Q1 2025 Open Lending Corp Earnings Call
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Speaker Change: Good afternoon, and welcome to the Open Lending First Quarter 2025 Erning's conference call. As a reminder, today's conference is being recorded.
Jessica Buss: On the call today are Jessica Bus, Chairman of the Board of Directors and Chief Executive Officer, as well as Chuck Yehl, Interim, Chief Financial Officer, and a member of the Board of Directors, and Matthew Sayther, Chief Underrating Officer.
Jessica Buss: Who will both be available for the Q&A section of the call? I would now like to pass the call over to Ryan Gardella, Chief Investor Relations to read the Safe Harbor statement. Please go ahead.
. . . .
Speaker Change: Thank you. Appreciate you joining us. Prior to the start of this call, the company posted their first quarter of 2025 earnings release supplemental slides to its investor relations but site. In the release, you will find reconciliation, non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call.
Speaker Change: 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 from those expressed or implied such statements. And now, I'll pass the call over to Jessica to give an update on our business and financial results for the first quarter of 2025.
Speaker Change: Thank you. Good afternoon everyone and thank you for joining us today.
Speaker Change: After a disappointing fourth quarter, I am pleased and eager to walk through our results for the current quarter, which we believe reflect the progress we've already made on our concise action-mole plan for the business going forward.
Speaker Change: Before we move on to the financial details, I first want to say a few words about myself, where Open Lending stands today and the future of our organization.
Speaker Change: First and foremost, I am firmly committed to Open Lending and the incredible team we have built here.
Speaker Change: I have decades of experience leading insurance companies, and at the end of the day, what we are selling at Open Lending is an automotive alone underwriting solution with credit default insurance protection while delivering on our mission to serve the underserved.
Speaker Change: Our value proposition is derived from our London's protection program, our customers and our insurance carrier capacity, which I believe are as strong as ever.
Speaker Change: That being said, I want to assure everyone that I am focused not just on the bigger picture of where we can be in the medium and long term, but also on optimizing the day-to-day blocking and tackling that moves the needle in the short term.
Speaker Change: I have nothing but confidence in this team and a business model. Or quite frankly, I would not be in the seat talking to you all here today. We intend to come through this difficult time as a stronger, leaner, more agile organization.
Speaker Change: I've also heard from many of you in the financial community, including our investors. The management team and the board take all of your feedback into consideration, most of which we will address in my remarks.
Speaker Change: I strive to keep lines of communication open and look forward to the continued dialogue. Now, let's talk about Open Lending is and where we are today.
Speaker Change: At its core, Open Lending and our Signature Lenders Protection Program is an auto-lone enablement platform that combines the power of sophisticated risk-based pricing techniques, financial and credit modeling and automated underwriting combined with credit default insurance.
Speaker Change: This in turn generates value for our customers by going deeper into the credit spectrum and extending favorable loans to borrowers who would not otherwise qualify. Thus increasing their loan volumes and by extension, the lender's profitability and serving more members.
Speaker Change: With regard to this core product and mandate, we believe we are in a strong position and are actively generating value for our customers.
Speaker Change: We have strong relationships with both our insurance carrier partners as well as over 400 active customers.
Speaker Change: We have had transparent conversations with many of our partners and we believe they remain committed to our product and our mission. We also have a passionate loyal employee base who cares deeply about our customers and our mission to serve the underserved.
Speaker Change: And lastly, we have a strong balance sheet with 236 million in unrestricted cash that provides this financial and operational flexibility focused today on stabilizing the foundation and gives our customers confidence in our ability to service them.
Speaker Change: We believe our value proposition and financial strength remain strong and we believe we are positioned to execute honor strategy. Insurance products have volatility and while we aim to reduce that, one quarter does not define us.
Speaker Change: Next, I want to discuss where Open Lending is going. On our last call, I discuss some of my operational priorities. I've only been in this position for just over a month now, but we've already made considerable progress on my key priorities.
Speaker Change: Our first and most important priority is to increase profitability of our insurance offering while reducing volatility in our profit share revenue.
Speaker Change: By improving segmentation and our ability to predict risk with expanded use of data and insights, we anticipate pricing loans more dynamically and enhancing our premium pricing were appropriate.
Speaker Change: We're also focused on enhanced pricing, which we expect will reward higher performing loans with lower pricing and discourage poorly performing loans by raising rates.
Speaker Change: By the end of the year, we will begin incorporating more real-time data in an effort to identify delinquencies faster and adjust our pricing models as needed with a shorter feedback loop.
Speaker Change: Second, we will focus on growing revenue and increasing surits by improving our customer retention and further demonstrating the strong value to our customers throughout the life cycle of the loan.
Speaker Change: The initiatives to drive increased retention is our lender of profitability reporting, making it easier for lenders to see the direct financial, operating profitability of working with Open Lending with simplified dashboards and automated performance reporting.
Our key focus here is twofold.
Speaker Change: Third, we are committed to operational excellence and streamlining, eliminating unnecessary cost and spending from the business while refocusing our investments on our core capabilities and employees.
Speaker Change: After the beginning of the second quarter, we executed a 10% reduction in our head count compared to fiscal year 2024 year and head count.
Speaker Change: However, we are investing in mission-critical functions to ensure enhanced product pricing and profitability such as key insurance roles such as expanding our actuarial team.
Speaker Change: Going forward, we will continue to right size our expense structure as we conduct a thorough review of our expenses across the business.
Speaker Change: Fourth, we intend to enable a culture of accountability and empower our talented employee base to deliver and execute on our strategic priorities.
Speaker Change: We need to do a few things 100% right. This improvement and focus involve a revised organizational chart eliminating siloed work streams and clarifying accountability for each and every employee.
Speaker Change: I believe we've made significant progress on all four of these fronts in the past weeks and we are just getting started. My confidence in the business and its people is higher now than it was before I stepped into the CEO seat and I'm looking forward to providing you all with an update on our progress on our next call.
Speaker Change: I also want to reiterate that I am committed and passionate about my role and this company.
Speaker Change: Before walking through the financials, there are three additional points I wanted to touch on to ensure that everyone is receiving the right information.
First.
Speaker Change: Last quarter's negative profit share change estimate, or CIE, was an adjustment due to several factors we discussed in our last earnings call and in our 10K on our back book of loans.
Speaker Change: As a result of the CIE, we currently have a 57 million excess profit share receipts liability on our balance sheet, which is based on our current forecast of future losses and which we anticipate will fluctuate quarter over quarter.
I want to make a few points clear.
Speaker Change: One, there is generally no contractual obligation to return the excess funds while an insurance partner is actively participating in a profit-year program. We receive a percentage of the earned insurance premium less loan losses.
Speaker Change: In period where loan losses exceed the earned premiums, no profit share payments are received and future receipts are reduced until the earned premiums exceed the accumulated loan losses.
Speaker Change: Two, that all of our insurance carrier partners are in a liability position.
Speaker Change: Which we believe will result in less volatility in a revenue recognition for the current and future ventages.
Speaker Change: Lastly, on this issue, I want to recognize that this is a complex insurance issue, so we will continue to be as transparent as possible on all component of the profit chair.
Speaker Change: Second, I want to discuss our capital allocation priorities. We fully understand that a healthy balance sheet is a fundamental strength and necessity in this business.
Speaker Change: My focus is on the fundamentals in generating positive future cash flow even in the short term. Our intents is to utilize our balance sheet to invest in our organic business in a controlled and measured manner to fuel profitable growth.
Speaker Change: As we announced today, we believe that our stock is undervalued, and for that reason, our board has authorised a $25 million stock repurchase program, which we believe represents the best investment we can make of this time.
Speaker Change: While we routinely evaluate our options regarding our cash, for now, the cash interest expense on our debt has been about equal to the amount of interest income generated on our cash and cash equivalents on a quarterly basis.
Speaker Change: And as such, we currently believe we will be better served with the flexibility provided by having the cash on our balance sheet.
Speaker Change: We are also currently in compliance with all of our covenants under our credit agreement and expect to remain in compliance based on our internally projected performance throughout 2025.
Speaker Change: Finally, on the corporate side, we plan on taking several actions that we believe will be beneficial to all of our shareholders.
Speaker Change: First, we have shrunk the size of our board to seven to reflect what we believe is the appropriate for the company and the size.
Speaker Change: Second, we are evaluating the benefits of separating the CEO and board chair role to be consistent with best-in-class governance.
Speaker Change: And finally, while we conduct regular self-assessment of our Board of Directors, we plan to take a fresh look at our board in an effort to optimize for different skill sets and independence that foster a healthy variety of opinions and voices.
Speaker Change: We are also diligently searching for our next CFO to lead our financial organization.
Speaker Change: We've got some promising candidates in the pipeline right now, and hope to have more information for you there soon.
Speaker Change: We plan to provide additional Outlook metrics as soon as reasonably practical loss.
Speaker Change: Now I'd like to provide an update on our financial results for the first quarter of 2025. During the first quarter of 2025, we facilitated 27,638 certified loans compared to 28,109 certified loans in the first quarter of 2024.
Speaker Change: Total revenue for the first quarter of 2025 was $24.4 million and include the $900,000 reduction in estimated profit share revenue for the change in estimate related to business and historic
Speaker Change: To break down total revenues in the first quarter of 2025, program-free revenues were 15.2 million, profit share revenue was 6.7 million, net of the negative change in estimate, and claims administration fees and other revenue was 2.5 million.
Speaker Change: We have also added 18 new logos in the quarter compared to 11 new logos in the first quarter of 2024.
Speaker Change: As a reminder, Profitier revenue comprises the expected earned premiums, less the expected claims to be paid over the life of the contracts and less expenses attributable to the program.
Speaker Change: The net profit share to us is 72%, and any losses in the net profit share are accrued and carried forward for future profit share calculations.
Speaker Change: When the cash consideration previously received is in excess of the expected profit share revenue, the amount of the excess funds and the forecasted losses are recorded as an excess profit share receipts liabilities.
Speaker Change: Profit Share Revenue in the first quarter, 2025, associated with new originations with $7.7 million or $278 per certified loan.
Speaker Change: The decrease in the unit economics per the certified loan is due to our current estimates of loan performance based on our recent historical results.
Speaker Change: In addition, and as I have already mentioned, one of our steps to reduce the volatility of future quarter to quarter change in estimates is booking initially lower unit economics at the time of origination.
Speaker Change: At this unit economics, this is equivalent to a 72.5% loss ratio and with our current pricing actions, we would expect current vintage to ultimately perform closer to a 65% loss ratio.
Speaker Change: The 900,000 negative-profisher CIE recorded in the current quarter is associated with cumulative total-profisher revenue previously recognized of approximately $337 million per period dating back to January 2019.
Speaker Change: and the ASC 606 implementation date and represents over 411,000 insured enforced loans in the portfolio and mostly attributable to 2021 and 2022 ventages.
Speaker Change: We also expected a reasonable CIE variance as a model absorbed new information.
Speaker Change: Operating expenses were 17.5 million in the first quarter of 2025 compared to 17.7 million in the first quarter of 2024, representing a decrease of 1% year over year.
Speaker Change: As I mentioned earlier, we have made the controlling of operating expenses at priority going forward and the reductions we made will have a full financial benefit in 2026.
Speaker Change: We'll continue to monitor expenses right size we're needed and find efficiencies in our own spending as well as in third party spending going forward.
Speaker Change: Net income for the first quarter of 2025 was 0.6 million compared to 5.1 million in the first quarter of 2024.
Speaker Change: We exited the first quarter with 304.2 million total assets of which 236.2 million was an unrestricted cash and 29.8 million in contract assets.
Speaker Change: We had 224.4 million in total liabilities of which 137.9 million was outstanding debt. In summary, we are moving quickly and believe we've already made positive steps towards reorienting the business to profitable growth.
Speaker Change: We believe our business model and our value proposition are strong. We have over 400 active lenders, customers, and three insurance carrier partners.
Speaker Change: Our balance sheet is strong with 236 million unrestricted cash providing us with the flexibility needed to invest in organic growth.
Speaker Change: We have taken action in an effort to address customer attention, which we believe is already yielding positive momentum.
Speaker Change: I believe in Open Lending, our business model, our ability to execute and our strong balance position that enables us a flexibility to make operational changes. We have a concrete plan in place to get the company back to a place of greater strengths and eventually grow search and revenue.
We will now take your questions.
Speaker Change: Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We will pause for just a moment to allow questions to queue.
Speaker Change: Thank you. Our first question will come from John Hecht with Jeffries. Your line is open.
John Hecht: Yeah, afternoon, and thanks for all that context, a very, very helpful...
First question is just-
John Hecht: Call it, you know, for lack of a better term, the overall environment. I mean, we saw the manheim edged up this morning. There could be some more pressure, I guess, of...
Joseph, if a pair of skid get enacted as Ed.
Potentially Expected.
John Hecht: You know, and how do those elements affect your ability to structure deals just given the likelihood that costs of use cars go up to your consumers?
John Hecht: Yeah, thank you, John . This is Jessica. Yeah, as you mentioned, you know, we are closely monitoring, you know, the overall macro environment. The increase to the movie index, you know, for our MacBook is actually something that we've used positive that will increase collateral values and could potentially, you know, again, one quarter does not make a trend, could potentially have a positive impact on our CIE.
We're also taking active steps on monitoring tariffs.
John Hecht: Matt Saylor can talk a little bit more about what we're doing in terms of rate increases that we're implementing in anticipation of, again, the increase of both new and used cars. I believe we're taking about a 10% rate increase that will go into effects in the next couple of months.
John Hecht: The overall credit union environment is actually improving with loan to share, so actually coming down at 81.8% and actually share growth has actually increased 40% quarter of a quarter to 6.4%.
So we believe that the environment is actually getting better on the credit union side and that again because of our enhanced pricing and our better feedback loops.
Speaker Change: and our, I think, more awareness to the environment and what we're taking in terms of rate with the tariffs that were better positioned that we've ever been to be able to react to sort of the changes in the environment. Certainly, you know, it's an insurance product and we can't predict 100% the cost of good sold, but we're in a much better position with the data that we have and the actions that we've already taken. And I don't know Matt, if you'd like to add anything on the tariffs. Yeah, I think on the tariffs, the issue isn't just the price is going up. It's the volatility, which is something that we're getting
Marissa Vidaurri, Cecilia Camarillo, Cecilia Camarillo, Marissa Vidaurri, Cecilia Camarillo,
Speaker Change: and the deal structure changes and has been changing week by week and so we're continuing to monitor that. We're working with our insurance carrier partners so we have complete alignment on our action steps and we'll continue to monitor that.
Speaker Change: John , maybe one other data point I would add to that is that the origination is the first quarter we actually saw at 15% increase in originations from our credit unions, which we see is a good sign. We've also seen a decrease obviously with no super sends a decrease in our open security card approval rates. So overall we believe that our mixed shift in our book and our risk profile has decreased while we've actually achieved rate increases. So we're going to see a decrease in our open security card approval rates.
and our current vintages.
Speaker Change: Okay, and then maybe talk about other like aspects of the business that may present some opportunities over time and what might catalyze those and that would be the refi portion of the business as well as the OEM portion of the business.
Joseph Vidaurri, Joseph Vidaurri,
Speaker Change: Yeah, I'm happy to. So as we announced a few quarters ago, we have implemented our current phases of a pilot with OEM 3. That could be a very sizable opportunity for us. We're still in the initial phases of that. It is not gone active live. Again, we're still on the pilot. That pilot is rolling out. We've had great conversations with them, and I think they're very happy with the product. Thank you.
Speaker Change: You know, the ReFi market, we're ready when that market comes back. We're also talking to a few larger credit unions that have big ReFi books and looking at a way to potentially help fund those loans. Again, that's, you know, we're in initial conversations, but certainly our product is adapted and well suited for the ReFi market at the height of, you know, sort of a high cert volume. We were doing like 40,000 ReFi certs. So again, that's an area that we love and that book has performed very well for us.
Joseph, John Davis, John Davis, John Davis, John Davis,
Okay, wonderful. Thanks very much for the color.
Speaker Change: Thank you. Once again, if you'd like to ask a question, please press star one on your telephone keypad. Our next question comes from John Davis with Raymond James. Your line is open.
John Davis: Hey, good afternoon, Jessica. Just want to start on the
John Davis: C.I., the score, you know, I realize it's relatively small at 900 K, but I guess a little bit surprising to see.
John Davis: You know, another negative revision after the big 4Q1, especially given the movie's move in the right direction. And so just,
John Davis: Curious kind of what drove that 900K revision and also it was that specific to the 2021, 2022 event into jizz or any other color you could give with the helpful.
Speaker Change: Sure, so let me just start by saying that again, we have multiple ventages that are measured each quarter through a process and a model by where we update inputs on frequency severity and many other factors that go into our score cards.
Speaker Change: And so every quarter we would expect there to be some form of movement in the 606 or the CIE looking backwards.
Speaker Change: If you sort of look at the prior ventages, you would see sort of ups and downs across all the ventages, meaning that some are positive, some are negative. None of them extremely large, either way, and netting to the $900,000 negative adjustment.
Marissa Vidaurri, Cecilia Camarillo, Marissa Vidaurri, Cecilia Camarillo, Marissa Vidaurri,
Marissa Vidaurri, Cecilia Camarillo, Marissa Vidaurri, Cecilia Camarillo, Marissa Vidaurri,
Speaker Change: Okay, that's helpful. And then, you know, if I look at the profit share kind of X, the CIE, I think it was 276, this quarter, you know, last quarter, you said somewhere around 300, was kind of the right way to think about it. I think I'm not going to split hairs there, but actually, I want to focus on your comments that.
Speaker Change: I think you were kind of underwriting that 276 that like it's almost a 73% loss.
Speaker Change: Law. So I guess what I'm just trying to like do the math and like, is that mean that that 276 is like 12%?
Speaker Change: conservative, meaning that like you're in theory, if you're booking to exactly what you expected, you would you would book something like 310, just just trying to translate that kind of the loss ratios that you're talking about into what you're booking up front to try and gauge the conservatism that's in that 276.
Speaker Change: Sure. I think it's exactly what I said in my prepared remarks. So, under 606 guidance, even for the current profit share, we want to book a loss ratio or a pre-unit economic that is more likely than not to be reversed. So, we have further constrained our profit share for the current.
Speaker Change: Corridor, based upon the recent volatility of the past historical results. So that is booked at a 72.5% loss ratio as you mentioned and I made it in my remarks.
Speaker Change: That being said, the pricing actions that we've taken today, including underwriting and pricing both, we believe that those if those all have the impact as projected, would perform closer to a 65 including also the bookmark shift.
Okay, very clear. Thanks, Jessica.
Speaker Change: Thank you, ladies and gentlemen. As there are no further questions, I'll now turn the call back over to Jessica for her closing remarks.
. . . . .
John Davis, John Davis, Marissa Vidaurri, John Davis, Marissa Vidaurri, John
Speaker Change: Thank you for watching. Please like, comment, and subscribe. See you next week.
Speaker Change: We appreciate your interest in support, and I'd like to again thank all the team members at Open Lending for your hard work and dedication to our company.
Speaker Change: I would also like to thank Chuck Jehl, who is our current earner in CFO , but has been with the company for five years as both our CFO and our CEO has done great work with the company. This will be his last official earnings call as interim CFO , but we'll continue on our board. Thank you, Chuck, for all that you've done. Really appreciate it. He's done great work here. We wouldn't be where we were today without him. And thank you all. Have a great day. Thank you.
Speaker Change: Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.
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