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spk10: Good afternoon and welcome to Open Lending's second quarter 2023 earnings conference call. As a reminder, today's conference call is being recorded. On the call today are Keith Jezik, CEO, and Chuck Yale, CFO. Earlier today, the company posted its second quarter 2023 earnings release and supplemental slides to its investor relations website. In the release, you will find the 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 estimated and other forward-looking statements that represent the company's view as of today, August 8, 2023. 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'll pass the call over to Mr. Keith Jezik. Please go ahead.
spk03: Well, thank you, Operator, and good afternoon, everyone. Thank you for joining us today for Open Lending's second quarter 2023 earnings conference call. I am pleased to announce we exceeded the high end of our Q2 guidance range for all metrics, certified loans, revenue, and adjusted EBITDA. During the quarter, we certified 34,354 loans, generated total revenue of $38.2 million, and adjusted EBITDA of $20.7 million. I would like to thank all of our team members at Open Lending who executed and delivered these positive results despite challenging sector and macroeconomic conditions. As we know, the auto industry continues to navigate through multiple challenges. As of June, there were 1.9 million new vehicles on dealer lots or in transit, representing a 75% increase compared to a year ago. While this is a significant year-over-year increase, these inventory levels are still well below pre-pandemic levels of approximately 4 million units. The improved availability of supply led to an increase in the new vehicle SAR to 15.7 million units at the end of July, up 5% sequentially since March 2023, and 15% higher than a year ago. Despite this increase, total new sales remain approximately 10% lower than pre-pandemic levels of approximately 17 million units. This improvement in New START was bolstered by average transaction prices in July declining 0.7% versus June of 2023. In addition, OEMs are continuing to increase incentives, which reached the highest levels since late 2021. We are encouraged by these metrics and progress as they are an indication of a return to pre-pandemic conditions, which are more advantageous to the consumer. Now let's turn to used auto. Used vehicle SAR ended June at 36.7 million units, up 7% sequentially since March 2023, and almost 3% higher than a year ago. However, this result remains 9% lower than pre-pandemic levels of approximately 40 million units. As the industry continues to deal with the supply-constrained environment, retail prices have declined only 3% to an average used vehicle price of approximately $27,000. This is still close to 40% higher than pre-pandemic levels, creating continued affordability challenges for the near and non-prime consumer. Understandably, consumers are holding onto their vehicles longer than historical periods, with the average age of a passenger car on the road now exceeding 13.5 years. As cars age, The typical consumer is at risk for major repairs versus just routine maintenance costs. Accordingly, we believe there is a significant pent-up demand within the used auto market, creating a great opportunity for which we will be well positioned as the sector and macroeconomic conditions improve. Shifting to affordability, it remains the most significant challenge for the near and non-prime consumer and ultimately our business. Cox Moody's Vehicle Affordability Index reported the median weeks of income needed to purchase a new vehicle in June decreased to 43 weeks down slightly from 44 weeks in December. Even though this is moving in the right direction, it is still much higher than the historical average of approximately 35 weeks. While auto prices have slightly decreased, financing costs have not as borrowing costs remain elevated due to the continued tightening actions by the Federal Reserve. For example, The average used auto loan interest rate increased to approximately 13.5%, while the average new auto loan interest rate exceeded 9% for the first time in over a decade. As we have seen in prior cycles, as supply returns, vehicle prices are expected to moderate and interest rates are likely to decline, which should lead to improved affordability for the near and non-prime consumer. Now let's turn to our credit union customers who, as you will recall, became the market leader of all auto loan originators in Q3 2022, reaching 28.4% market share. However, over the past three quarters, they have shrunk their market share due to continued liquidity challenges. We have seen credit unions tighten their underwriting standards in this environment, and most recently they turned their focus to prime and super prime borrowers. In fact, Fed data reflects auto loan originations in the 620 to 719 FICO band decreased 21% from Q4 2022 to Q1 2023. In this environment, all lenders are being extra cautious against going too far down the credit spectrum. As a result, auto loan rejection rates hit all-time highs in June with the greatest increase occurring among near and non-prime borrows, which we serve. As market conditions improve, we expect credit unions to adjust underwriting standards in return to serving all of their members. As a company, we remain focused on positioning ourselves for the future by making measured and controlled investments with demonstrable ROI. Among these, we continue to refine and optimize our sales channels, enhance our technology offering, and attract and retain top-tier talent. First, on the sales front, we added 13 new accounts in Q2 2023 as compared to 18 new accounts in Q2 2022. Importantly, we expect to generate more certified loans from the 13 new accounts added in Q2 2023 than from the 18 accounts that were added in Q2 of 2022. This is a result of our continued focus on adding mostly larger accounts. The new accounts added during the quarter represent a doubling in the average target share to us per financial institution signed as compared to the prior period. These wins speak to the enduring and ever-growing value that open lending brings to all players in the automotive retail ecosystem. Additionally, we continue to enroll financial institutions who operate loan origination systems for which we already have existing successful technology integrations, resulting in improved mean time to revenue of over 20% on several of our recent implementations. This significant improvement in operational efficiency will serve us well as conditions improve. Now turning to marketing, we released our second proprietary research report, Loans Within Reach, Lending Enablement Benchmark. This fresh take on the automotive lending industry gathers insights from a group of US-based auto lenders to determine the role lending enablement solutions play in increasing ROA, reducing risk exposure, and improving decisioning speed. In this report, we reveal how using alternate data sources and AI-driven analytics help lenders strategically cater to near and non-prime borrowers, a crucial component of a balanced portfolio. We found that lending enablement solutions provide a clear performance advantage to financial institutions surrounding speed, growth, and personalization. The release of the report garnered tremendous earned media, including a live Bloomberg radio segment, coverage from Fintech Nexus News, Global Fintech Series, Used Car News, and Automotive Technology. This earned media and prudent investments in marketing continue to lead to a growth in marketing qualified leads. During this time, we are also making enhancements in our technology. A few highlights. First, we completed our migration to the Azure cloud, removing our dependency on legacy data center co-locations and improving our already fast decisioning response time by 25%. This important accomplishment provides enhanced stability, better performance, and reduce costs. We've already seen meaningful savings on compute and storage costs alone, and we now have scalable resources immediately available to provide services within the application without manual intervention. Most importantly, this allows us to modernize our platform architecture and automate the delivery of code more safely and securely with less development overhead. Further, our application data is more accessible to our machine learning platforms, which empowers us to streamline modeling used in decisioning and pricing auto loans. In addition to completing our cloud migration, we are making enhancements within Lenders Protection to further support our lenders' evolving needs. For example, we incorporated complex logic for decisioning, which cannot be easily changed by our lender customers within their own loan origination systems, thereby enhancing and improving their daily workflows. We also implemented enhancements that bolster our lenders' ability to provide a better direct-to-consumer digital car buying experience, such as providing a pre-qualified decision without impacting the consumer's credit score. This enhancement is critical given the industry's progress towards a digital retail transaction. As you can see with these examples, we are laser-focused on supporting and assisting our lender customers. Lastly, on talent. Hiring and retaining top talent continues to be a priority for us. We recently supplemented our executive leadership team by hiring Matt Sather as our first dedicated chief underwriting officer. Matt is an experienced insurance executive with over 30 years in specialty program underwriting at large insurance carriers. He is responsible for leading our underwriting, claims, and actuarial teams. In addition, We remain focused on building a strong people strategy that fosters a diverse and collaborative environment to support open lending's long-term growth objectives. Now I'd like to take a moment to thank John Flynn for his more than 20 years of leadership as a founder, CEO, and chairman of the Board of Open Lending. As we announced last week, John will be passing over the reins to Jessica Snyder as our new chairman of the board. It is important to note John will remain a valuable member of our board of directors, ensuring continuity and an orderly transition of leadership. Jessica, congratulations on assuming the chairman role. We look forward to partnering with both you and John in the future. As discussed, having previously managed skilled businesses in the retail auto sector through the Great Recession, I remain confident about our future opportunity as we execute on our mission to help both lenders and underserved borrowers. We are delivering on our previously outlined plans and initiatives of gaining profitable market share by only signing targeted new accounts, adding technology capabilities relevant to our customers, and most importantly, thoughtfully growing our team. Given these actions, we expect to capture the pent-up demand as the sector and macroeconomic conditions inevitably recover. Now with that, I'd like to turn the call over to Chuck to review Q2 in further detail, as well as to provide our thoughts on the outlook for Q3. Chuck?
spk05: Thanks, Keith. During the second quarter of 2023, we facilitated 34,354 certified loans compared to 44,531 certified loans in the second quarter of 2022. It is important to note that if we exclude the refinance channel volume from both periods, which as we know has been significantly impacted by interest rate increases over the past 18 months, certified loan volume was up 2% quarter over quarter. Total revenue for the second quarter of 2023 was $38.2 million compared to $52 million in the second quarter of 2022. Notably, excluding the profit share revenue change in estimate impact in both Q2 and Q1, total revenues were up 4.5% sequentially compared to Q1 of 2023. To break down total revenues in the second quarter of 2023, profit share revenue represented $17.8 million, program fees were $17.9 million, and claims administration fees and others totaled $2.5 million. Now let's turn to profit share. As a reminder, profit share revenue is comprised of the expected earned premiums less the expected claims to be paid over the life of the contracts, less expenses attributable to the program. The net profit share to us is 72% and the monthly receipts from our insurance carriers reduce our contract asset each period. Profit share revenue in the second quarter of 2023 associated with new originations was $19 million or $553 per certified loan as compared to $26.3 million or $591 per certified loan in the second quarter of 2022. In the second quarter of 2023, we recorded a $1.2 million negative change in estimated future profit share related to business and historical vintages. Primarily due to higher than anticipated prepayments and default frequency, partially offset by lower than anticipated severity of losses in the near term. Concerning severity, the Mannheim Used Vehicle Value Index, the movie, experienced the worst May and June in the history of the index. Despite this significant decline, I will note that our conservative forecasting and modeling were in line with the movie as we exited the second quarter of 2023. As you may recall and for reference, In Q1 of 2023, we recorded a $700,000 positive change in estimate. Looking at this on a year-to-date basis, our profit share change in estimate was approximately $500,000 negative, a nominal impact on cumulative profit share revenue. Gross profit was $32 million and gross margin was approximately 84% in the second quarter of 2023 as compared to $47 million and gross margin of approximately 90% in the second quarter of 2022. Operating expenses were $16.3 million in the second quarter of 2023 compared to $14.2 million in the second quarter of 2022 as compared to $15.8 million in the first quarter of 2023. We continue to be prudent in adding incremental cost in the current environment. However, given the strength of our balance sheet, cash, and margin profile, we are making measured and controlled investments in our business to ensure we are well positioned for growth as market conditions improve. Operating income was $15.7 million in the second quarter of 2023 compared to $32.8 million in the second quarter of 2022. Net income for the second quarter of 2023 was $11.4 million compared to net income of $23.1 million in the second quarter of 2022. Basic and diluted earnings per share were $0.09 in the second quarter of 2023 as compared to $0.18 in the previous year quarter. Adjusted EBITDA for the second quarter of 2023 was $20.7 million as compared to $34 million in the second quarter of 2022. There's a reconciliation of GAAP to non-GAAP financial measures that can be found at the back of our earnings press release. We exited the quarter with $386.8 million in total assets, of which $224.4 million was in unrestricted cash, $59.7 million was in contract assets, and $63.3 million in net deferred tax assets. We had $167.7 million in total liabilities, of which $145.7 was outstanding debt. Year-to-date, we generated $42.6 million in cash before acquiring 21.3 million or 3.1 million shares of our common stock at an average price of $6.87 per share. Now moving to our Q3 guidance. We are encouraged that auto supply appears to have troughed. and absent a potential UAW strike, supply is expected to continue to improve. However, on the demand side, we are looking for signs of incremental improvements and have taken the following factors into consideration in our guidance. The impact of affordability on our target borrower due to elevated used car prices, inflation, and rising interest rates, near-term liquidity challenges for our credit unions, tightening underwriting standards leading to a shift towards prime and super prime borrowers, lenders exiting the indirect auto lending channel as a response to current market conditions, increased percentage of cash buyers due to the current interest rate environment, and continued Federal Reserve actions and potential impact on our refinance channel volumes. Accordingly, with these considerations, our guidance for the third quarter of 2023 is as follows. total certified loans to be between $26,000 and $30,000, total revenue to be between $29 million and $34 million, and adjusted EBITDA to be between $13 million and $17 million. In closing, we have a strong balance sheet, no near-term debt maturities, and generate significant cash flow, which provides us with the financial flexibility to thoughtfully invest in our business, as Keith outlined previously. Given these actions, we expect to capture the pent-up demand as the sector and macroeconomic conditions inevitably recover. We would like to thank everyone for joining us today, and we will now take your questions.
spk10: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you were using the speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press start then choose. Your first question comes from Kyle Peterson from Needham. Please go ahead.
spk01: Great. Good afternoon, guys. Thanks for taking the question. I wanted to touch a little bit on the refi activity. I guess just kind of looking at this first, the 1Q level here seemed significant. stable slightly better as a percentage of total certs and just kind of an absolute number here. Barring any additional rate hikes or big spikes in rates, do you guys have comfort that refi is kind of approaching a bottom or showing some signs of stabilization here in the overall mix?
spk05: Yeah, hey Kyle, it's Chuck. Yeah, you know, thank you for the question. Yeah, you know, refi in the second quarter was almost 11% of our volume. That was up a little bit from about 8% in Q1, and on a year-to-date basis, you know, about 9.3%. So, you know, as we've always said, you know, we're very close to our refi channel partners, and you know, with the Fed actions and, you know, what we've seen, you know, over the last 18 months, you know, 525 basis point increase in total, you know, we don't need rates to come back down to the pre-Fed actions. We just need rates to stabilize, you know, for a call it four to six month period to where, you know, our refinance channel, we believe is going to, you know, really come back and there's, you know, overpriced loans that we can go after with our channel partners. So, So it's, you know, again, you know, the Fed had a recent action, I think 25 more bips, you know, still maybe some signals to, you know, maybe 50% of the governors of the FOMC think, you know, possibly maybe an action, maybe not. But again, we just need it to, you know, stabilize and not necessarily come down. We just need to stabilize to get that business going again.
spk01: And just to follow up on, you know, some of the new logo wins, you know, good to see the 13 and a quarter. It sounds like, you know, they could be in decent size counts for you guys over time. You know, how should we think about, you know, the ramp timeframe, you know, from, you know, these guys, whether are they going to kind of start out at, you know, whether it's kind of testing volumes that are a little lower and then kind of fully ramp later, or how quickly should we think about the spigot being turned on with these new logos?
spk03: Yeah, great question, and this is Keith speaking. Truth be told, they're all over the map, you know, whether they're large or small. Importantly, none of these are pilots. These are all launches to go live, and they'll just kind of ramp to their full maturity in each individual case kind of on their own accord. But I think the important point is just that given the selection that we're making with these targeted accounts is that because of integrations that we have with their LLSs and other factors, we're able to get them installed and moving to first cert production much more quickly than we have historically.
spk01: Got it. That makes sense, and that's helpful. Thanks, guys. Thanks, Kyle.
spk10: Thank you. The next question is from John Davis from Raymond James. Please go ahead.
spk08: Hey, good afternoon, guys. Nice to see the sequential increase in certs, but, you know, Keith or Chuck, you named several factors and kind of what's weighing on the 3Q cert guide. But maybe relative to 2Q, if you could call out the most influential ones, hopefully just trying to understand kind of the sequential decline expected in certs and kind of what are the biggest factors that you're seeing. Is it the credit union appetite for loans, affordability, just maybe the top two or three of the kind of laundry list you laid out.
spk05: Yeah. Hey, Jay, good to talk to you. You know, maybe, you know, thanks for the comment on Q2 and, you know, we're pleased with the positive results in the second quarter. But, you know, I think it's important maybe as we think about the guide to even step back, you know, a year or more here, you know, record inflation, you know, the Fed began raising rates. You know, now, as I mentioned, you know, 525 bps in total. You know, we thought we were heading into a recession earlier this year with a hard landing. You know, I think the biggest impact, and I think Keith said in the prepared comments, is, you know, consumers and affordability on the consumer with this rate environment, you know, with prices. You know, prices are moderating a bit, but they're still elevated, you know, 40% above, you know, pre-pandemic levels. So, you know, those are some of the biggest things that impact affordability is price and interest rates. So if I had to point those out, but, you know, we are encouraged, though, you know, as we said in the prepared comments that, you know, supply has appeared to have troughed and, you know, absent this potential, you know, UAW strike, you know, we think supply is going to continue to improve. And then, you know, on the demand side, which is driven by, you know, if you think about the affordability, you know, we're looking for incremental signs of improvement there, but, you know, it's just not there yet. So, you know, and I'll also point that seasonally Q3 is in the auto industry is a seasonally lower, you know, auto sales quarter and then, you know, with an uptick in the fourth quarter. So, you know, and liquidity challenges at the credit unions and, you know, also, you know, I know this is, you know, a longer list, but they all impact our decision on the guide. And, you know, cash buyers, for example, you know, a 24% increase in cash buyers in you know, recently is in, you know, it's above 60%. And, you know, we need a loan, you know, to participate in open lending. So all of those went into, you know, our factors and, you know, in our conservative guide to put the guide out.
spk08: So I hope I answered the question. Fair to say demand and seasonality is more of an impact than kind of credit union appetite for auto loans. I understand it's a factor, but it seems like it's more demand than anything else, is that fair?
spk05: Absolutely. Keith, you would agree, right, on the demand side, on the affordability of the price?
spk03: Yeah, for sure. I mean, I think the best metric that we track is affordability. And the reason for that is it kind of conflates or combines two different metrics. And one is simply the price of the vehicle and just interest rates. And what we are seeing is that, as we've said in the prepared remarks and we're all seeing in the data, is that we are seeing prices begin to moderate, if ever so slightly, on the new sides. And again, if ever so slightly on the use side.
spk08: Okay, thanks. It's encouraging to hear that supply should be, fingers crossed, improving here. Just curious, any updates on conversations with the OEMs? Obviously, as they have supply come back online, maybe there'll be more demand for them. Just curious, any conversations with OEM number three or four or anybody else, how those conversations are going?
spk03: Well, I mean, first I'll address our existing OEMs, number one and number two. We couldn't be more pleased or encouraged with the performance that they've provided over the last, you know, couple of quarters. And they're up 23%, you know, Q2 versus Q2 of last year, up 21% sequentially, and up 17% year-to-date over prior year. So the performance of our existing OEM number one and number two is fantastic. Concerning our pipeline, great news on that front, you know, for new OEMs and captives. You know, first and foremost, the number of prospects that are in the pipeline are as high as they've ever been. You know, the frequency of interaction with them are as high as they've been. And then kind of the flow through what I kind of call the different stage gates, you know, from a prospect to a sale, the quantifiable stage gates that are being crossed are getting better every day. Turning our attention to large lenders and other enterprise type accounts. You know, we've added a seasoned, you know, sales executive. And our pipeline from that cohort, including banks, is double and higher than what it's ever been. And I would just add a final thought there is just that, you know, OEMs, you know, see our value prop. Our value prop just gets getting stronger, you know, each and every day. You know, as we look at, you know, potential future accelerated depreciation, I mean, that's the safety net that we create for our lender partners to help them protect against that future potential, you know, accelerated depreciation. Okay, great. Thanks, guys.
spk00: Thank you.
spk10: Thank you. The next question is from . Please go ahead.
spk02: Yes. Hi. Thank you. So I wanted to talk about, you know, affordability, which you just mentioned as sort of the biggest factor here. You know, how do you think that gets resolved? Because it doesn't look like, you know, financing rates are necessarily going to come down. And I'm curious, like if the price of used car vehicles comes down, it seems like there's a sort of contra adjustment to your revenues as it relates to profit share. So how should we think about the risk associated with that? And maybe give us a sense of what you're assuming in terms of severity of loss as you model out your profit share revenues.
spk05: I'll start with maybe the back side of that question. If you think about the moderation of price and the impact, the Mannheim Used Vehicle Value Index, the movie as we call it, or they call it, we monitor that. As I mentioned in the prepared comments, we were in line with both May and June were two of the single largest months on record of May and June on history declines, and we exited in line with the movie. So we have a robust process with our risk team. So we're in good shape there. And we continue to, as we look out and project into the future with the future profit share estimation, we look at that and have stress built in for further declines of the movies. We feel really good about where we exited Q2 there and into the future as it affects our profit share. Unless it's outside of what we've already stressed, we've got that managed in our modeling and forecasting. I hope I answered your question. As it relates to affordability, clearly you know, we want the, you know, the prices to come down because, you know, we want affordability for the near and non-prime consumer to be, you know, healthier, which is going to drive our business and drive our short volume, so.
spk02: Okay, I understand. That helps. And I just want, on the credit union side, you know, it seems like there are sort of these two interrelated points, one being, you know, just the funding issues that you know, apparently are lingering. And then there's the issue with the shift towards the, you know, prime and super prime. Are those two issues linked? Because I would have thought, you know, like your value proposition is that, you know, the credit unions can go after and do business with, you know, the near prime consumer at a lower risk. So I'm curious sort of what the dynamics are around that. What are you hearing from the credit unions?
spk03: Yeah, we see multiple things. First of all, it's important to note that they're still the number one source of new loan originations in the U.S., and so they're still larger than banks and still larger than captives, so doing a great job, and then very healthy. They've added over 5 million, almost 6 million new members over the past year. As we mentioned in the prepared remarks, I think what we're simply seeing there is in a liquidity-constrained environment, they're seeking to just fulfill their mandate, which is to serve their members, which is people over profits, as they call it. And so kind of the first order of business is to make that loan to an existing member, which in many cases just happens to already be a prime or a super prime customer. So those are some of the dynamics that we're seeing there. I would say also it's important to note in the credit union space is that if you back out refi, so if you look at credit unions ex-refi, year-to-date this year compared to year-to-date last year, actually up 7%. So our credit unions are doing very, very well in this environment.
spk02: Great. Thank you so much.
spk05: Yeah. Thank you, Fazi. Thank you.
spk10: Thank you. The next question is from Joseph Zafi from Canaccord. Please go ahead.
spk04: Hey, guys. Good afternoon. Nice to see the solid results here in Q2. Any update or color on your insurance partners? We didn't hear anything about it on your prepared remarks. So anything we should be aware of there, and then I'll have a quick follow-up.
spk05: Yeah. Hey, Joe. It's Chuck. Yeah, I'll jump in. Yeah, you know, we had, you know, recently, you know, we had all of our carriers in for an annual carrier roundtable. and had great sessions with our partners, you know, great relationships with the carriers and, you know, no capacity issues as it relates to, you know, volume or anything like that. You know, I know there were concerns on the, you know, we talked on the Q4 call. But, yeah, everything's going really well. You know, we just hired, as Keith pointed, you know, Matt Saylor, our, you know, first dedicated chief underwriting officer. And, you know, we're welcoming Matt and brings a wealth of insurance experience to the team. And, you know, you know, we'll, we'll further that, uh, you know, the good work that John and Ross and we've done over the years. So, so everything's really good on that front and have ample capacity.
spk04: Great. And then, um, secondly, maybe on the, on the pipeline of new logos, I know we, you know, we talked about some of the OEMs and the like, um, and the fact that, you know, you're bringing on more, I guess you could call it market share or more, you know, larger lenders in kind of each quarter's worth of new cohorts. Just get a feel for, you know, even if we exclude the large OEMs, you know, how that pipeline of, you know, maybe new logos looks over the next few quarters, you know, relative to what seems like a really good performance here in Q2. Thanks a lot.
spk03: Thank you for the question. Yeah, the pipeline is strong. I won't give absolute numbers, but the pipeline of qualified prospects is actually up compared to this time last year. And importantly, it's comprised of what I would call the right targeted accounts. So we feel good about that. The pipeline is comprised of prospects and leads generated from our own marketing efforts. And equally as importantly as some of our marketing projects, representatives that help us do business, for which we're grateful for their help constantly. I would just say also that the targeting is very specific. I mean, we have to want to have the propensity to want to loan in this environment, either because it's the way you want to do business at a credit union, or you're trying to get something like CRA relief if you're a bank, that you're large enough to have a target share that's going to help us move our needle and help them move their needle. that, as I've mentioned, they have a loan origination system for which we already have integration, that they have adequate liquidity for which to fund these programs, and then finally that they're going to open up three channels, both what we call direct, indirect, and refi. So it's kind of tough to make it onto that prospect list and that pipeline, and that pipeline is larger than it has been.
spk04: Great, guys. Good luck with that, and thanks for the time. Yeah, thank you, Joe. Thank you.
spk10: Thank you. Once again, if you wish to ask a question, please press star then one. Your next question comes from James Fawcett from Morgan Stanley. Please go ahead.
spk09: Great. Thank you. I just wanted to ask, and I appreciate the commentary so far, but I wanted to ask, part of the value add for open lending has been to help with underwriting history and input there. How has that been trending for open lending and what adjustments, if any, have you been recommending that your partners make to their underwriting standards, et cetera?
spk05: Yeah. Yeah. Hey, James, this is Chuck. I mean, I'll start, you know, I think from, you know, if we think about it from a, you know, we announced, I think it was Q2 of 2022. And then again, recently in Q1 of 23, you think about underwriting and risk and You know, we put a premium increase, about a 12% premium increase back in, you know, Q1 of 22 and then about 5% in Q2 of 23. So as we think about risk and then the environment, you know, we want to be paid, you know, not only us but our customers as well as our carrier partners so we appropriately price for the risk that we're taking in the environment. So, you know, if you think about profit share, you know, and how that impacts that, You know, we're seeing better credit with the tightening and as well as, you know, more of a, you know, a credit shift mix to, you know, improve credit. And with that, we charge lower premiums. But with the actions we took, we've preserved our profit share unit economics in that 550 assert range. So that's how we kind of think about it. And, you know, and then we do that through a vehicle value discount of the collateral. So to make sure we're pricing appropriately, so. So I hope that answered your question.
spk09: Yeah. Yeah, no, that's helpful. Thanks.
spk10: Thank you. This question comes from Alexander Villalobos from Jefferies. Please go ahead.
spk06: Hey, guys. Thank you for taking my question. Just wanted to get maybe – yeah, sorry. Just wanted to get a little more color maybe on the mix between kind of credit unions and banks on the pipeline side. I know you guys are originating more certs per relationship, but you guys mentioned it last quarter. I just want to see how you guys are doing this quarter. And then on the risk side, are you guys also continuing to originate longer-duration loans, kind of those 84-month term loans, and kind of what composition of the portfolio those were? Thank you.
spk03: Yeah, I'll say on the credit union versus bank, you know, I discussed the pipeline. I was speaking primarily of the credit union pipeline just a momentarily ago, so that pipeline is up. On the bank pipeline, with the addition of that senior sales leader that I mentioned, you know, that pipeline is multifold. So, you know, we're looking to be, you know, primarily our customers have been OEM captives, credit unions and banks, you know, as you well know. with banks being a bigger percentage than captives and the credit unions being the majority. But we're targeting banks, and that pipeline is more than doubled for bank additions.
spk05: Great. And Alex, I'll jump in on the 84-month term you'd asked about. While still early, we're encouraged, and it's performing as expected and actually better than expected. We talked a lot about affordability for the near and non-prime consumer. and obviously the term, you know, actually helps that for the payment buyers, and we didn't really see, you know, and we're not seeing the incremental risk, and we're pricing for it in our risk pricing. So, you know, our portfolio today, year-to-date 2023 is about 14% is 84-month term, so.
spk06: Perfect. Thank you so much, guys, and congrats on the good quarter.
spk05: Yeah, thank you.
spk10: Thank you. Our final question comes from Vincent Changek from Stevens. Please go ahead.
spk07: Good afternoon. Thanks for taking my question. First question, kind of a broad question about the demand environment or the volume. If you could maybe describe kind of the conversations you're having with your CERT partners is the, when we think about the volume, is the CERT volume changes due to, I guess, changing partner appetite, and or is that from maybe the changing consumer landscape in terms of consumer credit? Thank you.
spk05: Yeah, I think, you know, hey, Vincent, it's Chuck. You know, it's more, you know, if you think about, you know, our app volume is still very robust, you know, if we think about it. But, you know, lenders in this environment, you know, especially in the credit union space, which is our primary customer space, you know, have tightened a bit. You know, obviously, we've talked about the continued liquidity constraints. So, but with, you know, what they are lending is, you know, to that more, you know, super prime to prime lender, right, or to borrower today. So, you know, we support the near and non-prime. But, you know, the opportunity is going to continue to be there for us. The pent-up demand you know, for the near and non-prime is there. And, you know, we're going to be well positioned. And we believe the liquidity crisis, as we kind of think forward into, you know, the last half of this year, you know, into 2024, that there's going to be improvement there. And we'll continue to see that and be ready for it.
spk03: I would just add, you know, I think an important, you know, factor in the question and answer is we think about future volumes. As Chuck mentioned earlier, let's all just recall that we've raised premiums, you know, almost 18%. You know, open lending has never and will never chase volume. So we're pricing risk appropriate to the market, you know, as we see it. And that obviously has those raised premium rates obviously have an impact on volume.
spk07: Okay, that's helpful. Thank you. Second question, kind of a different question, but in terms of the refinancing volume, you know, that's come down a little bit, but for the For the volume you are generating, I guess how much of that is kind of an improvement to the consumer's rate that they're getting on the loan versus consumers maybe wanting to extend out their terms to lowering their monthly payment? That was sort of one of the things I've been hearing about in terms of those consumers are maybe stressed a little bit that they're looking to manage their cash flows. So I'm just kind of wondering in terms of refi volume how that's shaking out. Thank you.
spk03: Yeah, and this is Keith. What we're seeing there is, I think as you kind of guessed it, is an extension of term, and that extension of term translates into roughly a $65 a month savings. So most refi right now is being pulled through with an extension to term.
spk07: Okay, that's very helpful. Thanks very much.
spk05: Yeah, thanks, Vincent.
spk10: Thank you. I'd like to turn the call back to Mr. Keith Jezik for closing comments.
spk03: Well, thank you everyone for joining us today. We are pleased with results regenerated in Q2 2023 again, and I want to send a sincere heartfelt thank you to the entire Open Lending team for making these results possible. You've heard me say it before, but I think it's worth repeating again. These cycles in the automotive industry rebound and are always led by used autos. Simply stated, Consumers can defer the purchase of a new vehicle, but ultimately, they cannot defer the purchase of transportation. Thank you all again for joining us today, and we look forward to speaking with you on our next earnings conference call.
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