Q1 2022 Open Lending Corp Earnings Call
Good afternoon, and welcome to open lending <unk> first quarter 2020 earnings call.
Today's conference call is being recorded.
On the call today are John Flynn.
Norman and CEO , and Ross, Joseph President and CFO and Chuck you CFO .
Earlier today the company posted its first quarter 2022 earnings release.
Investor Relations website.
In the release, you will find reconciliations of non-GAAP financial measures.
Most comparable GAAP financial measures discussed on this call.
Before we begin I'd like to remind you that this call may contain estimates and other forward looking statements that represent the company's view as of today may five 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 to differ materially from those expressed or implied by such statements.
And now I'll pass the call over to Mr. Flynn.
Thank you operator, good afternoon, everyone.
Thank you again for joining us for open London, <unk> first quarter 2022 earnings conference call.
Like to start today by reviewing our first quarter highlights and the progress we've made on our growth objectives.
Then Ross is going to provide an update on the.
The auto manufacturing in lending landscape.
The recent underwriting program enhancements and provide an update on our insurance partners and then finally, Chuck is going to review, our Q1 financials and outlook for the full year 2022.
Now to our high level financial review of the first quarter results.
We're very pleased to report another strong quarter at open lending Q.
Q1, 2022 certified loans increased 32% to 43944 as compared to Q1 'twenty one.
We reported revenue of $50 1 million, which was an increase of 14%.
And adjusted EBITDA of $33 8 million, which was an increase of 11% as compared to the first quarter of 'twenty one.
We're also very encouraged by the continued growth in our credit Union and Bank line, where we achieved a 76% year over year increase in search for Q1 'twenty two.
It was driven in part by a few things.
<unk> of new accounts, including some that are preparing for seasonal compliance by the end of the year.
The continued strength of our refinance program and further penetrating our existing customers through wallet share.
Let me first turn to the new customer side.
We signed 18, new accounts in the first quarter and five of these were tier one accounts.
<unk> has over $1 billion of assets.
Momentum has also continued into April with seven new contracts signed since quarter end and 20 active implementations underway.
Now I'd like to turn to the refinance program.
To expand on our success with this channel.
We continued to add new and existing credit unions and banks. So the refinance program during the quarter, which has been an enhanced focus of ours to help lenders and consumers.
Offset the temporary headwinds associated with affordability due to the inflated car values and inventory shortages.
We added two new refinance channel partners in Q1, 'twenty, two with our volume, reaching nearly 40% of our total search.
As a result of our flexible business model, our refinance channel is accommodated consumers by allowing them to modify their existing terms and lower their payments in a challenging environment.
Our value proposition for refinance will remain strong regardless of the rising rate environment due to the fact that credit unions cost of capital remains very low relative to other lenders and they always seem hungry for auto loans, which was proven in the previous rising rate and <unk>.
<unk> that we've seen.
Moving on to the existing customer expansion.
Our top 10 customers, excluding Oems have increased their certification volume by 166% in Q1, 'twenty two as compared to Q1 'twenty one.
And we continue to focus on expanding our wallet share with our existing customers, which is a key initiative of ours in 2002.
Now I'd like to update you on our other long term growth initiatives and strategic investments to support our mission, which is to serve the underserved by using our technology and valuable data to empower consumers to get the best loan rates that theyre risk status will allow while satisfying the.
Our return goals of our lending customers.
First the one big area of investment this year will be our go to market sales strategy with additional dedicated sales team members to capture more of the significant $250 billion Tam.
<unk>, we will be growing our account management staff to continue focusing on expanding wallet share with our existing customers.
We've already made several key hires within our sales and our <unk>.
Count band has been fast and first quarter and we're seeing good early traction with these investments.
We've also recently made a key hire to support our OEM captives and large institution opportunities to ensure that we are well positioned to grow and capture the flood of pent up demand that will ultimately come when the inventory headwinds subside.
We'll also be making some key hires with core experience and bank and auto originations and underwriting to further penetrate bank space.
And finally, we're investing in technology to <unk>.
Further enhanced the lenders protection platform for our lenders by modernizing the platform and infrastructure to support our growth.
Improving lender reporting and claims capabilities and investment and development resources.
Like to now turn it over to Ross.
Thanks, John today, I will highlight the current and near term U S automotive market conditions and outlook.
<unk> underwriting program enhancements major lenders protection commercial activities with our industry, leading OEM customers and prospects and progress with our insurance partners.
First on the current and near term U S automotive market conditions and outlook.
As we enter 2022, we began to see incremental improvement in a variety of leading indicators for production.
We remain optimistic that the toughest headwinds facing the industry are mostly behind us as we navigate through the remainder of the year.
As we reported last quarter dealer networks across the country are reporting modest improvements in inventory pre sold orders velocity and overall demand conditions.
Entering the second quarter, North American vehicle production industry forecast for the full year 2022 have been updated to reflect the impact of the renewed first quarter Lockdowns in Asia and subsequent production shutdowns.
The industry is now expecting 2022 total production to be roughly in line with the total units delivered in 2021 or close to 15 million units.
<unk> demand and pricing.
With the production run rates to millions of units below levels. Prior to the pandemic demand remains strong we continue to closely monitor vehicle affordability as average used vehicle pricing.
Double digit year over year in the first quarter, specifically in the last 12 months on average we have seen monthly payments for used cars segment increased 18% year over year.
To approximately $488 per month.
When reviewing the last 24 months of data. It does appear that pricing peaked in February .
We are monitoring the tightening supply in March and April as we execute our go to market strategy for the quarter.
Our expectation for a gradual return to affordability.
That will enable the near prime and non prime consumers to return to the dealerships over the next 18 months.
It's our understanding and belief given what we've experienced in prior cycles.
Claim severities will increase gradually in a predictable fashion as we revert to normalized conditions.
Moving on to our recent underwriting program enhancements.
Over the past two months, we rolled out two major enhancements in our product offering.
Our indirect lending we expanded our loan limits by approximately 30%.
The last time, we change these limits was approximately six years ago.
In reviewing the potential impact we found that over one third of our applications were requesting larger than loan amounts. Then we allowed. Additionally, early in April we expanded term offerings to 84 months for certain model years and lower mileage vehicles.
The potential impact is also significant as approximately one third of our applications. We received were asking for terms longer than our previous limits.
Those changes were enacted while maintaining our discipline and rigor in underwriting.
We are very encouraged by the early results and believe we are well positioned in the future to capture a large portion of these applications.
For purposes of historical comparison during the period of 2009 2011, the average term for a used car increased.
<unk> seven months to 64 months. Most importantly, the average delinquency rate declined to 150 basis points from four 5% to 3%.
Strategic initiative for Us and we are thrilled to be working with such a great team and art.
We believe that there is more than enough volume to support all of our insurance partners, while continued to deepen our value relationship with our existing partners.
The terms of this agreement and the financial arrangements are substantially similar to the others.
Although capacity has not been an issue today, we are excited to have arch on our team based off are significant Tam and growth plan in front of us.
I'll know I'll turn this over to Chubb to discuss our queue, one financials and outlook for 2022.
Thanks Ross despite.
Despite all of the macro headwinds John Ross mentioned, we are pleased to report another strong quarter. It open lending.
During the first quarter of 2022, we facilitated 43944 certified loans compared to 33318 certified loans and Q1 of 21.
32% increase year over year, and we executed 18 contracts with new customers.
In addition, as John stated earlier, we currently have 20 active implementations with go live date in the next 60 to 90 days.
Total revenue for the first quarter of 2022 increased 14% to $51 million as compared to $44 million in the first quarter of 2021.
The profit share revenue represented $28.3 million of total revenue.
Program fees were $19.7 million and claimed administration fees were approximately $2 million.
Further breakdown the $28.3 million in profit share revenue in Q1 <unk>.
Profit share associated with new originations in the first quarter of 2022.
It was $25.7 million or $584 per certified loan.
As compared to $22.7 million or $680 per certified loan in the first quarter of 2021.
Also included in profit share revenue in Q1 of 22 was 2.6 million change and estimated revenues from certified loans originated in previous periods, primarily as a result of healthy consumer balance sheets against a backdrop of full employment and the continued overall portfolio performing better than we expected.
Due to fewer defaults and claims and lower claims severity as a result of our conservative underwriting.
Gross profit was $45.3 million in the first quarter, an increase of 11% driven primarily by the increase in certified loans in Q1 of 22 as compared to Q1 of 21.
Gross margin was 90% in the first quarter of 2022 compared to 92% of the first quarter of 2021.
Selling general and administrative expenses were $13 million in the first quarter of 2022 compared to $11.2 million in the previous year quarter.
Operating income was $32 2 million in the first quarter of 2022 compared to $29.4 million in the first quarter of 2021.
Net income for the first quarter of 2022 was $23.2 million compared to $12.9 million in the first quarter of 2021.
Basic and diluted earnings per share was 18, and the first quarter of 2022 compared to 10 and the previous year quarter.
Now turning to adjusted EBITDA for the first quarter of 2022 was $33.8 million as compared to $33 million in the first quarter of 2021, an increase of 11%. There's a reconciliation from gap to non-GAAP financial measures that can be found at the back of our earnings press release.
We exited the quarter with $342.7 million in total assets of which 147 $4 million was an unrestricted cash $107.5 million was in contract assets and for $64 $9 million in net deferred tax assets.
We have approximately $159 $4 million in total liabilities of which $145 $6 million was an outstanding debt.
We had approximately $126 2 million shares outstanding on March 31, 2022.
We posted an updated investor presentation in first quarter of 2022 earnings supplemental to our Investor Relations website, which includes a slide that lays out our current share count.
Now moving to our guidance for 2022 based on our first quarter results and trends into the second quarter. We are reaffirming our guidance ranges for the full year of 2022 as follows.
Total certified loans to be between 195002 hundred 25000 <unk>.
Total revenue to be between $210 million and $240 million a.
Adjusted EBITDA be between $135 million and $160 million and adjusted operating cash flow to be between $140 million and $165 million.
But the industry headwinds as dealer inventory is restocked, we are confident in the resiliency of our business and the ability to navigate through the supply and affordability constraints.
And our guidance, we took the following factors into consideration.
The affordability index for our target credit score due to the continued inflated used car values.
The continued strength of our refinance program and the value proposition it offers consumers.
Inflation and rising interest rates the.
The global semiconductor chip shortage.
Mmm that a streamline their supply chain, having moved to just in time inventory manufacturing processes.
Disruption and transportation networks, and raw material shortages low levels of dealer inventory and of course, the investments we are making in our business that John mentioned earlier.
I want to thank everyone for joining us today for our first quarter of 2022 earnings call. We will now take your questions.
As a reminder to ask a question you will need to <unk> on your telephone.
Question Press the pound key please just stand by while they compile the Caroline day roster.
Your first question comes from the line of Peter Hackman from Bad Davidson.
Hey, Thanks for taking the question a lot of information there can you talk about.
In terms of the trends that you're seeing with refi.
At 40%.
And I believe you said you added another refi referral partner do you think that level can be sustainable and can continue to bridge.
Open lending growth and certified loans until we until we see a recovery in in new car inventory.
Yeah can you hear this is John plan I.
I I agree with that statement, 100% that this is definitely sustainable we.
Seeing a ton of applications come through that platform.
These are consumers that have all been taken advantage of and when you look at the fact that smell that $250 billion Tam.
We're just continuing to grow that side of the business.
Don't see it going away, even even during an inflationary type period. Thank.
Thank you are always going to seize on our credit Union core business is there.
Very hungry pregnant types alone and what their cost of capital I think it's only going to continue to grow.
Yeah, I think it's definitely gonna <unk> the gap between new cars worrying that the Orange, that's again and the numbers we've grown out there.
Great Great that's helpful in Memphis.
Can you tell me your remind me when open lending reversed.
Racing increase that they put in place after the pandemic.
I'm just I'm just trying to account for the.
Average profit share per loan.
When excluding the the adjustment it looks like it was maybe 585 this theory to get from the Baby 680 last period.
Great. So the differences between the two.
Bet, Pete Hayes, Chuck How're you doing.
Yeah on the it was April of 2021, when we actually took that COVID-19.
Vehicle valued discount, 5% off and so the the comparable profit share that you're seeing in the supplemental the 584 per certified loan on new originations in Q1 of 22 as compared to the 680 previous your quarter.
It has not been taken off yet and it was about about $100 roughly.
Per certified loan is about a 15% premium increase during more a little bit more a little bit more than that in the in the COVID-19 adjustment period. So so it'll be more comparable.
To forward when we.
Report later for the second quarter.
Okay. That's helpful I'll get back in the queue I appreciate it.
Yeah. Thanks.
Okay. Next question comes from the line after Joseph Savvy of Candy crash. Your line is helping.
Hey, guys. Good afternoon nice to see the study results in.
Tough environment I thought maybe we could focus I know cecil's coming up for the credit unions and I know they they've got.
They've got that on their radar this year and I know that you are seeing some.
Activity on that Alrighty, just wondering what the right environment, an inflationary environment may need for some of the credit unions that you have and and potential new partners relative to.
Cecil and what you're seeing in general and the credit unions with Cecil coming up.
Hello.
No no. Thanks I appreciate it.
I think just the the.
The number of tier one account that we signed in the first corner and then I just talked about continuing into that even April .
<unk> is just evidence of the fact that these larger shops are starting to position for.
For the see saw release that we can provide them now.
Then I think.
Regardless of February at the rate the rate increase that we've been through this and O eight nine.
And credit unions confirm your <unk>.
The increase their volume because of their low cost of capital when everybody I'll start to increase their rates across the board.
Cause I've been pricing and rate increases credit Union again continue to kill it so thank.
Thank you <unk>.
Low cost of capital with a C. So really and that's really setting us up really well for some good tailwind.
Mmk that's helpful. Thanks, John and then.
Maybe rasp can we get any updates on.
On potential new OEM partner, So I mean, I know you said that you hired a new key resource to help with that channel.
Yeah, Joe Yeah, we've we've brought on some one of those work with us as a as a advisor and consultant, but we bought a multiple time, we also have.
A couple of positions out we were talking to folks actually next week about joining that have years of experience with.
In the market, there well known and no other.
The folks out there.
Our activity level of our conversations are still ongoing we've got <unk>.
Things teed up here later in the year. After some art projects are finished that we're going to.
Be back on the the radar to see about implementation and signature implementations of but we're.
We're really excited about it you know they all see the value prop what we deliver and they have to look actually albedo 12 to 18 to 24 months to see when you know these current vintages vintages of originations.
You cannot use historical.
Losses, when you look at what are you doing today.
Just a bell curve from.
From a loss and the P DS standpoint.
So today's vintages are exactly the reason you need us.
Out there to protect you from what is inevitable.
<unk> to 24 months at our premiums are all right that way as well.
Hey, Ross the right thing I'd ask that that I think is important that the gentleman that Ralph just alluded to.
His background is not just send the auto space.
Comes from the Bureau's as well having been inside selling for some of the Bureau was which is created some key contacts with the rest of the people.
<unk>, Thanks auto lenders and I think that really expedited or sale when you talk about like the sales cycle.
Typically it's you know you get them lending people, yeah that that gets quite we can do more volume now we gotta get it in front of the risk people, we've got to get it.
And I think the people that were looking to bring on now with the background that we're finding.
Expedite that by getting you Wanna sign up the larger group at the same time.
Yeah, you are right John I mean, the individually brought one that's been helping us over the years K came out of the the OEM side and now this other person comes out of more of the captive finance side. So it's a great combination to have both of them helping us.
Expand on what we've already had great success at.
That's great guys. Thanks very much.
Thank you Jo Jo.
Your next question comes from the line of Button the police William Blair. Your line is open.
Hi, This is Spencer James on for Bob Napoli. Thank you guys for taking my question just one on the new insurance.
Carrier you announced what what are the biggest biggest advantages to signing additional insurance carriers.
Is it more on the new sales side or.
Does it help with your underwriting what what's the biggest advantage there.
I just think when you start looking at how large are Tam is and what our.
Plan is over the next five years, it's just nice to know we've got that capacity. So we don't have to spend our time trying to bring home someone three or four years down the road there are already there.
They do have.
Connections in the bank credit Union in OEM World that could also help us expand but.
It's better to have more capacity.
Laughs and that was kind of what we've done over time and and I. Just think it's great combination the financial economics are the same we make sure that that way with there is there is no adverse selection and so it's just great to board them in as of June June 1st serves our target launch date with them and.
There is a great job do you want to add anything to that.
The only thing I would add to that <unk>.
Yeah. When you have insurance companies besides that we're bringing up now having done their due diligence and gone through all the risk model.
Also think it brings a little bit more credibility to the market to know that art program are underwriting rules everything I've been better.
Where they are willing to sign up for the risks now.
Just a great combination to have three or four big companies, saying, they all agree with what we're doing.
I think one of the thing to add Spencer to every one of our agreements of course is it exclusive.
Which means that.
We are tied together they cannot offer this program to anyone else and so it really it just helps us maintain the fact that we have no competition today and and that certainly helps us may.
Maintain that position.
Okay. Thank you and then and then one follow up the growth from the top 10 customers, excluding Oems for 166% year over year that.
Definitely a really impressive number could you talk a little more about where that growth is coming from is it just off a low base.
Are you expanding the credit boxes with those customers.
Anything like that.
Yeah, Spencer I'll start and and John Yeah go ahead John .
No no I was just gonna say, it's a combination of both but.
Some of the underwriting rule changes that Ross and the <unk> team I've been working a coupled with <unk>.
<unk> R.
Refinanced channel partners to bring more apt to the table and wants driving a lot of <unk>.
So I'll, let you know that it yeah I think if you think about those those customers and the growth and refinance and adding mantle partners and really focusing on on the reef channeled. During these challenging times for inventory has been really good for our customers and for us.
Okay. Thanks, So in one one last one the you mentioned some incremental investment and salespeople and go to market.
Would you say this is just more of the same hiring too.
Build up what you what you built in 2021 or is this kind of an inflection point and ramping up additional hires.
I think it's an infection, but I think it's a combination of both actually.
We really have 10 dedicated salespeople for the most part following.
Lead from a reseller that we use called Allied solutions.
And I think now that we're.
We've made some great progress in category.
Reputation, if you will and especially in the credit Union Bank space.
I am.
Not throwing names out there, but I think we're we're just kind of expanding the team to be closer to the territory's they work in and.
And it's not just on the sales side, we're putting a big effort into.
Bringing on more account managers, what's our farming our existing account.
It's a lot easier to get business from an existing account that may have fallen off for one reason or another.
Lose a loan officer or two and the new hires don't know enough about us to use us now.
By bringing on some more account managers.
Getting inside our shops on a more regular basis.
Darkness needs some real benefit from doing that.
Thank you for the questions.
Thanks. Thanks.
Your next question comes from the lineup Vincent Kennedy from Stevens Your line is open.
Hey, Thanks for taking my questions and congratulations on the the arch when so I have a follow up question on that so just wondering with arch if you're able to expand your product set or do anything differently I know artists a global insurance company, there in Canada and other places so.
Maybe with that or with some new products that powersports and just with you mentioned that the economics are the same and I'm, just curious with our <unk> and really with the insurance companies.
Of what you're hearing in terms of there in terms of abuse on.
When credit normalizes, what's the appetite and and the.
What what their thoughts are with that thank you.
John do you Wanna go first.
Yeah from a standpoint of other product Vincent we continue to get asked almost quarterly and.
I think that's the last earnings call, we what our executive team has spent a lot more time digging into future.
Future products geographic expansion or.
We're in the process of a cough.
Cost benefit study right now in Canada.
Engaged farm.
<unk> study if you remember back when we first came up with the 250 billion dollar Tam that was an independent study from a company called L. A K <unk>.
Re engage them.
<unk> you have to look at the market from the standpoint of.
Yeah, what is the benefit of digging into the leases yeah, what would be the next product leases Power's Board geographic expansion. So right now we're in the middle of that study, we hope to have more answers back pain and by the next earnings call.
And.
<unk> other.
Other products you know I just.
Confronted by a company that.
To look at [vocalized-noise] sharing home equity, which we've talked about the past what another one just popped up a small business loan.
Company that has all the data they claim you need to underwrite from them.
Is there a way to ensure that sounds <unk>.
We continue to have conversations with all four carriers.
And what is their appetite for for the different asset classes based on the data.
Yeah.
I was just kind of.
To finish it off though I think we.
We've come to the decision that in the near future. There's no reason, we should be looking at anything to step out of I mean, it was it was such a gigantic.
Space.
Scratch, the surface and done very well, there, let's continue to expand and and keep.
Keep looking at these other opportunities, but but I'd never lose sight of of of what's right in front of us.
Okay. That's helpful.
Just the follow up the.
Yeah credit just just kind of their views because I agree with your point that their value validating your model.
By having these large global insurance company signed up so it kind of.
How your discussion sorry, when people are kind of nervous about credit. Thank you.
Yeah that visit is they've obviously in order to sign up today, they've they've done a lot of their own homework.
We have we have our actuarial firm that we work with we have our own internal risk books.
We bet everything out everything that we've been doing.
Any underwriting rule changes we make remote.
84 month expansion in for example over 72 and loan amount those are all done.
With it you know to collectively and we're all on the same page. So there's not a single one that has.
Taken a deviation.
From that and so.
She had been around a long time.
We have a great team there.
Our current partners.
All have had we get them in the same room together and so I think.
We're in a great position, we have weekly meetings and I I, we have not we've we've got the history here and so they always want us to look back to 2008, 2009, and what happened and what would have happened. The same thing happened today and so we're constantly doing that.
And Vincent.
Maybe in my prepared comments about that we talked about profit share even.
The healthy consumer balance sheet, and some statistics that we tracked from U S household debt service payments as a percent of disposable income, it's less than 10% per consumer which is the lowest in 30 years. So this consumer balance sheets really strong and then you think about deposits at the at the largest banking institutions dipa.
Cause it's in currencies over four trillion dollars I think we heard earlier. This week. So it's really a healthy healthy consumer and which will vote for the credit so.
Perfect, Thank you and and.
Last one for me.
Your business continues to generate a lot of cash I think you're close to $150 million cash right now.
Right and just curious about your capital priorities, especially with your stock trading as low as it is just any interest in buying back stock or just maybe to talk about capital usage. Thank you.
Yeah. Thanks, Thanks visit yeah.
Obviously, we generate $30 million in the quarter and cash flow in about $150 million roughly on the balance sheet at quarter end.
You know obviously, we're investing in the business, we talked about it on the year and call in again today and and that's our first priority. Obviously is between use of caches and go to market strategy in sales and account management marketing Johns talked about obviously in our technology, we're enhancing lenders protection and the platform for the.
Our customers and modernization of that and and does it really make it two enhancements there. This year. So after that obviously, we still generate a lot of cash and obviously, we would we look at the share buyback is a good use of cash. It's it's however, as a board level decision and and it's something we evaluate with the board and we're.
We're not highly levered, we've got very low debt and on that basis, we're actually a negative net $1.8 million, so, but it's definitely something that we evaluate and but more first and foremost focused on investing in the business.
Great very helpful. Thank you.
Thanks, a lot.
Your next question comes from the line of John Davis from mainland.
Okay.
Hey, good afternoon, guys Chop just a Jonathan you can help us a little bit with the the ramp inserts, obviously kind of $44 million 4000. This this quarter.
The mid point of the Guy would apply something like 55000 on average, but just if you could help us think about the ramp I assume that the back half there's gonna be significantly better, but maybe just the color on two key or how we should think about the ramp and search at least tell you gotta think about today.
Yes, when we talked.
By the way John Yeah, when we talked earlier.
Fill in the queue for a call we pointed to that 20% of the midpoint for Q1, which we exceeded so we're very pleased with the Q1 results and and you know I guess I would point you to for the.
I'll be specific on cue too is it really depends on the rate of the restocking.
Really the production around the Oems the domestic Oems large production is really waited to the second half of the year and we gotta get more inventory obviously, the refinanced business. We're very excited about the channel and the growth. There. However, as soon as you know take more vehicles in inventory to continue on the rest of.
The growth.
Seasonally summer months are strong so we look at that as well so it's a little bit of the back in loaded year in but.
We feel good about our guide we reaffirmed the full year.
We came off of a record March of months and.
Encouraged by the trends into the second quarter, but.
There's a lot of demand out there and we believe production bottomed in the fourth quarter and.
Dealer inventories bottom. So we believe the recovery is going to is taking place.
I think there's a couple of backdrops that we all saw recently with you know obviously, the geopolitical in Ukraine, and and the Earth materials that are needed for chips in.
The Covid re re occurrence in China that shut down some of the production. There. So some of those are headwinds, but we watch the supply and demand dynamic daily and.
We're ready and execute them to run the business. So long answer, but that's kind of the things we think about.
Okay. That's helpful. And then John just maybe spend a minute talking about the competitive landscape I think.
Four Q last year maybe.
Maybe some competitors are starting to get a little bit desperate and kind of crazy from a pricing standpoint, you call out the headwinds that.
You and your banks.
<unk> willing to keep.
Just kind of go wherever maybe some of your competitors work on pricing standpoint, but obviously with more in a different environment now three to six months later, so I'm just curious.
Are you seeing your pricing is.
Then your bank uncomfortable with the bank and credit uses is more competitive today, just <unk> color that would be super helpful.
No I think we're off kind of alluded to a little bit of that from the standpoint of.
Yeah. We just went out to 84 month term, which was the bank has moved for us, but yeah with all the study we did and.
Yeah, I lost can pick that up better but on the west side, but all the studies show that the 84, a month term consumer perform better when there are near prime consumers and if there were a prime borrower.
Definitely because yeah, they need payment so.
Payment to income being one of our big indicators up to fall.
And you can ask that their payment out and do that 84 month term.
We're seeing the default rates are exactly what we can live with that.
Insurance standpoint.
So I think you know stuff like that we've looked at.
When I mentioned that.
The headwinds uhm I liked him exit or a couple of maybe two quarters ago.
Offering to pay $4 to get alone in the door.
And things like that that are driving or refinance piano through the roof.
<unk> the the high.
High cost of capital funding sources.
They might have to pay some money to get the loan and the door, but one that consumers paying 21 or 18 or no some high rate that.
I've been subjected to that's where our refinance channels taking.
Picking up that loan and driving them down into more of.
And affordable 11, or 12% right.
I think by you know just stay on the course doing what we do well, we'll sell capitalize on those that have made some changes.
We can pick up the pieces afterwards.
Okay. One more quick one for for shock if I look at kind of profit share <unk> X the economic assumption adjustment.
I think it's 585 or 584, this quarter and that kind of a good a good run right to think about Chuck for for the rest of the year any color. There obviously, it's bounce around a lot with COVID-19 and different assumptions, but just curious there how should we think about the profit share X the economic adjustment.
Yeah, we do John we've talked about it and internally.
Anywhere from that call at 560 to 600 range is a good there's going to be some mixed impact.
In there and it just depends on the claims in the.
Submissions et cetera, but we think that's a good modeling number for the rest of the year.
Okay pretty solid color I guess.
You bet. Thank you.
Your next question comes from the <unk> from don't your bank.
Yes, hi, thank you.
So a couple of questions for me one just wanted to get a sense of how do you think about the five third to add the percentage of the overall services, we get through the end of the year, because it's obviously been increasing in desert ranking of focus on that so curious if you have any perspective.
Yeah, I I think when you talk about with as a percentage of total third.
That's gonna be a moving target I think we will certainly continue to grow the refinance channel.
Yeah sure numbers standpoint.
But as the captain come back online and cars, Yeah, New car start the heck of lot.
Yeah. The help is out there and say that those numbers are gonna pick up as well.
Oh, well I'd say 40 per cent or.
I think that's gonna stay a high number but I I couldn't indicate exactly what percentage it'll be.
Yeah, and John I'll jump in and you know if you think about obviously.
Little under 40% for Q2, and I think his inventory restocked and there's more inventory for people who are trading in cars. There's more used inventory and we're 90 plus percent used today and you know I think that that percent over time in the near term I think it can we can sustain it is there's more inventory and restocking and there's more.
Indirect search I think it would be a lower percentage of our overall going forward, but.
Thank goodness, but the units are gonna go up the absolute number of search yeah. It's a great. It's a great opportunity.
Yep Yep and then.
<unk>.
Just on you mentioned like signing review the tier one account I'm curious if the economics are any different if you find tier one account devices are there isn't maybe if you can check what percentage of the over the counter tier one.
Yeah, we.
Go ahead Chuck.
No I was just going to refer to the economics.
Our economics for program to use the technology fee and everything is equal I mean, there's volume discounts for large accounts that that generate larger sort volumes and three per cent of the loan amount down to roughly 2% generally bay.
Based on <unk>.
Twenty-five short increment in growth, so, but but the general economics would be the same on those and and John If you want to talk a little bit about the maybe the around the tier ones.
No I was just trying to look I I actually have a.
Ah report put together yesterday.
Can you give me the number of active clients that are over a billion.
And that's what we consider a tier one account.
Nothing we have.
We have approximately 140.
Credit unions and banks that are over $1 billion in assets.
So the total is probably.
<unk> <unk>.
Yeah, we got about active cuss.
Customers as a quarter in about 400 I think.
Just add to two of her question is you know I would think about the program fee or Union economics will be lower for the larger account submitted the volumes, but you would think on the flip side on the profit share.
Those large institutions may have more sophisticated servicing good platforms and their results.
Should perhaps be better than the less sophisticated once of back to just do I do think.
There is no materiality difference between the two.
An aggregate.
Right.
<unk>. Thank you.
Well thank you.
Your next question comes from the line.
From the noise.
Sure that is open.
Yeah, Hey, guys the expanded my own limits.
And the expanded term was that.
Early April late April when did your role that out and are are you seeing anything from it.
Yeah. My first of all a loan limits, we were able to get that in a release in mid March and and one thing to remember is when we make when whenever an application is submitted we keep that active for 30 days. So we still have a little blend of timelines so loan loan limit.
If anything we've decision.
In April had the full impact of the loans et cetera about about four or five of our institution that wanted to wait to get that rolled out. This month next month and then.
On the term side, we we launched three customers April 1st we launched seven more customers April 4th or fifth and then we launched B O.
Almost all the other ones around I think the 14th or 15th throughout the month, so really well.
Who will be able to really come back in the next quarter and give you a lot more results were encouraged by the results.
Just the fact that that work we were countering we were carrying maybe not saying a full yes, but countering a third plus of these applications in the past or asking for a larger loan amounts in larger terms.
You've got a.
The the closed ratio of those who are able to fully say, yes to versus not as.
There is much better so we're anxious or I can be tracking of that and I'm very pleased with this result.
Great and then just one more.
Ross I think you kind of said.
In relation to the OEM opportunity that you needed to to finish some I T project.
Can we infer from that like hunting for Oem's, three and four is sort of a later this year kind of event or I don't know if you could frame that a little more.
Yeah, we have always on the one that one day Oems that were close with they had a project. They have they have a project still ongoing that we thought would be wrapped up the end of the year by the Nazis project in our endeavor always followed fell behind that.
And so there there.
That that vendor is still working here.
I hear that they're they're working on their servicing platform.
Is even though it's behind they do have like a new date out there some time in the third quarter early third quarter and so that means that we can start kind of revisiting.
You know, how we're gonna launch within that organization. So it is late this year.
It's I think it's.
Fallen behind.
Only because it was always behind one or the other.
Projects and so.
That's that's the status of that and we look forward to reporting some positive.
Momentum here once once that project is finished and and we're close.
To launch it.
Great. Thanks for the clarification.
At least mine.
Again to ask a question you may need to practice, Taiwan on your telephone again that is star one on your telephone keypad and.
And your next question comes from the line of.
<unk> hi, admire from Geoffrey.
Alright, it's actually John Hecht with Jeffries Hey.
Hey, John apologize.
You guys and I apologize, if you comment and some of them bouncing on a between a few different earnings reports today, but.
And you guys referred to you called with the clothes rate that you would expect some positivity outta that give us some of the term in size changes, but that's early on I'm just wondering what what's your clothes right now versus what it was.
When you didn't have the headwinds of inventory issues and things like that.
Well you know that.
It it varies by channel, maybe we got you to <unk> direct all that within.
Within finance companies versus credit unions, and even within the channels. So.
Are closed right God is probably.
30% lower than it has been during pre pandemic.
And a lot of that is you've got the nonprime consumer.
Applying but not being able to afford that offer and so.
They aren't going elsewhere, they're just sitting on the sideline and that's why I believe that we are poised to with with the new offerings and and the longer term.
We're in the right position to we we do think that that pricing will start decreasing it's going to be a slow over the next 18 months, but we're gonna. We're there today, we're going to be there and 18 months and and and we should see an uptick of that for sure.
So I mean is it fair to think that.
You could have just 30% recovery and growth as as just sort of condition is normalized.
With the clothes right.
That's appropriate.
Okay and then the second question totally unrelated, but how do you guys perceive about the <unk> sensitivity the refined market to interest rates, how does that interact with each other.
Yeah.
That's the question John that we did that answer a little <unk>.
Credit unions are always gonna have.
Pretty much the lowest cost of capital out there.
Okay hungry auto loans and I think what we're finding is that yeah. We went through this back in O eight and O nine one rates went up and.
Things were heading south and credit unions stood in there and continue to but yeah. They love a three year average light piece of paper.
Generates at.
Yea, that's probably three to four times that of an investment they can make.
I think we're always gonna have credit unions funding that refinanced channel as a real tailwind of the company.
Okay, I appreciate that and I apologize for asking right out of the question, but thanks very much.
No problem. Thanks.
Thanks, John .
Thank you guys.
We'll now turn to call.
Closing remarks.
Yeah. Thank you operator, and yeah. Thanks, everybody on the phone great questions today, and you can tell we're extremely excited about the quarter and where the company is heading I think.
I always talk about it's not a matter of.
<unk>.
Cars are coming back and we're gonna be there to help fund themselves are excited about it and we appreciate it everybody saw continued support Oh. Thanks, you have a cough.
Thanks, everybody is great. Thank you.
This concludes this conference call. Thank you for participating you may now disconnect.
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