Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Open Lending Corp (LPRO, Financial) reported near or above the high end of their guidance range for certified loans, revenue, and adjusted EBITDA, excluding a negative change in estimate associated with their profit share.
- The company certified nearly 29,000 loans in Q2 2024, representing approximately 3% sequential growth compared to Q1 2024.
- Open Lending Corp (LPRO) has taken actions to tighten underwriting standards, resulting in a decrease in 60-plus day delinquency rates from over 2% in mid-2022 to a range of 1% to 1.5% currently.
- The company signed 13 new credit union customers in Q2 2024, including four larger customers with almost $7 billion in combined total assets.
- Open Lending Corp (LPRO) added Securian Financial Group as an insurance partner, expanding their premium capacity in anticipation of growth.
Negative Points
- The company's results were negatively impacted by a $6.7 million profit share change in estimate due to elevated delinquencies and defaults from 2021 and 2022 vintages.
- Total revenue for Q2 2024 was $26.7 million, a decrease from $38.2 million in Q2 2023.
- Operating income for Q2 2024 was $4 million, down from $15.7 million in Q2 2023.
- Net income for Q2 2024 was $2.9 million, compared to $11.4 million in Q2 2023.
- The company faces challenges from elevated interest rates and affordability issues, impacting consumer demand and lending capacity.
Q & A Highlights
Q: Can you quantify the impact of the CDK dealer management system software outage on your sales, and has it corrected itself in July?
A: Charles Jehl, Executive Vice President, Chief Accounting Officer, explained that the CDK outage primarily affected new auto vehicle sales, with minimal impact on used auto sales, which constitute about 85% of Open Lending's volume. Therefore, there was no significant impact on Q2 volume, and no future impact is expected.
Q: Does the Q3 guidance factor in a potential Fed rate cut in September, and how would changes in Fed funds rates affect your refinancing operations?
A: Charles Jehl stated that the Q3 guidance assumes continued elevated interest rates. While hopeful for a rate cut, the guidance does not include it. A rate cut could positively impact their refinancing channel and volumes, but the current guidance reflects the existing rate environment.
Q: Is there a make-hold period for profit share with financial partners, and how does it work?
A: Charles Jehl clarified that Open Lending does not write checks if the profit share goes negative due to high claims and defaults. Instead, there is a recapture mechanism that benefits the carriers.
Q: What is the outlook for refinancing given historical mix and current credit union lending demand?
A: Charles Jehl noted that refinancing was 3% of volume in Q2 2024, down from over 40% in early 2022. He emphasized the importance of healthy lending capacity at credit unions, which are showing signs of improvement, for future refinancing growth.
Q: Can you explain the $6.7 million profit share adjustment and what might cause further adjustments?
A: Charles Jehl attributed the adjustment to lower-performing 2021 and 2022 vintages, affected by high claims and defaults. He expects these issues to be resolved by early 2025 as they work through these vintages, leading to less volatile profit share revenue.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
