Open Lending Corporation

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Hello and welcome everyone joining today's Open Lending Corporation's fourth quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. To register to ask a question at any time, please press star 1 on your telephone keypad. Please note, this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Ryan Gardella, Investor Relations. Please go ahead.

Thanks, Leo. Prior to the start of this call, the company posted their fourth quarter and full year 2025 earnings release and supplemental slides to its investor website. In the release, you'll 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 or other forward-looking statements that represent the company's view as of today, March 12, 2026. Open lending disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to today's earnings press release and our filings with the SEC for more information concerning factors that would cause actual results to differ from those expressed or implied in such statements. And now I'll pass the call over to Jessica to give an update on the business and financial results for the fourth quarter and full year 2025.

Thanks, everyone, for joining us here on our fourth quarter and full year 2025 earnings conference call. I'm joined today by our CFO, Moss Monaco, and our Chief Underwriting Officer, Matt Sather. This quarter marks the completion of my first full year as CEO. From day one, my focus has been clear. Stabilize the business and position it for durable growth. That meant improving profitability, reducing volatility in our profit share revenue, growing total revenue and customer retention, strengthening operational execution, and building a culture of accountability. I am pleased to report that one year in, we believe we've made meaningful progress on executing these goals. We've improved the stability of our profit share unit economics, strengthened underwriting standards, and expanded our platform through Apex One Auto. With that launch, we are evolving from a single product company into a full spectrum decisioning and dynamic pricing engine. We believe this progress is reflected in our full-year results and, more importantly, in the stronger foundation we've built to drive higher-quality growth in the years ahead. Over the past year, we have also strengthened the leadership team by bringing in new executives and elevating internal leaders across the organization as we position open lending for the next phase of growth. Before jumping into our results, I want to put a finer point on the strategic reasons behind the significance for maintaining tighter underwriting standards and appropriately pricing risks, both of which contributed to our cert results in the fourth quarter. As an experienced executive coming from the underwriting and insurance industry, I believe that we have positioned ourselves to deliver disciplined, profitable growth to our stakeholders over multiple credit cycles, not just the one we currently find ourselves in. Trust, relevance, and discipline, combined with our unique product offering, define open lending. As I have said many times in the past, we are, at our core, an auto credit pricing and decisioning engine. The name of our flagship product, Lenders Protection Program, is not branding. It's our operating philosophy. When we look at the current commercial credit environment, the importance of this discipline is clear. Over the last few years of volatility, we've seen several auto lenders go out of business, largely due to overextension, loosened underwriting standards, and rates that were not balancing the actual risks. When economic pressures and delinquencies rose, they couldn't sustain the losses they had at the prices they were charging. I mention this to say that we have clearly chosen a different path for our company, our employees, and our stakeholders. The decisive changes made in 2025 and the strategic initiatives we have put into place and outlined on all of the earnings calls since I became CEO have all contributed to our continued relevance in the near and non-prime space. We believe that these changes are working and driving real value for our stakeholders in the form of sustainable, profitable growth, regardless of the changing macroeconomic environment. With that as a backdrop, I would like to move on to results. For the full year, we facilitated 97,348 certified loans and recorded total revenue of $93.2 million, resulting in adjusted EBITDA of $15.6 million. For the fourth quarter, we facilitated 19,308 loans generating revenue of $19.3 million and adjusted EBITDA of $2.8 million. We believe that our deliberate tightening of lending standards will result in a higher quality book, and we have already observed improved 2025 vintage performance as compared to prior year vintages. For vintage year 2025, the over 60-day delinquency at 12 months on book is approximately 200 basis points lower than both the 2023 and 2024 vintages. In the fourth quarter, our certified loan shortfall compared to guidance was driven by a temporary headwind in conversion rates as we actively managed risk and made targeted adjustments to how retail vehicle values were treated in our pricing models. As new information became available, we tested price elasticity, measured the response results, and then refined our response accordingly. After reviewing the performance of the quarter, we determined that certain rate increases implemented were creating unnecessary obstacles to our certified loan pipeline. After rolling back a subset of the changes in phases, concluding the week of January 16th, we are now seeing improved momentum and sustainable growth, while credit performance remains strong. This is discipline risk management. Test, measure, and refine. Exercise in this process and creating this muscle memory is essential not just to our LPP product, but for our Apex One Auto platform and the full spectrum of credit products. Ultimately, our decision to maintain a tighter credit box and appropriate pricing was deliberately done to reinforce the strategic principles we have emphasized all year of discipline in our underwriting and pricing. We believe this approach reduces exposure to elevated defaults, rising delinquencies, and adverse loss ratios over time. While that discipline may have resulted in fewer certified loans in the fourth quarter, intentionally avoiding business that we believe is mispriced or inconsistent with long-term profitability is ultimately in the best interest of Open Lending and our stakeholders. While we were not happy with the impact of certs, the silver lining is that our controls and feedback loops are working as intended. I'm also pleased to report that since February 1st, we have averaged 353 certs per business day compared to 293 certs during the impacted period. Importantly, the 353 level is consistent with the average certs per business day we experienced in the 60 days prior to the change being implemented. Additionally, through February, our application flow was approximately 20% up year over year. We are getting more at-bats of the business we want, which is direct evidence that our lender profitability initiatives and newly launched dashboards are working and that our customers receive tangible value in the full lifecycle of the open lending relationship. Now I'd like to move on to talk about our ongoing initiatives across the company. First, as discussed on a prior earnings call, we have been actively working with our third-party modeling partner on a more sophisticated real-time simulation engine that we have internally called Project Red Rocks. Once completed, we expect Red Rocks will allow us to instantly see the impact of any proposed rate or credit box change on volume, loss ratio, and profitability before we implement it. It will also serve as a safety valve and control check on the tradeoff between rate and market acceptance, which we believe will prevent future headwinds like we experienced in the fourth quarter. We remain committed to disciplined pricing and building more sophisticated models to predict our actions on the market. Understanding the dynamics of price elasticity, volume, and profitability is critical to being best in class, and we believe Project Red Rocks will deliver that for us. This project is running on time and on budget, and we are seeing preliminary benefits as we roll components of the model out quarterly. We also entered 2026 with a strengthened go-to-market engine. Anthony Cabezano joined us early in the first quarter as Chief Growth Officer. His first four priorities are clear. One, increase wallet share with existing credit union partners and continue to focus on existing customer retention. Two, penetrate larger credit unions, banks, and other institutions, which we have historically underserved. Three, build the go-to-market strategy around Apex One Auto platform, and the additional product and credit spectrums we now service with this introduction. And four, reorient and expand the sales team with additional hunters focused on new logo acquisition and deeper penetration. Anthony will also begin exploring opportunities to organically expand our platform into additional credit products, leveraging our proprietary data and analytics to extend the reach of our model. Anthony has hit the ground running and quickly made an impact in the sales organization. We have been operating without a chief growth slash revenue officer for several months and believe there are significant opportunities for Anthony to help us accelerate our growth throughout the year. Now I'd like to report on the impacts of our initiatives to improve profitability and drive CERT volume growth. Moss will do a deeper dive into the fourth quarter and full year results, but our profit-share unit economics for the 2025 vintage continue to be booked at a constrained 72.5% loss ratio, and we believe will perform at our target loss ratio of mid-60%. For the full year, our profit-share change in estimate resulted in 0.4 million positive impacts to adjusted EBITDA, or in essence, was non-volatile and flat. Our Apex One Auto platform was launched in the fourth quarter with two customers in the prime credit auto segment, making us a full credit spectrum dynamic pricing auto solution. Applications flowing through the platform from these customers and our pilot partners are already in the mid-five figures, all on a subscription-based minimum volume model. The pipeline has more than doubled since launch, with several new potential customers in various stages of diligence, Importantly, because Apex One Auto sits on top of the prime credit funnel, it seamlessly routes declined prime loans into our core LPP products and increases application flow. Not only does Apex One Auto operate on a subscription basis, reoccurring revenue model, but it increases stickiness with customers and gives us an opportunity to capitalize on the 500 million prime decisioning market. The introduction of APEX One Auto platform also means we now have exposure to the entire spectrum of credit scores. Given the massive amount of historical data we have access to, we believe we are well positioned to find new ways to leverage and monetize them across the full spectrum of credit and markets that rely on this data to price loans. Next, on to OEM 3, the ramp up continues as planned. Volume has grown steadily through Q4, and we are now deploying in Southern California and Texas, which make up a substantial portion of the opportunity. Longer term, we see a substantial opportunity in non-branded business for OEM 3 dealers, where we will become the first look decisioning engine. Early performance is in line with credit union loss ratios. and we expect OEM3 to contribute positively to both channel mix and overall book quality in 2026. Credit union health also continues to improve. Share growth, deposit recovery, and lending capacity are all trending positively. I recently attended the Governmental Affairs Conference in Washington, D.C., and sat with many of our credit union customers and prospects. One message was clear. They are looking to grow, looking for solutions and have the capital to do it. Credit unions have seen improved strength with loan to share ratios at 83.2% in the fourth quarter of 2025. We believe this supports an environment where our platform and relationships are poised to organically grow more products and solutions driving a deeper relationship. Our responsibility is to ensure that growth occurs with the right loans at the right price. Without that discipline, the industry risks repeating the performance challenges seen in 2021 and 2022 vintage years. Discipline is precisely why they trust us. Moving on to our customer retention efforts, we lost zero customers in the fourth quarter and four in the full year of 2025. We added six new logos in the fourth quarter and 46 in the full year. and saw existing clients send us materially higher application volumes. The lender profitability dashboards have been universally well-received and are driving deeper engagement. We are also prioritizing annual profitability reviews with each customer, which is an initiative championed by our new Chief Growth Officer. Our increased same-customer application flow is another proof point that our retention efforts are driving more stickiness. We are of the opinion that the auto refinance market remains an opportunity across the credit union ecosystem, particularly following the elevated interest rate environment of the past several years. While auto loan rates remain higher than pre-pandemic levels, they have began to moderate following the Federal Reserve's 75 basis points of cumulative easing that began in late Q3 of 2025. Historically, this type of rate environment has driven increased refinance activity. As borrowers who originate loans during peak rate environments seek payment relief, we expect the refinance channel to show renewed momentum. Against this backdrop, we believe open lending is well-positioned to capture incremental certification and partner expansion within the credit union market if rates decline further in 2026. We are actively working with our credit union partners to appropriately and timely loosen ROA targets in response to rate drops to remain competitive. The next area I want to address is our book mix and full year impact of credit builders and super thin files. As we discussed on prior calls, we virtually eliminated our exposure to super thin files following underwriting guideline changes implemented in the fourth quarter of 2024. At one point, these represented approximately 11% of quarterly certifications, and today we underwrite none, making them a negligible part of our portfolio. With respect to credit builders, they remain a relatively small portion of the book. As a reminder, we took a more blunt approach initially with approximately 100% insurance premium rate increase to ensure appropriate risk-adjusted returns. In 2025, credit builders represented approximately 6% of our new certifications and are performing as expected. Each quarter, we continue refining our definitions and segmentation of credit builders across cohorts, and we are confident in our ability to screen, price, and underwrite these applications with increasing precision, allowing us to responsibly grow this segment while maintaining strong profitability. Much of this has been made possible by the model enhancements we are already seeing from Project Red Rocks. Next, we turn to the elements of our business that we considered in shaping our outlook for 2026. We feel strongly that our conversion rate headwind from the fourth quarter has been completely solved at this point, and we believe we are well positioned for growth in 2026. However, we believe that growth will compound over each quarter in 2026 or said another way, will be greater in the latter quarters and is likely to increase incrementally each quarter. This is also impacted by the fact that we had super thins and credit builders in the first quarter of 2025, and we have to replace that volume with growth that we want, which is why we believe our 2025 vintage is performing better than expected. We believe our new models, sales strategy, and underwriting clarity will drive that. In addition, we believe the strength of our go-to-market strategy will improve customer retention and drive new logos in 2026. We believe these factors, coupled with the expected impacts of the refinance market and the anticipated ramp of OEM 3, will be drivers that position us for growth in 2026. As we discussed earlier, due to the increased health of credit union partners, we believe credit unions are in one of the strongest capital positions they have been in over recent years and are seeking responsible growth. Lastly, with the introduction of Apex One Auto, we now have full credit spectrum dynamic pricing and decision capabilities that we believe will help facilitate additional certified loans. This enables customized growth strategies aligned with each institution's risk appetite with and without insurance, while preserving our core commitment to protecting lenders and serving the underserved. We plan to continue to innovate and deepen our relationships. Taken together, we are providing full-year certified loan guidance of $100,000 to $110,000 for 2026, with between $21,000 and $22,000 expected in the first quarter, and full-year adjusted EBITDA guidance of $25 to $29 million for 2026. We believe introducing annual guidance for the first time since 2022 reflects our confidence in the growth trajectory of our business in 2026, following the strong execution on improving profitability we delivered in 2025. On the capital allocation side, in the fourth quarter, we paid down approximately $50 million of our senior secured term loan, which based on projected forward interest rate curves will result in quarterly interest saving expense of approximately $575,000. With our strong cash balance, partially due to favorable profit share cash flows, our board of directors and management team ultimately decided that this was the best use of capital for our shareholders. We also repurchased approximately 564,000 shares in the quarter, at an average price of $1.66 per share. We will continue to evaluate capital allocation strategies each quarter and focus our priorities where we believe we are driving the best strategic returns for our shareholders. I would like to conclude with this. By all accounts, 2025 was a successful year for open lending. We set the company on the right course with largely flat CIEs or back book adjustments. We generated meaningful revenue and adjusted EBITDA in our core business. and we reinforce the strategic pillars of our business and cut unnecessary costs out of our organization. By remaining disciplined in our underwriting and pricing, we believe we have avoided the fate of those who overextended and prioritized volume over building a durable, cycle-agnostic business. As a result, we believe we are positioned to capitalize on future opportunities from a position of strength, and importantly, We are protecting our carriers, our credit union partners, and our broader financial institution relationships. I am personally excited about the future. We believe this positions us well for growth in 26, but growth in the right business at the right price and within the right risk framework. This philosophy is embedded in our full-year guidance. Our number one priority is ensuring the durability of our portfolio in order to grow responsibly. Making disciplined decisions in challenging markets is what sustains long-term relevance and long-term shareholder value. We have remained relevant and intend to keep it that way. We have the models, data, and talent to grow profitably at a time when others have lost their way. This is the definition of opportunity. Now I'd like to turn the call over to Moss to discuss the financials in detail. Moss.

Thanks, Jessica. Before walking through the results, I will highlight a few key financial takeaways from the quarter. First, the business delivered stable financial performance as we continue to move beyond last year's change in estimate adjustment. Second, we made good progress on expense discipline while continuing to invest in key growth initiatives. And third, we strengthened the balance sheet through debt reduction and ongoing share repurchases. Now let me walk through the numbers for the quarter and guidance before Jessica and I open it up for Q&A. During the fourth quarter, we facilitated 19,308 certified loans compared to 26,065 certified loans in the fourth quarter of 2024. As Jessica mentioned, the shortfall in certified loans was driven by a temporary headwind in conversion rates as we tested pricing adjustments in response to emerging credit trends. These adjustments had an outsized impact on certain segments. Select changes were rolled back in phases and completed by mid-January. Based on current trends, we do not expect this issue to create any ongoing disruptions. Certified loan volume in the quarter also reflected typical seasonal patterns along with further strategic implementation of enhanced underwriting standards aimed at building a higher quality loan portfolio. Looking ahead, we expect volumes to accelerate throughout 2026 as anticipated in our guidance. We believe the business is well positioned to capitalize on new growth channels, such as the APEX 1 auto platform and the continued rollout of OEM 3. We are also placing increased emphasis on certs from our credit union and bank partners, which typically carry higher program fees and more attractive unit economics compared to OEM certs. Total revenue for the fourth quarter was $19.3 million compared to a negative $56.9 million in the prior year period. The current quarter included an insignificant change in estimate profit share revenue compared to an $81.3 million reduction in the fourth quarter of 2024. As a reminder, the fourth quarter of 2024 included a significant negative change in estimate adjustment driven by macroeconomic factors and unexpected performance issues in certain newer vintage cohorts. Breaking down total revenues in the current quarter, program fee revenues were $10.9 million, profit share revenues was $6.2 million, and claims administration fees and other revenues were $2.3 million. As a reminder, profit share revenue represents our share of the expected earned premiums less the expected lifetime claims and program expenses. Open lending receives 72% of net profit share and any losses in the net profit share are accrued and carried forward for future profit share calculations. When cash consideration previously received is in excess of the expected profit share revenue, the amount of excess funds and the forecasted losses are recorded as an excess profit share receipt liability. Profit share revenue in the fourth quarter of 2025 associated with new originations was $6.2 million or $322 per certified loan as compared to $8.2 million or $314 per certified loan in the fourth quarter of 2024. As we have previously mentioned, we have taken steps to reduce volatility and future change in estimate adjustments by booking more conservative unit economics at the time of certification. At this level, the initial booking reflects an implied loss ratio of approximately 72.5%. Based on our current pricing actions and expected credit performance, we believe these vintages will ultimately perform closer to a mid-60s percent loss ratio. Operating expenses were $13.9 million in the fourth quarter compared to $15.4 million in the fourth quarter of 2024, representing a decrease of 9.3% year-over-year. As I mentioned last quarter, one of my priorities moving forward will be to closely monitor and control operating expenses and continue to find efficiencies in our spending. Net income for the fourth quarter was $1.7 million compared to a net loss of $144 million in the fourth quarter of 2024. Diluted net income per share was $0.01 in the fourth quarter compared to a net loss of $1.21 per share in the fourth quarter of 2024. Adjusted EBITDA for the quarter was $2.8 million compared to a negative $75.9 million in the fourth quarter of 2024. Beginning in the quarter ended June 30, 2025, we updated the presentation of Adjusted EBITDA to exclude interest income to better align our definition with comparable companies. In addition, beginning in the quarter ended September 30, 2025, we updated the presentation of Adjusted EBITDA to exclude certain other non-recurring expenses that do not contribute directly to management's evaluation of its operating results. Prior periods have been conformed to the current period presentation. A reconciliation of GAAP to non-GAAP financial measures can be found at the back of our earnings press release. Turning to cash flow and balance sheet, for the full year 2025, our cash flow from operating activities was a negative $3.2 million. However, excluding the one-time payment of $11 million made to Allied in Q3, cash flows from operating activities was 7.8 million, inclusive of approximately 16.8 million in profit share cash received. We exited the fourth quarter with $236.7 million in total assets, of which $176.6 million was unrestricted cash. We had 161.7 million in total liabilities, of which 84.8 million was outstanding debt. During the quarter, we used 50 million in cash to pay down a portion of our senior secured term loan. In conjunction with our board, we determined that reducing leverage represented the most prudent use of capital at this time. While the remaining debt continues to carry attractive terms and favorable cost of funds, this action strengthens the balance sheet, reduces leverage, and preserves financial flexibility going forward. Importantly, we remain disciplined in how we deploy capital and continue to prioritize investments that support organic growth and long-term shareholder value. Based on current interest rate expectations, this pay down is expected to reduce quarterly interest expense by approximately $575,000. We believe this will allow further value to accrue to shareholders in the future. In the fourth quarter, we repurchased approximately 564,000 shares for a total consideration of approximately $0.9 million. We have approximately $20.1 million remaining on our current share repurchase program, which expires in May of 2026. Our capital allocation priorities remain consistent. First, investing in the organic growth of the platform. Second, maintaining a strong balance sheet. And third, returning capital to shareholders through share repurchases when appropriate. Finally, I wanted to address our guidance. For the first quarter, we are expecting total certified loans to be between 21,000 and 22,000 units. For the full year, we are expecting total certified loans to be between 100,000 and 110,000. At the midpoint of our guidance, this represents an 8% increase over our 2025 results. We are also expecting adjusted EBITDA for the full year to be between 25 and 29 million. We intend to maintain our dedication to quality over quantity in our book of business, ensuring that this growth rate is additive to our loan portfolio. We believe our strategy and performance have become increasingly strong and predictable, striking the right balance between growth and profitability as we continue to scale open lending and deliver consistent results for our stakeholders across the market cycle. Most importantly, As we move into 2026, we believe the strength of our platform and the investments we've discussed continue to deepen our relevance with partners and position us well for the opportunities ahead. With that, we will open it up for questions. Operator?

Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star 1 to ask a question. And we'll pause for just a moment to allow everyone a chance to join the queue. Thank you. Our first question comes from Madison Suhr with Raymond James. Please go ahead, your line is open.

Hi, good afternoon and thanks for taking the questions. I wanted to start here just at a very high level. Obviously, there's a lot of concern in the marketplace around AI and potential AI disruption across both software and payments and all kinds of technology names. So I guess with that context, I would love to just hear your guys' high-level thoughts about how you view AI both from an opportunity standpoint and then what risks you're assessing as it relates to potential AI threats.

Yes. Hi, Madison. This is Jessica Buss, and thank you for your question today. We, as a technology company, obviously use many forms of AI in our tools and in our models, not as much in our pricing mechanisms, but certainly in the build-out of Red Rocks and sort of where we're going as a company. We've built AI, as you've probably seen in some of our press releases, And some of the mechanical tools resolved in our claims process as well. Now, we do have human in the loops, and we are obviously validating those AI processes as we bring them on board. But again, we believe that our models and what we've built, which are primarily using machine learning, and the data that we have is far superior to what you could build with just a straight AI tool. So we believe the combination of what we have in AI, what we have in terms of proprietary data, and what we've built, again, with our machine learning tools and our Project Red Rocks is superior to what anybody else has out in the market.

Okay, thank you for that. And then I did want to ask on the cert outlook, both for 1Q and 2026. Obviously, 1Q implies that certs are going to be down in the mid-20% range. You mentioned full year. up in the high single digits. Can you just help us kind of bridge how we get from the down mid-20s? I know there was some pricing changes and things of that nature that have since been rolled back. Can you just help us frame how we get from kind of that down mid-20s to up high singles, and kind of how quickly do you think the business can return to cert growth as 2026 progresses? Thank you.

Yes, yes, that's a great question. So, you know, first quarter compared to first quarter last year, if you had been following in 2025, you would know that the first quarter of last year contained a high number of credit builders and super thins, which we had, in essence, eliminated all super thins in 2025 and significantly reduced the amount of credit builders that we approved by implementing almost 100% rate increase. And then also we took a tighter credit stance and put a tighter credit box on our OEM. So that's sort of influencing the change quarter over quarter. Now, the good news is that we do believe that incrementally, quarter over quarter, we are going to experience the growth that we have and our CERT projection, and that's going to come from a variety of different things that I'd like to outline for you. So, one, we're already seeing application volume up 20 percent. The second thing is that we have now found, through our project Red Rocks, a solution to write credit builders at a profitable level. And credit builders currently represent about 30 percent of our applications. We believe that they're here to stay. We believe that we can price the good ones correctly and write those and not be adversely selected against. We've been monitoring the performance and, again, based on our new model, have additional applicant data that we believe is a better predictor. We have, you know, our strategy that we're implementing with OEM3, we've seen that certification volume jump significantly quarter over quarter, up 76 in the fourth quarter over the third quarter, so OEM3 will be a driver there. We believe our rates continue to go down and refinance. But as importantly, you know, both Apex One and our new go-to-market strategy and engine with what we're doing with retention tools, with additional hunters, with our profitability tools, is something that's also going to drive growth. So we have many tailwinds, I believe, to our growth story. So we believe those will start to ramp up, as I say in my script. you know, incrementally, you know, and get stronger quarter over quarter. It will be, you know, sort of third and fourth quarter loaded. We did have, you know, the issue that was the headwind in the fourth quarter that was reversed on January 16th. So the first quarter is slightly implemented by that. But again, we have a new chief growth officer. We'll start to see that in the second quarter. And then from the third and fourth quarter on, we believe those fundamentals will really drive growth for us.

Okay, I appreciate all the color. Thank you so much.

Thank you. We'll move now to Joseph Vafi of Canaccord. Your line is open.

Hey, everyone. Thanks for taking my questions this afternoon. Nice to see an outlook showing some sequential increases here in Q1. Maybe we just start with that on the cert line. Maybe could you walk us through a little bit, you know, maybe Q4 to Q1 on kind of a cert walk, you know, there's OEM three would be interested on some commentary on, you know, also how OEM one and two are doing in terms of stability. And then if you wanted to just drill down a little bit more into health of the credit union channel with some more comments, that'd be appreciated.

Sure. Sure, Joe. So I would be happy to do that. So our walk from fourth quarter to first quarter is, Again, we have the sort of reversal of the headwind on the rate issue that we discussed that will help. We have OEM 1 and OEM 2 that remain stable and flat to sort of where they've been the last couple of quarters. We will see a ramp up in OEM 3. I think you may have heard us talk prior earnings calls and even in the current script. that they'll be launching two of our largest states sometime at the end of the first quarter. end of the first quarter, beginning of the second quarter. So while we are seeing pretty large increases, as I mentioned, 79%, fourth quarter over third quarter, we would expect that to continue. We'll see that sort of magnify as they add those states on throughout the year and even in the first quarter. So we're excited about that piece as well. We'll have the solution to the credit builders. That will probably impact more of the second quarter. But, again, we've seen significant increase in applications, the hiring of a chief growth officer. I think all those things will have the impact going from Q4 to Q1. And then that's kind of the cadence you're looking for.

That's great. Thank you, Jessica. And then if you want to just double-click on the health of the credit union channel and, you know, how you see that, you know, potentially, you know, How that could evolve if we get another 50 bps here in 2026 on rate cuts?

Yeah, that's a great question. I just spent four or five days in Washington, D.C. with our credit unions at GAC, as I mentioned in my script. One of the messages that was clear is that their loan-to-share values are, you know, and I won't say at all-time lows, but lower than they've been probably the last couple of years, close to the 80% mark, and they are looking to grow. They're looking to grow in the auto space, and they're looking to do it in a disciplined way. A lot of their boards are concerned, obviously, with, you know, what's going on in consumer credit. That's why our tool is even more important, and our insurance carriers and the credit projection they provide are with our insurance products is even more important. That's why we're expanding our conversations with Apex One, which allows us to do both prime and near prime sort of decisioning pricing with and without insurance. So the health of the credit unions is good. They've gotten more sophisticated. They are looking to grow. Now, with rates, one of the other interesting things that we're working on is working with our credit unions to understand be more nimble in reducing their ROA targets. Typically, it takes them a little bit longer than, let's say, a sophisticated bank to react to rate changes. We've been working with them to bring those down quicker. As those begin to come down, both with rate cuts from the Fed and with our working with them on their ROA targets, we believe that there is a very large refinance opportunity for us in the future, and we've been opening up and continuing to open up refi channels with our credit union partners. So we're really excited about that as an opportunity for 26 as well.

Great. Thank you for that call, Jessica.

Yep. Thank you. And once again, if you would like to ask a question, please press star 1 on your telephone keypad now. We'll now move on to Mike Grondahl with Northland Securities. Please go ahead. Your line is open.

Hi, this is Keaton Shokey on for Mike. You've made a lot of moves in the management with new chief growth officer, new CFO, and you becoming a new CEO. Is the team built out now or are there any more additions that you would be expecting for 2026?

Yeah, thank you for the question. And I'm really excited to talk about our management team. I think the most important thing to having a great business is having a great team and the people that we've brought on board, and all of the key management positions, all of my direct reports, with most recently the addition of Anthony, as you mentioned, Moss earlier this year or at the end of last year, are all key players to how we're going to be able to execute on these priorities. At this point, all positions or all sort of senior executive positions that report to me and have accountability for running all aspects of our business are now filled. I can tell you that the team is working very well together, and I think that you can see that sort of in the execution that Open Lending has been able to sort of deliver this year. For the first time, we delivered a new product. We increased our EBITDA. We have had flat CIE. We're in the process of implementing Project Red Rocks. Those are things that, you know, weren't possible before. And that's really a tribute to our senior management team and all of our employees as well. You know, we spent a lot of time on culture and breaking down silos and focusing on getting four things right this year. And I feel like we've delivered on those promises to our shareholders.

Great. And then I was hoping to get a little more color on kind of your current outlook for delinquencies or credit quality. for auto loans in your book?

Yep. So I'll start and I'll let Matt jump in here. I think I said in my script that the delinquencies that we're seeing on our most recent vintage are running about 200 basis points better at the 60-day delinquency mark than they were in vintage years, you know, 23 and 24. You know, we do not participate in the full subprime market. We are near a non-prime So we are actually, you know, feel like we're pricing correctly for the delinquencies. We're seeing better than expected outcomes. So we're excited about that. Again, it has a lot to do with our tighter credit underwriting and our pricing mechanisms we put into place and the investments that we've made into models. But I'll let Matt add any color that he wants.

I think you covered most of it. We're seeing it across all measures of delinquency, 30-day delinquency, 60-day, 90-day. Every measure that we look at shows favorable improvements in vintage year 25. So we're very comfortable with where we're pricing our book today. We look forward to a strong performance into the future.

And I guess the only other piece of color I would add that is sort of an indicator of that is that we have had a flat change in estimate, in essence, a positive point of $400,000 for the year in total on our back book of business, which would indicate that we have correctly sized, we believe we've correctly sized the delinquencies for our back book as well.

Awesome. Thank you for that.

I'll return the queue. Thank you. And once again, that is star one if you would like to ask a question. We'll now move on to Peter Heckman with Davidson. Your line is open.

Hey, good afternoon. Thanks for providing the guidance for full year 2026. I think that's helpful for investors to think about how management's thinking about the full year. I wanted to see if you could maybe give a range about thinking about the conversion from EBITDA to free cash flow for 2026. I know you have a few working capital needs in the form of the excess profit share receipts. I guess it could give us a little bit of additional detail to maybe give us some pieces that can help us get to a, you know, maybe even it's a wide free cash flow range.

Sure. Peter, this is Jessica. Nice to hear from you. Yeah, so first off, you know, again, we are really excited and feel confident in providing our full year guidance. And that was a nice thing to be able to do after multiple years of not being in a position to do that. So thank you for recognizing that. In terms of free cash flows, we obviously do not provide guidance on free cash flows, and I'll let Mas jump in here in a minute. I would say that we did collect profit share this year. We do not have a capital allocation or capital set aside for the liability that you're referring to in terms of, you know, a cash flow mechanism. If you remember that that would be collected from the future cash flows, yes, but it's not sort of a cash flow set aside. But, again, so we're not actually predicting that. You know, what we can tell you is sort of what we've talked about before in terms of profitability, in terms of how we're, you know, booking our loss ratio at a more constrained level. how we think that book is actually performing, and that sort of drives how our cash flows from profit share comes in. But I don't know, Matthew, anything to that?

Yeah, no. Hey, Peter, how are you? You know, I think, as we've mentioned in the past, it is difficult for us to predict when the losses will come in on the back book. But as the forecast stands right now, the free cash flows would be relatively in line with the EBITDA guidance we're giving.

Okay, that's great.

Again, I do caution that it is difficult to forecast the losses.

Right, right. The timing of the losses. Yes. Okay, I appreciate it.

I look forward to seeing the ramp through the year. At this time, there are no further questions in queue.

I'd be happy to return the call to Jessica for closing comments.

Thank you all for your time today, and thank you to our shareholders, investors, credit unions, and insurance carriers for your continued support. I'd also like to thank the entire Open Lending team for their dedication and execution over the past year. We laid the foundation for sustainable, profitable growth in 2025, and we believe we are well positioned to build on that momentum in 26, while maintaining disciplined risk management. We appreciate your confidence in our strategy and look forward to updating you on our continued progress on our next call. Thank you.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.