Open Lending Corporation

Good afternoon and welcome to Open Lending's first quarter 2021 earnings conference call. As a reminder, today's conference call is being recorded. On the call today are John Flynn, Chairman and CEO, and Ross Jessup, President and COO, and Chuck Yale, CFO. Earlier today, the company posted its first quarter 2021 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 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 11, 2021. 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 you, John, for your opening remarks.

Thank you, operator, and good afternoon, everyone. Thanks again for joining us for our first quarter 2021 earnings conference call. I'd like to start today by reviewing our first quarter highlights, as well as the progress we've made on our growth objectives. Then Ross is going to provide an update on our OEM opportunity, along with some recent changes to our underwriting. And finally, Chuck is going to review our Q1 financials and our outlook for full year 2021. During the first quarter, we certified 33,318 loans which was an increase of 19% as compared to the first quarter of 2020. We reported revenue of 44 million, which was an increase of 152% and adjusted EBITDA of 30.3 million, which was an increase of 217% as compared to the first quarter of 2020 as well. The first quarter was a record quarter for the company and March was especially notable. as it was a record month in our company's history from a certified loan perspective. We certified over 14,500 loans in March, and the momentum has continued into the second quarter. We also continue to make solid progress on our growth opportunities. During the quarter, 14 contracts were executed with new customers, and we currently have over 360 active customers on our platform that have generated certified loans in the past 12 months. We announced a new partnership with Noble Credit Union, which is a $1 billion institution based in Fresno, California, and we've also recently signed six other large institutions, which we will announce once they go live on our platform. We continue to show progress on the credit union front, and we believe we still have a huge runway for growth ahead of us. We continue to have productive conversations with multiple regional bank prospects. And we are currently working on two data studies for these types of institutions. We've begun making traction with companies in the online lending channel who funnel applications to funding sources. We are currently working on a data study with one of these institutions to look at their applications that were not funded in the last quarter, which represents approximately 270,000 applications at various credit scores. Also during the quarter, we added seven new credit unions and banks to the refinance program and have 28 credit unions that are acting as funding sources behind these refinance channel partners. We noted an uptick in volume and it was a greater than 75% increase in applications in March of 2021 as compared to March of last year. PenFed Credit Union has grown its CERT volume from approximately 700 loans in February to over 1,000 in March. In March, we co-hosted a webinar with KPMG and we published a white paper on CECL relief that can be found on our website. The webinar had over 100 attendees and has generated positive feedback and inbound calls from current and prospective OEM, bank, and credit union partners inquiring as to how we can help. We plan to do more of these webinars in an ongoing basis to educate potential partners on our offerings. As the CECL deadline approaches for credit unions, we believe this is a great growth opportunity for us to expand our wallet share. And then lastly, we continue to make very good progress on adding additional insurance carrier partners to our platform. We are in active discussions with various top insurance carriers as we feel there is enough volume to support a third or fourth insurance carrier without jeopardizing our relationship with the other two carriers. This is an important initiative for us and we will continue to provide a more meaningful update on our progress as we execute this initiative. So with that, I'm going to turn it over to Ross to review our OEM business and our progress on that front, as well as talk about some of the underwriting changes that we're currently making.

Thanks, John. As we have spoken previously, the OEM captive market is substantial and a major growth opportunity for us. As of today, we currently serve two OEM captives, which we expect to continue to ramp, and we continue our ongoing discussions building out our pipeline of other OEMs for the future. Now let me provide an update on our progress growing OEM number one and two. OEM number one We experienced certification growth of approximately 164% in the first quarter 2021 as compared to the first quarter 2020. We are very happy with this progress and growth. OEM number one is currently utilizing our platform for an expanded credit score offering, which is 560 to 679 in all four regions that they service. They launched one region in January and the remaining three regions last week for the credit score ranges 620 to 679. We anticipate this could add an additional 300 certs per month, taking OEM number one to approximately 1,300 certs per month once fully ramped. In addition, this week we are launching expanded loan terms from 72 to 75 months in one of their four regions initially as a pilot. Moving on to OEM number two. As you may recall, OEM number two launched originally in October 2019 with their captive finance arm and paused doing business in April 2020 due to the COVID-19 pandemic. They came back online in October 2020 and production has ramped to near pre-COVID levels. Certified loan growth was approximately 60% in Q1 2021 as compared to Q4 2020. We are now active for both new and used across the nation for OEM number two. Production continues to ramp up and we're making good progress moving forward towards a full ramp of eight to 10,000 certs per month by the end of 2021. We launched Subvention in January in one market and were delayed for the February launch due to the Texas storms. As of early March, we are live across the nation with Subvention. We expanded terms to 75 months in early April, and the initial feedback is very positive. So for both new and used, they're ramping in line with expectations, and we are excited about the opportunities to continue to broaden our services with them as the relationship grows. Volume number three, as we previously disclosed, we completed a data study for volume number three, and it included a 51% increase in approvals demonstrating a strong value proposition to their business. We both are encouraged by the results and will update you as the relationship moves forward. Moving on to item number four, as previously disclosed, we completed our data study which included a 57% increase in approvals from applications they are denying. We are also encouraged by these results and the progression of our discussions and will update you as well on the relationships as they move forward. Let's move on to an update on the underwriting initiatives. When COVID-19 hit last year, we tightened our underwriting standards by incorporating a 5% vehicle valuation discount, which resulted in higher loan-to-values, LTVs, that increased premiums and improved the quality of the credit of our book during that pandemic. And we changed our income verification thresholds With the macroeconomic environment improving, we felt it was the appropriate time to change these standards back to where they were pre-pandemic, as we have had fewer defaults and claims than expected. We removed the 5% vehicle discount in mid-April and are removing the proof of income for 620 to 680 credit scores for direct and the refinance channels in May. We expect both of these changes will increase our certified loan volume through more attractive rate offerings. I now turn it over to Chuck to discuss our Q1 financials in more detail.