Q2 2022 Open Lending Corp Earnings Call

August 4, 2022

[music].

Good afternoon, and welcome to open lending second quarter 2022 earnings call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time.

Please press the one followed by the four on your telephone.

Time during the conference you need to reach an operator, Please press star zero.

As a reminder, today's conference call is being recorded.

On the call today are John <unk>, Chairman, and CEO , Ross, Jesup, President and COO and Chuck Joe CFO Earl.

Earlier today the company posted its second quarter 2022 earnings release to 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 before.

Before we begin I'd like to remind you that this call may contain estimates and other forward looking statements that represent the company's view as of today August four 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.

Certain 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. Please go ahead.

Thank you operator, and good afternoon, everyone.

Thanks again for joining us today for open lending second quarter 2022 earnings conference call.

I will briefly discuss the highlights of our results for the quarter.

How we are performing given the current industry and economic condition.

Ross will then discuss current industry trends and open lendings relative performance and prior cycles.

And then lastly, Chuck will go over the financial and thoughts for the remainder of the year.

For the second quarter, our results were in line with our expectations. Despite continued challenging economic and industry headwinds to our business with our results modestly growing quarter over quarter.

The industry is still facing low levels of dealer inventory due to the continued global semiconductor chip shortages and the supply chain challenges and.

In addition, and equally significant are inflated used car values impact on affordability to the near and non prime consumers.

We began the second quarter of 2022, there were indications that fundamentals, we're beginning to stabilize and then expectation that the second half of the year would lead to higher auto transaction volume.

<unk> to the first half of the year.

Instead continued lockdowns in Asia, and the effects of Russia's invasion of Ukraine, collectively dampened the supply to fuel recovery.

Even more notable has been the impact of a 40 year high record of inflationary condition.

And the impact on consumers budgets and the federal Reserve's monetary tightening response of 75 basis point hike.

June and July .

The results of high inflation and higher borrowing costs.

Consumer sentiment at the lowest level seen in our company's history.

Despite these industry headwinds our businesses performed well our current expectations for full year 2022 auto originations that open lending are projected to be in line with full year 2021.

While the current run rates that many of the universal banks implies auto lending originations will be down over 20% year over year. So.

We remain focused on what we can control.

<unk> investing in our go to market sales strategy to capture more of our significant and growing Tam.

In the first half of the year, we increased our sales and account management teams by 23%.

The individuals we've hired have been to have deep experience in the auto loan origination space.

Particular with credit unions and banks.

While some players in our ecosystem are holding flat or even reducing their employee base. During this period of economic uncertainty.

We are actively hiring high quality talent and positioning ourselves to take market share.

Although early we have seen good traction on these investments.

It is worth noting that during the second quarter, our non OEM business, primarily credit Union.

Proves certified was 27% year over year.

During the quarter, we signed 18, new customers and had 10 lenders certify their first loan in the quarter.

We also further grew our existing customer base with our top 10, non OEM customers, increasing their certification volume by 33% in the second quarter of 'twenty, two as compared to Q2 'twenty one.

Another area of focus has been on enhancing lenders protection by continuing to invest in the platform and the infrastructure to support our growth as well as improving lender onboarding reporting and claims administration capabilities and investing in development resources.

Early indications support improved Onboarding and cycle times from contract signing to our first certified loan and revenue.

These initiatives and associated investments are all to support our large growing Tam.

According to a recent assessment prepared for us by a third party now totals approximately $270 billion for auto loan originations, which is up 8% from the study prepared prior to our public listing.

In addition, there is approximately $40 billion Tam related to the auto refinance opportunity.

This represents 32% of our search this quarter and is expected to continue to perform well even with the current macroeconomic backdrop.

Based on the recent Tam analysis, we have penetrated less than 2% market share, leaving a significant room for growth.

As you know we bring together the various players in the auto retail ecosystem offering a very compelling value proposition to each.

We enable lenders to make loans to consumers.

Otherwise not make deepening their relationships with other existing customers and helping forge relationships with new customers.

The loans made through our lenders protection program provides yields that are often exceed that of our customers prime portfolio with lower risk to the lender.

The ultimate beneficiary is the underserved near and non prime consumer who receives access to credit a larger range of lenders with higher loan amounts better rates at appropriate down payments, which is even more important in today's environment, where consumers affordability is being squeezed.

The benefits we offer are needed now more than ever.

In addition to the massive underserved and growing Tam and our mission to help both lenders and consumers.

We have considerable moat around our business with over 20 years of proprietary data.

<unk> underwriting decision and our exclusive relationships with for a range of insurance partners.

This moat continues to widen as we make strategic investments in new data technology and talent.

We believe our value proposition to the various players in the auto retail ecosystem supports our confidence in the resiliency of our business through any cycle and gets us even more excited about our long term opportunities.

A few reminders about our business as we head into potentially slower economic growth.

First and foremost we will maintain our discipline and rigor at all times in our underwriting process. During this economic <unk>.

Contractions.

In the second quarter, we adjusted our underwriting models.

Optimized for the health of our portfolio from a risk perspective.

As you are all aware, we do not take balance sheet risk and we will continue to prudently manage our balance sheet to ensure we maintain financial flexibility.

In the end, we will continue to target growth rates in excess of industry growth rates.

It never at the expense of our commitment to managing risks.

Our business fundamentals and our long term outlook are strong.

I would now like to turn the call over to Ross, who will provide more details on what we are currently seeing in the auto lending industry.

Well as a comparison to how the industry performed during the recession of 2008 to 2009.

Ross.

Thanks, John .

As John stated I would like to focus on two topics today.

First let me turn to auto industry trends.

Manheim used vehicle value index prices in June decreased one 3% from May 2022.

But we're still noticed sleep.

Nine 7% compared to June 2021, and for the year remain at historical 25 year highs.

Wholesale used vehicle prices continued to increase in the first half of the year.

Average used car prices now 28000 versus 19000, prepaid debit and increase of 47%.

New vehicle inventory is building at a more measured rate compared to expectations. We began this year.

2022, new vehicle Saar industry estimates have been revised downward three times and by 1.6 million units. This year clearly an indication of continued supply side challenges.

Average instead of dollars per vehicle, a leading indicator of inventory availability.

Noticeably below historical levels.

In June 'twenty, 'twenty, one Oems, we're offering $2700 per vehicle incentives.

As compared to approximately 1200 who'd vehicle in June of 2022.

While these are headwinds currently facing our industry. The number of new vehicle sales is forecasted to grow 5.2% per annum over the next five years, but could clearly grow more quickly considering the new vehicle Saar has been running at two to 3 million units below historical levels and.

Finally, the average age of a vehicle on the road is as high as it's ever been at over 12 years old further adding to the number of units of pent up demand and the opportunity for us ahead.

Now to move on to my second topic, we continue to compare and contrast current economic conditions against prior recessions, specifically 2008 2009.

During that time credit unions grew deposits and loan volumes each year in the last recession, suggesting that volumes can continue to grow through a downturn.

While the value of used vehicles declined and used auto sales decreased in the last recession, both returned to pre crisis levels within a year.

Given the tight supply our current belief is that price levels will not decline as precipitously as it did during the great financial crisis.

90% of the lenders using lenders protection reach their targeted goals.

Lessons learned from the remaining 10% have enabled the company to improve its risk based pricing model.

Nick versus stand versus normal and L. P score.

So some prime customers will fall into the near prime market due to the economic conditions, creating growth in our total addressable market.

We expect the carrier appetite and capacity will not be an issue as the bulks need to increased two times the levels in the great financial crisis to greater net economic loss for insurers.

Auto lending has definitely performed better than other consumer asset classes as cars and car payments are prioritized over other consumer discretionary spending.

There's an industry adage that you can sleep in your car, but you can't drive your house to work.

Accordingly, we are optimistic about our core competencies in the auto lending space.

With that I would like to turn the call over to Chuck to review Q2's in further detail as well as to provide updated thoughts on the full year 2022 outlook Jud.

Thanks, Ross during the second quarter of 2022, we facilitated 44531 certified loans compared to 46408 certified loans in Q2 of 'twenty one.

43944 certified loans in Q1 of 'twenty two.

In addition, as John stated earlier, we executed contracts with 18, new customers during the quarter and had 10, new lenders certify their first loan in the quarter.

Total revenue for the second quarter of 2022 was $52 million as compared to $61 1 million in the second quarter of 2021.

I would like to point out that if you exclude the ASC 606 change in estimated revenues associated with profit share from each quarter Q2 of 'twenty. Two revenue is flat year over year on a lower number of certified loans as a result of our focus on higher average unit economics and quality of credit in our portfolio.

To break down total revenues in the second quarter 2022 profit share revenue represented $29 2 million.

Program fees were $20 7 million in claims administration fees and other were approximately $2 2 million.

Now to further break down the $29 $2 million in profit share revenue in Q2.

Profit share associated with new originations in the second quarter of 2022 was $26 3 million or $591 per certified loan.

As compared to $27 million or $582 per certified loan in the second quarter of 2021.

Also included in profit share revenue in Q2 of 'twenty two was $2 8 million change in estimated future revenues from certified loans originated in previous periods, primarily as a result of positive realized portfolio performance due to lower claims and lower severity of losses, which was partially offset by higher.

Prepaid and increasing in severity of losses as expected in future periods.

Change in estimated future revenues was $11 8 million in the second quarter of 2021.

Gross profit was $47 million and gross margin was 90% in the second quarter of 2022 as.

As compared to $57 million and gross margin of 93% in the second quarter of 2021.

Selling general and administrative expenses were $14 1 million in the second quarter of 2022 compared to $12 1 million in the previous year quarter.

The increase was primarily due to additional employees to support our growth with a focus on our go to market sales strategy and investment in our technology with both both of which John mentioned earlier.

Operating income was $32 8 million in the second quarter of 2022 compared to $44 9 million in the second quarter of 2021.

Net income for the second quarter of 2022 was $23 1 million compared to $76 million in the second quarter of 2021.

As a reminder, second quarter of 2021, we recognized a one time gain on the extinguishment extinguishment of the tax receivable agreement of $55.

$4 million.

Basic and diluted earnings per share was <unk> 18 cents.

In the second quarter of 2022 as compared to <unk> 60 in the previous year quarter.

Adjusted EBITDA for the second quarter of 2022 was $34 million as compared to $46 1 million in the second quarter of 2021.

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

Adjusted operating cash flow for the quarter was $34 6 million as compared to $30 5 million in the second quarter of 2021, a 13% increase year over year.

We exited the quarter with $366 8 million and total assets of which $167 7 million was an unrestricted cash of $106 7 million was in contract assets.

And $66 5 million in net deferred tax assets.

We had $159 3 million and total liabilities of which $144 9 million was in outstanding debt.

Now moving to our guidance for 2022.

Based on the first half of 2022 results and trends into the third quarter.

We are revising our guidance ranges for full year 2022 as follows.

Total certified loans to be between 155000 and 185000.

Total revenue to be between $175 million and $205 million.

Adjusted EBITDA to be between $110 million and $135 million.

And adjusted operating cash flow to be between $115 million and $145 million.

Despite the industry headwinds, we remain confident in the resiliency of our business and our ability to navigate through the supply and affordability constraints.

However, these industry and economic challenges have impacted our growth outlook in the near term.

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

We adjusted our program underwriting with a focus on optimizing the health and quality of our portfolio from a credit perspective.

Continued disruption in transportation networks and raw material shortages.

The globe global semiconductor chip shortages.

Low levels of dealer inventory and dealer sentiment.

The investments we are making in the business.

Continued strength of our refinance program and the value proposition it offers consumers.

The rate of growth, where an index of public auto lender financial institutions, which peaked in the second quarter of 2021 at 21% and contracted to negative 2% in the second quarter of 2022.

The affordability index of our target credit score due to continue inflated used car values, and finally inflation and rising interest rates and overall consumer sentiment, which perhaps has had the most significant waiting on our guidance considerations.

While we model and analyze the industry supply chain and end market build conditions the visibility on federal reserve policy can be less clear.

As the Fed's guidance has changed from our view that inflation would be transitory to tighter monetary policy consumer and dealer sentiment dropped considerably.

With consumer spending slowing dramatically as the fed noted that it will likely become appropriate to slow the pace of increases as they assess how cumulative policy adjustments affect the economy and inflation.

We will continue to keep a watchful eye on the air for most of the policy. In addition to the fundamentals that matter most of our sales outlook.

Now in closing I'd like to note that the midpoint of our revised guidance is in line with last year as it relates to certified loans, which grew 82% and revenue which grew nearly 70% in full year 2021, excluding any impact from ASC 606 change an estimate of revenues.

We provide a true value proposition to our customers, we have limited near term capital investment requirements and no near term maturities on our debt.

We will continue to maintain financial flexibility with a strong balance sheet and cash position and an overall conservative financial policy, while investing in our business during challenging economic times, when we stand ready to capitalize on the pent up demand.

We want to thank everyone for joining us today, and we will now take your questions.

All right and ladies and gentlemen, if you would like to register for a question you can do so by dialing one or that's one followed by the four on your telephone keypad right now and you're going to hear three towns to acknowledge your request and if a question has been answered you'd like to withdraw you can dial one.

Three okay. So once they get to queue up for questions. Today, It's one for one followed by the four on your telephone keypad right now.

All right. Our first question comes from the line of Napoli from William Blair You May now proceed.

Thank you Hey, good afternoon, John and Chuck.

Appreciate the question, Hey, Bob I guess alright.

Hope you're doing well.

So I guess, just I mean, obviously it.

Nichols environment.

In the auto space right now so I know Heath.

He was surprised I think on the guidance.

Estimates, but what are your thoughts on how youre doing from a market share perspective, and as we lap tougher year. If you look into 2023 and ongoing what is your feel for what the right growth rate should be.

For your company.

Yes, yes.

This is Jeff go ahead John .

No I was just going to say you can answer the percentage chocolate.

I think we kind of.

If I had to point out.

Sorry, we are about.

Not yet.

The growth ahead of us.

But the numbers that we're heading given.

First of all these other lenders.

The credit unions are continuing to be excited about.

What we have to offer.

We offer it.

Funding rates are always going to be way below everybody else.

Given the new Tam that we had gone.

Gone out and asked to get done.

From the same company that did it why we took the company public I was thrilled to see that attacks the ground.

That's up 270 billion just on the.

Purchase side and.

<unk> 40 billion on the refinance side.

Yes.

Two numbers combined.

Makes it about $60 million.

60 billion greater than what the Tam was when we started this.

Public.

Path here, so I think that there's a huge runway ahead of us.

And again that was primarily the credit union space the bags the refinance space.

I think with the.

Cars, starting to come back out I think we're going to see a lot of growth.

Yes.

Credit.

Go ahead Bob.

Yes.

Well, what we believe and we have been forecasting is that.

If you track used car values and how we see them declining slowly, but we see them.

Not not being into this.

We think we're pretty conservative on our forecast and realistic as well that is going to be late 'twenty. Three early 'twenty four before they were down to a level that will result in.

The change in the affordability, making.

Any of these are loans a lot more attractive I believe the near and non prime folks who are on the sidelines.

They are.

There's going to be a pent up demand.

And it's because it's going to be as soon as supply increases we are going to be taking advantage of that I think in the meantime, we have the ability to pivot and keep going after our lenders.

Helped refinance to put these consumers at a better state.

Yes.

Quality side I'm sorry.

Alright, no problem.

Yes.

Our average our average score of our portfolio is about 60 about 640, <unk> alright, so with that in mind I don't consider SBA.

In the subprime and the non prime.

When we're looking at we're seeing.

First of all on the on the default and delinquency side, we are seeing an uptick but it's in line with our expectations and.

And steel is even.

Our.

Just this past month and quarter or expected defaults.

Are actually higher than we actually are seeing so.

It is shoring up.

On the claim side, we're still at record lows.

And that's just because people are still.

Yielding.

You know much more.

At the auction then than we have forecasted so.

It was kind of have a head.

Well on that.

Just real quick on your on your on your growth rate you know all the things you've done enough said.

The production the Saar, obviously has been a big impact in the prepared comments and on the inventory and restocking, but as things normalize and we get back to as Ross said, the affordability comes down a bit you use price values come down a bit as well as inventory restocking I mean, this business has performed well through the <unk>.

LNG in times and as things normalize we feel historically its been if you look past three year for the pandemic, a 30% revenue CAGR business and we feel like we can get back to significant growth rates as things normalize.

Thank you very much.

Thank you.

Sure.

Alright. Our next question comes from the line of David Scharf from JMP Securities.

May now proceed.

Great. Thanks, Thanks for taking my question.

<unk>.

You actually.

Chuck I believe when you went through the guidance.

I think you answered what I was prepared to ask which was.

Is the updated outlook on affordability is this more a function of elevated used car prices, which have been so stubbornly high or is it a function of consumer sentiment and.

It sounded like it was the latter I just wanted to confirm.

As we think about.

Wow, it looks like $29000 because it was the average size loan this quarter.

Which is much higher than I think any of us are used to seeing for 640 average funko.

Is it as we think about sort of you know.

Yeah.

Your comfort level and visibility in how you're thinking internally about trends over over the next few quarters.

Is it more inflation broader consumer credit.

Trends in fed actions that we should be thinking about more than used with it than just supply chain issues, because there seem to be a lot of you know.

Inputs here.

Yeah there are.

Thanks for the question, David but definitely a lot of inputs urine as we worked through it from a bottoms up perspective.

Just kind of like to point to maybe just three rule.

Big drivers that went into our input as the geopolitical environment change notably.

Since we were last on the phone and the war in Ukraine has disrupted the energy sector.

Oil prices are at highs and gas prices.

As you mentioned inflation at 40 years Hi.

Consumer price index it at 9%.

A big impact and then Asia was locked down and containment and in.

And the chips. So that is definitely still a macro chip issue, there and getting the auto dynamic back in good order. So on the auto sector. It really hasnt improved like what we thought.

When we were last on the phone so it's the industry chipset supply its affordability.

Sorry, it's just many inputs and much of outside of our control. So we're really focused on is executing running the business through this in <unk>.

And generating a lot of cash flow.

Shareholders the company in and continue.

Continued focus for the pent up demand when it when it comes back and it's ready, but but yes, it's really a blend of all of it in.

Probably the biggest factor on the range of the guidance is is really the fed's action and what's the fed going to do over the next several months here.

As is.

He's on the rate.

Rate increases in sentiment from the consumer is going to get better and affordability could come is going to come down as prices normalize on on the manheim.

Really the biggest factors I think in the range of that so yeah just supply in general just has to improve in the auto space. So I know, it's a long winded answer, but it's a lot of a lot of inputs to to what we thought about here.

No no no that's very helpful.

Maybe just as a follow up.

Sort of a structural.

The structural question.

Within the profit sharing arrangements with the carriers.

Does does their portion.

The profit share that they keep does that change at all based on any absolute levels.

<unk> profit share pursuit.

As we think about potentially a.

You know not just credit normalization, which we're seeing now to pre pandemic levels, but if we were to actually fall into a true unemployment driven recession, and so our loss rates become.

Significantly elevated in the lower profit share per loan maybe under $500 does that trigger any changes in terms of how the splits are calculated.

No no it does not.

Okay terrific. Thank you.

Thank you David.

Alright next question comes from the line of Joe <unk> from Canaccord Genuity you May now proceed.

Hey, guys good afternoon.

You mentioned that.

You may tweak your underwriting model a bit in the quarter be interest to get a little more detail on that and then it does sound like you know.

The credit unions and basically the non OEM.

Kind of still grew in the quarter and I just wanted to confirm if thats a lot of refi activity there.

Kind of keeping things really high and I guess.

You know to finish that equation of I guess, it does sound like probably the OEM channel is the one that clearly.

Down the most at this point and then maybe one quick follow up.

Yes, Joe.

As far as underwriting.

When we were.

Just trying to address things we can control.

We launched 84 months, we expanded our loan amounts for indirect.

I was just looking in the uptick has been.

That's definitely in line with our expectation is growing.

We're actually seeing improved capture rates, which was our overall in tier as well so instead of countering and basically are not not getting that.

That opportunity.

Our capture rate continues to improve and we expect that to continue to improve from here on out because it takes it takes a while for some of our institutions to adopt our larger underwriting box.

And so yeah, we are excited about it and when we continue to look at other.

Because as you are underwriting changes that we can help navigate through this.

As far as the refi and then John can speak to it as.

<unk>.

As we have new accounts that are coming on that are we are expanding our kind of wallet share with how we serve in.

And new refi opportunities we have accounts. They just have signed up and launched doing repo only initially before they look at other channels. So.

And I think that's just what's great about our business model is the ability to pivot when originations that because the supply is limited we're able to still help the consumer out bye.

But by getting them in a place that fits their credit quality, yes.

Yes, and Joel jump in on the on the refi was 32% of our quarter. So about 14000 search of the 44500, we generated so so still strong performance there and then the core credit Union business was actually are actually was up about 27% or only back up the non OEM business. So.

Your point about the Oems being being down the other they're download the most as you look at the customers.

To be expected with supply in and where things are with incentives.

And inventories so so that's where that's where kind of round it out but the core business performed very well.

Yes.

Okay.

When you look at some of our funding sources.

May be running out of a little bit liquidity.

We've got some new funding sources lined up.

That are totally interested in the refi channel.

And the fact that they are sitting there waiting to get some of the volume.

I think is awesome I don't think we're going to see a huge down downtick and refinance at all I think if anything some of that.

Applications are going to continue to come in stronger than they even did in the past.

Because of what's going on with the economy.

And.

I think it was David asked the previous question.

<unk>.

I forget how it was worded.

Economy, and the things, we're thinking about with unemployment and things like that yes, if you look at it.

We recognize some of those things are happening at the unemployment rates all these different things like Quincy, but.

But we have over 2 million unique risk profile that we look at.

And as these consumer scores fall, whereas.

As the performance gets a little worse.

All we're going to do with fall into a higher priced bucket, if you will premium standpoint.

Still going to be able to help them get alone.

Yes, it might perform a little differently, but we're collecting enough premium to make sure that the profit share stays where it needs to go even though the.

Outside factors are happening we're pricing for that in every category.

Yes.

Yes that makes a lot of sense. Thanks, John and then just do we have an update on new Oems at this point and has this macro.

Change their kind of.

View on the timeline here on adopting the lender protection program. Thanks, guys.

Hey, Joe we're still we still have a lot of activity going on discussions.

Going on there is.

Really not a lot of change from the last quarter except.

Just trying to what we are we are seeing is some folks are starting to see some losses.

Which actually ironically is a good thing.

As far as the.

Showing the value prop of ours and so.

I think with a used car index, where he is now in the new originations that are out there. They have a lot more risk because of the decline that's going to happen compared to the timing of when losses are going to happen and.

So we look forward we continue.

Two two.

Pursue the ones, we've been talking to and there's still a level of interest and we're trying to get on the radar.

But we're kind of we're pleased where we are at this point.

Hey, Joe I'll add one more thing just kind of your comment about guidance and maybe David's comment.

If you think about the most significant impacts to the outlook and guidance outlook incentives raw state and the Oems have bottomed the SAR has bottomed.

We believe prices prices peaked.

Sector dynamics are improving and Theres 5 million pent up demand units that as we said in the script that we stand ready to capitalize on because our business fundamentals are we believe are very strong and ready for that win when things normalize but things are improving.

Yeah.

Thanks, guys.

Thank you Joe.

Alright. Our next question comes from the line of Pete Heckmann from Davidson monopoly.

Good afternoon, gentlemen, thanks for taking the question just looking at it.

The implied revenue per loan and your updated guidance. It certainly seems to imply that you expected the profit share for loans that continue to run.

Pretty solid.

$5 70 to $5 90 or something like that.

Obviously that.

Per the origination fee is also going up as the average price of the car goes up.

Is that the right way to think about how youre thinking about the uptick.

Uptick in default rates.

Well, Yeah on unit economics, as you relate to the program fees and profit share, yes, we feel good that $5 50 to 600 Theres.

Theres mix at times not at all risk is created equal on the premiums, but yes that $5 50 to 600 feels good from a modeling perspective, and then program because as you pointed out or are up a bit year over year over year due loan amount increases and also a mix of business. So we feel good about those numbers.

Okay, Okay, and then just.

Just thinking about refi and sorry, if someone already asked this but I think the absolute number of refinance loans was down about 18% sequentially.

Was that.

Does that correspond with like.

Mailing program or maybe a major mailing program in this in the first quarter was not in the second quarter or is that a remnant of perhaps.

Just concern over rates.

Any way to think about that.

I think it's all driven by a little bit of liquidity issues.

Not concerned over rates not concern over.

Hey, kind of mailing or anything its simply one of our largest credit union funding source.

That's taking a two month pause.

Finding excess cash to be able to lend out there over 100% lent out.

So it's just a matter of.

Fine tuning their balance sheet and getting back into it.

I see alright. So John this is Chuck you would you would agree I mean, yes, we were a little under 40% in Q1, but obviously still strong at almost 32, 5%.

For Q2, so still still a strong piece of our opportunity as John said.

Oh sure yes.

Yes, definitely I appreciate it.

Yeah.

Okay.

Alright, well move onto our next question comes from the line of James <unk> from Morgan Stanley You May now proceed.

Hi, Yeah. This is sandy BD on for James.

Just a conceptual question here and maybe you had conversations with the credit unions that can help in terms of <unk>.

Color.

Our credit unions, more or less interested or do they use the product more or less into periods like this where lets just say expectations for defaults are increasing.

Framed differently, how does product demand and usage react just on a cyclical basis, and then even factoring in interest rates and pricing into the equation as well any color that you can offer there would be great.

Yeah, I don't think they use any more I think.

Have all adopted the program if you look back in history credit unions traditionally.

Our prime lenders.

Very few of them led to below <unk> 90.

And when they started to adopt our program.

They became.

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