Good afternoon, and welcome to the Open Lending Third Quarter 2024 Earnings Conference Call. As a reminder, today's conference call is being recorded. On the call today are Chuck Jehl, Chief Executive Officer and Interim Chief Financial Officer; and Marissa Vidaurri, Vice President of Investor Relations and Corporate Communications.

To get us started, I will pass the call over to Marissa Vidaurri. Please go ahead..

Thank you. Appreciate you joining us. Prior to the start of this call, the company posted the third quarter 2024 earnings release and supplemental slides to its Investor Relations website. In this release, you will find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call.

Before we begin, I would like to remind you that this call may contain estimates and other forward-looking statements that represent the company's view as of today, November 7, 2024. 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 from those expressed or implied with such statements. And now I will pass the call over to Chuck to give an update on our business and financial results in the third quarter..

total certified loans to be between $20,000 and $24,000, total revenue to be between $22 million and $26 million and adjusted EBITDA to be between $7 million and $10 million. In closing, we believe we are well positioned for when the market recovers and remain optimistic that market conditions are trending positive.

Delinquency rates are stabilizing in the near term. Lending capacity is showing improvement and inventory levels are increasing, and we will continue to make intentional investments in our technology to improve the experience of our lender customers and their borrowers.

We have strong conviction that the near and nonprime consumers and their lenders need us now more than ever as evident by the record level of new customers added in the third quarter of 2024. I want to personally thank our entire Open Lending team for their dedication to our company and thank our customers and our partners for their support.

I'm also grateful for their support as I begin my new role as Chief Executive Officer of Open Lending. I believe we have a bright future ahead, and I am excited to move forward together. We will now take your questions..

[Operator Instruction] And we move first to Joseph Vafi with Canaccord..

Congratulations on the new roles to both to you. You mentioned some tightening of some of your underwriting standards and how that may kind of affect certain volumes.

Can we kind of drill down on that a little bit and perhaps what you may expect to see in terms of kind of approval rates as a result of that tightening? And then I'll have a quick follow-up..

Thanks for the question, Joe. If we think about the factors that went into the Q4 guide, particularly, as we mentioned, normal seasonality, I mean, Q3 to Q4 normally is 8% to 10% down. So, you think that's there, and the midpoint of where we're guiding for Q4 is down a little below 20%.

So, what we saw, our risk team, in credit performance and obviously keep a close eye on that, and what we had seen over the last few quarters is an increase in thin credit files and thin files, they just don't have a deep credit history and are higher exposure and higher risk.

So, as we've continued through the last 2 years, as we've tightened, we're looking for quality loans in the portfolio and looking to limit the higher risk. So, we felt it was prudent to go ahead and tighten there this quarter and definitely will impact our Q4 volume.

But, the right thing to do, if you think about on the Point Predictive partnership, and that's a positive and that's going to eliminate some of the friction and risk that consumers see at the dealership, as we said in the prepared remarks.

So, that's going to be a positive uplift there as well, more driving into '25 on that as we kind of move forward because we just launched that. We basically increased pricing on those 10 files that I discussed. So again, it's the right thing to do. Approval rates on that are probably going to be down about 4% is what we're estimating..

And then nice to see some business model expansion with the alternative sources of capital you mentioned, Chuck. Maybe kind of just drill down on that.

What kind of demand you think you may see from some of your lending partners there and how potentially that alternative sources of capital may change your unit economics on certs and whatever else you think may be relevant there?.

Thanks for the question. As we've kind of seen through this cycle, Joe, one, our credit union customers loan-to-share ratios have been near historic highs on a loan-to-share.

So, as we kind of looked at that and as we looked into the future and future cycles, we've got a team in place that, on the capital markets, Steve Mahay is heading that up for us and doing a good job and getting that kicked off.

And we're looking at ways that we can help our customers, not just with our technology, our platform and all we do with our core product is also then help them through cycles.

And if it's the loan participations and we've got deep relations across the credit union industry and some institutions have healthy loan-to-share and then some of our larger customers are a little higher.

So, our capability to help them facilitate those participation transactions definitely helps us, helps them and ultimately, Open loans back in flow for that institution that may have been lent out. So, really excited about the work we're doing there and look forward to expanding that is around if it's forward flow transactions or whole loan sales.

So, that's kind of where we're at. As it relates to unit economics on that, it's more of a service that we're providing to our customers. And at this point, I wouldn't see a change in our unit economics, just more of an opportunity for volume..

We'll take our next question from John Davis with Raymond James..

This is Taylor on for JD. Maybe just to start with the profit share revision during the quarter of $7 million. I heard your commentary on mostly still being driven from the problem cohorts. But I think you've mentioned in the past that the peak claim period should be passing later this year or early into 2025.

I just wanted to get your updated thoughts on if you think this is still the case or if expectations have changed at all?.

Thanks, Taylor, for the question. Yes, as we think about '21 and '22, those are worst performers in recent history, 18 to 24 months is definitely the peak of claims. What we've seen with these vintages is that they're not necessarily coming down at that point on a typical cycle. There's really been nothing normal about this.

But we are seeing delinquencies starting to lower on the newer pools. We're working through those older pools as we think about those vintages. And we are, I guess, in a positive note, starting to see those bend down from a peak claims perspective.

So, that is good news, but it's maybe a little early to declare there on where we are, but we're encouraged that we believe we're working through them..

And then maybe just one more. So, it was good to hear the elevated client signings during the quarter of 21. So I'm just curious where you're seeing the most success, whether it be with credit unions or banks.

And just curious if you could size these clients at all?.

Yes. In the quarter, the 21, obviously, is a record. We're proud of the team and our changes earlier this year that we had implemented. And of those 21, I think all of them were credit unions in the third quarter. We did sign a bank previously in the year. Banks are longer sales cycle. Obviously, we've talked about that and so are OEMs.

But the success this quarter was really in our sales team and their execution, working along with a very talented sales and account management team and really executing. We're focused on larger institutions, and we've talked about that for several quarters.

And I think of these 21, I think we had 10 or 11 were $1 billion-plus institutions, which was really, really nice in asset size. And we've got a great pipeline, a strong pipeline going forward. And I think it's a testament just to Open Lending the value prop and what we deliver and provide to our customers, and it's resonating now more than ever..

[Operator Instructions] We'll move to Peter Heckmann with D.A. Davidson..

Chuck, congratulations on the CEO role. Acknowledging that this has been a dynamic market, and there's been some difficulties with predicting used car prices and the direction of rates and what not.

I guess do you think that Open Lending can get to a point where we can kind of resume annual guidance instead of just kind of this 1 quarter forward guidance? I mean, I'm sure you're struggling with the numbers as much as anyone else.

But when we see 6 or 7 quarters in a row of negative revisions to profit sharing, I was under the assumption that many of the variables that had gone into these estimates were very conservative is just frustrating. So, I look at it and I hear what you're saying about a potential turn.

And certainly, it's encouraging to hear more financial institutions coming back.

But I guess, is there any probability that Open Lending gets back to some level of normality where we have much, much smaller quarterly revisions to profit sharing and we can have a higher level of confidence in the overall revenue and earnings stream?.

Yes. I mean, I appreciate the question, Pete. And, yes, if you think about the volumes we were producing during those worst performers, '21 and '22 and really the actions we've taken that we've talked about now for a couple of years and the recent actions, we do feel good about where we're heading into '25 and beyond.

I think the tightening that we've done has slowed volume intentionally as everybody in the industry is working through those worst performers. But I do believe there's going to be a point, and I said it in the prepared comments that the profit share is going to be less volatile, and we're going to work through that.

You know as well as I do that, back in '21, when things were performing very well, we had multiple quarters of positive adjustments in a row. So, I think we've just worked through this cycle and continue to work through it. But I think it will be less volatile going forward.

I think our new scorecard, I think a lot of things we're doing with our risk and actuarial teams are helping us to be more predictable on the newer vintages and they're performing better. And we're seeing 6 months on book, for example, for Q1 of '23 vintage is the delinquency rate is down 25% if you compare back.

So, I do believe we're going to get to some level of normalcy, and it's going to stabilize. And your point about getting back to annual guidance, that's the goal. And, yes, it's been frustrating for us as well, but not having visibility to go out a year is the reason we went to quarterly.

So, I think as we get the company growing again, and which I believe we will, and we said it in the prepared remarks, and we got some really good things going on that can do that. So, long answer to your question, but I do think it will stabilize and we'll have the company growing and we're looking forward to 2025..

And again, I'm sorry, I was late to the call. I didn't see or hear anything in the release about a new potential share repurchase authorization.

Is that something that the Board is considering? Or would there be something that would prohibit you from doing that?.

Yes. We did not announce a new authorization, and that is our previous authorization expired, as you know. And from a capital allocation perspective, I was buying stock at prices higher than where we are today. So, I think we believe in that is a good use of capital.

But it is a Board-level decision and a Board authorization that I currently do not have, but it's something that we work closely with the Board on and evaluate..

Ladies and gentlemen, as there are no further questions, I will now hand the conference over to Chuck Jehl for his closing comments..

I would like to thank everyone for joining us today. And again, thank you to all of the Open Lending team members and all you do for our company and your dedication and support. And I hope everyone has a good afternoon. Thanks again..

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful evening..