking about the normalization of delinquencies across consumer products in recent months, how that affects the way you are looking at the profit share for the coming year and it sounds like you are.

We're expecting to get some benefit as well or at least.

Be hit by extending to two longer term loans et cetera can you just give a little more color and detail on how youre thinking about the profit share components.

And the different components the different pieces that go into that.

Yeah, Hi, James This is Chuck.

The profit share, obviously defaults and severity defaults in prepaid speeds are the big drivers of that in our assumptions.

Any changes we may have an estimate to under ASC 606, but.

I think we've seen a period of low defaults and low severity and.

As if the book continues to perform better than our assumptions in the model. We will have those positive changes in estimate and which we had won in Q4 was about $6 5 million Bucks.

But we did in the quarter put some additional stress.

And accelerating some pre phase out into 'twenty, two so but when you think that $5 50 to 600 to serve as a good estimate for profit share as you model and think about the business going forward into 'twenty two.

Great I appreciate that detail that's great and then the second question I had is just like how are you thinking about.

Need to invest.

Keep your underwriting model.

Ahead of where our competition may be going or just changes in the market generally et cetera is that is that an area, where you feel like you're investing at appropriate levels today or what would cause a change in the level of investing and making and not part of the the capability in operations.

Yes, James This is Ross yes.

We actually have been working with a couple of different parties look to.

To look at our score current scorecard to do some progression testing to look at additional.

Underwriting variables alternative data models that we can.

Basically add to what we currently have been doing and looking at what the lift would be what what deals that we would kick out that that we were doing.

Before and what those results would be and then mainly a lot of those loans that were saying no to today.

We were able to look and see how they performed over the last three years had we had this scorecard in place.

And that's exciting so we have that teed up and we basically.

The first thing we wanted to do is get with our insurance carriers to make sure that we got our loan limits and terms.

We wanted to be we got that going on.

And we've got that.

<unk> being done in the next 45 days and the next phase is basically this news.

LP LP to point out.

Scorecard that we look to have.

We've made some investments we've got this additional refinement, but.

We will be coming out with that enhancement here.

Mid year.

That's awesome, that's great detail nuance color guys I appreciate it.

Thanks for the thanks James.

Thank you I would like to turn the floor over to John for closing remark.

Thank you operator.

I just wanted to thank everybody for taking the time to listen in and you have these great questions. As you can tell we are extremely excited about what the past year, what we've accomplished and where we think we're taking the company into 'twenty two so stay tuned in.

Keep the questions comment. Thanks, Thanks, everybody have a great day. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.