Open Lending(LPRO) - 2024 Q4 - Annual Report

General Information This section provides foundational administrative and financial filing details for Open Lending Corporation Form 10-K Filing Details Open Lending Corporation's 2024 Form 10-K details its Delaware incorporation and Nasdaq-listed common stock (LPRO) - Open Lending Corporation filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2024[3] Registrant Information | Detail | Value | | :--- | :--- | | Exact Name | OPEN LENDING CORPORATION | | Jurisdiction of Incorporation | Delaware | | IRS Employer Identification No. | 84-5031428 | | Principal Executive Offices | 1501 S. MoPac Expressway Suite 450, Austin, Texas 78746 | | Telephone Number | (512) 892-0400 | | Title of Class | Common stock, par value $0.01 per share | | Trading Symbol | LPRO | | Exchange | The Nasdaq Stock Market LLC | Registrant Status and Market Value Open Lending is an accelerated filer with a non-affiliate market value of ~$0.5 billion and 119.8 million shares outstanding - The registrant is an accelerated filer and has filed all required reports during the preceding 12 months[4][5] Key Registrant Metrics | Metric | Value | | :--- | :--- | | Well-known seasoned issuer | No | | Required to file reports | Yes | | Interactive Data File submitted | Yes | | Filer Status | Accelerated filer | | Management's assessment of internal control | Filed and attested | | Shell company | No | | Market value of voting stock held by non-affiliates (June 30, 2024) | ~$0.5 billion | | Common stock outstanding (March 25, 2025) | 119,782,899 shares | Documents Incorporated by Reference Selected portions of the 2025 proxy statement are incorporated by reference into Part III of this Form 10-K - Selected portions of the 2025 annual meeting of stockholders' proxy statement are incorporated by reference into Part III of this Form 10-K[8] Cautionary Note Regarding Forward-Looking Statements This section provides a disclaimer regarding forward-looking statements, highlighting inherent risks and uncertainties Forward-Looking Statements Disclaimer The Annual Report contains forward-looking statements subject to substantial risks and uncertainties, not guarantees of future performance - The Annual Report contains forward-looking statements that are not guarantees of future financial performance and are subject to substantial risks and uncertainties[11][12] - The company undertakes no obligation to update forward-looking statements, except as required by law, and cautions against undue reliance on them[12][14] Key Areas of Forward-Looking Statements Forward-looking statements cover financial performance, strategy, lender turnover, macroeconomic impacts, and regulatory compliance - Financial performance, strategy, future operations, financial position, and projected costs - Turnover in automotive lenders, activation rates, and usage volatility of the Lenders Protection platform (LPP) - Impact of macroeconomic conditions (unemployment, consumer spending, demand for automotive products) - Costs of services, general and administrative expenses, selling and marketing expenses, and research and development expenses - Growth in loan volume from top ten automotive lenders and associated concentration risks - Compliance with regulatory requirements, including federal and state consumer lending and protection laws - Expansion plans and opportunities, and impact of projected operating cash flows - Ability to maintain Nasdaq listing, changes in laws/regulations, and effects of taxes, inflation, tariffs, supply chain disruptions, and interest rates[16] Part I Part I details the company's business operations, risk factors, unresolved staff comments, cybersecurity, properties, and legal proceedings Item 1. Business Open Lending provides lending enablement and risk analytics for near-prime and non-prime auto borrowers, generating revenue from program fees and profit-sharing Company Overview Open Lending provides lending enablement and risk analytics to automotive lenders, facilitating near-prime and non-prime auto loans - Open Lending is a leading provider of lending enablement and risk analytics to credit unions, regional banks, finance companies, and OEM captive finance companies[18] - The company facilitates automotive consumer loans to underserved near-prime and non-prime borrowers using risk-based interest rate pricing models and real-time underwriting of automotive loan default insurance[18] Company Milestones | Metric | Value | | :--- | :--- | | Inception | 2000 | | Loans facilitated | Over 1 million | | Originations facilitated | Over $25.1 billion | | Proprietary data accumulated | More than 20 years | | Unique risk profiles developed | Over 2 million | | Active lenders served | 441 | Lenders Protection Platform (LPP) LPP is a cloud-based platform using proprietary risk models and data to underwrite default insurance for near-prime/non-prime auto loans - LPP is a cloud-based automotive lending enablement platform that supports loans for near-prime and non-prime borrowers and underwrites default insurance by connecting lenders to insurance partners[19] - The platform uses proprietary risk models combining credit bureau data and FCRA-compliant alternative consumer data to assess risk, project loan performance, and recommend optimal risk-based interest rates and insurance premiums[19] - LPP technology offers speed and scalability, supporting the full transaction lifecycle from credit application to advanced data analytics, and is driven by a unique database of over 20 years of granular origination and performance data[20][21] Our Business Model Open Lending's B2B model enables near-prime/non-prime auto lending, generating revenue from program fees, profit-sharing, and claims administration - Open Lending specializes in risk-based pricing and automated decision-technology for automotive lenders, targeting near-prime and non-prime borrowers (credit scores 560-699) who are underserved by traditional lenders[22] - The company operates a business-to-business model, enabling automotive lenders to expand lending guidelines and increase originations by integrating LPP directly into their loan origination systems[23][24] - Exclusivity agreements with insurance partners for default insurance, with loan applications allocated based on pre-determined percentages - Wholly-owned subsidiary, Insurance Administrative Services, LLC (IAS), performs claims administration for insurance partners, earning administrative fees - Revenue streams include program fees from lenders, profit-sharing with insurance partners, and claims administration service fees - Approximately 80% of expected revenue is collected within the first 12 months after loan origination[25][26][27] Revenue Components (2024 Averages) | Revenue Type | Average per loan (2024) | | :--- | :--- | | LPP program fees | $515 | | Profit share revenue | $479 | | Claims management administration fees | 3% of monthly insurance earned premium | Our Ecosystem LPP connects automotive lenders, insurance partners, and borrowers, enhancing lending options and volume in the near-prime/non-prime market - LPP connects automotive lenders, insurance partners, and borrowers, improving lending options and volume in the automotive market[29] - Automotive Lenders: Credit unions, regional banks, finance companies, and OEM captive finance companies use LPP to mitigate loan default risk for near-prime and non-prime borrowers. Loans are originated through direct, indirect (auto dealers), and refinance channels - Insurance Partners: As of December 31, 2024, Open Lending partners with three active insurance providers (AmTrust North America, Inc., Securian Specialty Lines Inc., and StarStone Specialty Insurance Company) with 'A-' Financial Strength Ratings or higher. Arch Insurance North America terminated its agreement effective November 15, 2024, but continues to service existing policies[30][31][32][33] - Borrowers: The platform addresses the financing needs of consumers with credit scores generally between 560 and 699, supporting lending opportunities for near-prime and non-prime segments[34] Value Proposition Open Lending offers value to lenders, insurers, and borrowers through increased originations, diversified risk, and better loan terms, respectively - For Automotive Lenders: Increased loan originations, higher loan advance rates, ability to finance older/higher mileage vehicles (up to 11 model years old, 150,000 miles), longer loan terms (up to 84 months), higher allowance for after-market product sales, increased profitability/risk-adjusted return on assets, loss mitigation through default insurance, and intuitive solution with seamless integration and five-second decisioning[35][36][37][38][39][40][41][42][43] - For Insurance Partners: Access to proprietary technology and lender network without customer acquisition or significant operating expenses, and diversified risk with historically increased return on equity through auto loan default coverage[44][45][46] - For Borrowers: Lower interest rates, increased approvals and higher loan amounts, reduction or elimination of loan down payments, and lower monthly payments due to longer loan terms[47][48][49] Seasonality The company experiences seasonal fluctuations in volumes and revenues due to consumer auto spending, while operating expenses are less seasonal - The company has experienced seasonal fluctuations in volumes and revenues due to consumer spending patterns for automobile purchases, while operating expenses show less seasonal variation, impacting net income[50] Competition Open Lending's LPP is unique, but it competes with credit decisioning providers and traditional/alternative lenders in a fragmented near-prime/non-prime market - Open Lending's LPP, which combines lending enablement, risk analytics, real-time decisioning, risk-based pricing, and auto loan default insurance, is a unique solution with no direct competitors identified[51] - Competes with providers of credit decisioning and underwriting software/services to various lenders - Competes with loan origination system providers and third-party lending-as-a-service companies - Faces competition in the highly fragmented near-prime and non-prime lending market from traditional banks, credit unions, and alternative technology-enabled lenders, many of whom offer broader product suites and have greater capacity to hold loans on their balance sheets[52][53] Government Regulation Operating in a heavily regulated industry, the company is subject to evolving federal and state consumer protection laws, posing compliance and litigation risks - The company operates in a heavily regulated industry focused on consumer protection, subject to evolving U.S. federal, state, and local laws, regulations, and rules[54][55] - Compliance is required with various regulatory regimes, including consumer lending laws (e.g., Truth-in-Lending Act, FCRA, GLBA, Dodd-Frank Act's UDAAP prohibition, Equal Credit Opportunity Act) and state insurance, brokering, agency, and third-party administration company statutes - The complexity and evolving nature of these laws present compliance and litigation risks, with ambiguities potentially leading to investigations, enforcement actions, and class-action lawsuits - Lenders Protection, LLC is licensed as a property and casualty insurance agency, and IAS is licensed as a third-party claims administration entity in required states. The company is supervised by regulatory agencies and subject to examination requests and investigations[56][57][58][59][60] Employees and Human Capital Resources Open Lending has 205 employees, primarily in Austin, Texas, fostering a mission-driven culture focused on growth, well-being, and core values - As of December 31, 2024, Open Lending had 205 employees, primarily in Austin, Texas, and maintains a mission-driven culture focused on employee input and well-being[61] - Core values: trustworthiness, commitment, respect, humility, teamwork, innovation, and quality - Supports employee growth through performance conversations, internal training, corporate engagements, and educational reimbursement - Prioritizes employee safety, health, and wellness with work-life balance, flexible schedules, parental leave, on-site gym, minimal healthcare premiums, and wellness programs[61][62][63] Corporate History and Available Information Open Lending Corporation was formed on June 10, 2020, and its SEC filings are available on its investor relations website - Open Lending Corporation was formed on June 10, 2020, through a business combination with Nebula Acquisition Corporation[64] - The company's SEC filings and investor relations information are available on its investor relations website, investors.openlending.com[66][67] Item 1A. Risk Factors This section outlines significant risks that could materially and adversely affect Open Lending's business, financial condition, operating results, and stock price Summary of Risk Factors Key risks include business operations, regulatory environment, and common stock ownership, each posing potential adverse impacts - Risks Related to Our Business: Dependence on retaining and attracting automotive lenders, impact of economic/market conditions, reliance on LPP adoption, loss of insurance partners, use of estimates in profit share revenue, model inaccuracies, deferred tax asset valuation allowances, interest rate changes, growth opportunities, privacy/security breaches, reliance on third-party resellers/vendors, fraudulent activity, and disruptions in computer systems - Risks Related to Our Regulatory Environment: Federal and state consumer protection laws, potential legal/regulatory/policy changes, highly regulated industry undergoing transformation, privacy/information security/data protection regulations, and regulatory inquiries - Risks Related to Ownership of Our Common Stock: Sustained active trading market, stock price volatility, no cash dividends, dilution from additional capital stock, sales of substantial common stock, exercise of registration rights, control by executive officers/directors/principal stockholders, and exclusive forum provisions in bylaws[69][70][71][72] Risks Related to Our Business Business risks include lender retention, economic conditions, reliance on insurance partners, profit share estimates, model inaccuracies, and cybersecurity threats - Lender Retention & Acquisition: Dependence on retaining existing and attracting new automotive lenders; significant program fee revenue concentration with top ten lenders (chunk 81). Agreements are cancellable on 30 days' notice without minimum application submissions (chunk 73)[73][81] - Economic & Market Conditions: Revenue is highly sensitive to macroeconomic conditions (interest rates, inflation, unemployment, consumer confidence), which can reduce consumer spending, borrowing, and ability to repay loans (chunk 74). Geopolitical conflicts also contribute to market volatility (chunk 76). Declining used car values could increase loss severity and impact profit share revenue (chunk 80)[74][75][76][77][78][79][80] - Insurance Partners: Reliance on three active insurance partners; loss of one or more without replacement could materially harm the business (chunk 83). Arch Insurance North America terminated its agreement effective November 15, 2024 (chunk 84)[82][83][84][85] - Profit Share Revenue Estimates: Recognition relies on complex estimates (prepayment, default, severity of loss) that are subject to change and can adversely affect revenues and cash flows (chunk 86). A $81.3 million reduction in estimated profit share revenue was recorded in Q4 2024 due to heightened delinquencies, deterioration of 2021/2022 vintages, and underperformance of specific borrower cohorts (chunks 89, 218, 220, 221, 222)[86][87][88][89][218][220][221][222] - Model Inaccuracies: Extensive reliance on proprietary underwriting models; errors or inaccuracies in assumptions (e.g., repayment timing, default rates) could impact profitability and harm reputation (chunk 90)[90] - Deferred Tax Assets: Past and potential future significant valuation allowances on deferred tax assets can materially impact and fluctuate results of operations (chunk 91). A full valuation allowance of $86.1 million was recorded as of December 31, 2024 (chunk 91)[91][92] - Interest Rate Changes: Rising market interest rates (e.g., Federal Reserve rate hikes in 2022-2023) negatively impact consumer borrowing, increase payment obligations, and lead to higher delinquencies and defaults, adversely affecting business (chunks 93, 94)[93][94] - Growth Opportunities: Pursuing growth can strain operational, administrative, and financial resources, requiring continuous system development and adaptation (chunk 95)[95] - Cybersecurity & Data Privacy: Gathering and storing personally identifiable information (PII) makes LPP vulnerable to breaches, leading to economic loss, reputational damage, legal penalties, and liability (chunk 97)[96][97](index=97&type=chunk][98][99](index=99&type=chunk] - Reputational Harm: Negative publicity from alleged misconduct, errors, litigation, or regulatory actions can diminish brand value and ability to attract/retain partners (chunk 102)[101][102](index=102&type=chunk] - Third-Party Reliance: Dependence on third-party resellers for customer acquisition and retention, and vendors for critical services (financial, technology, insurance). Failure of these parties to perform or comply with regulations could adversely affect business (chunks 103, 105)[103][104][105][106](index=106&type=chunk] - Litigation & Regulatory Actions: High risk of litigation and regulatory actions due to the heavily regulated financial services industry, potentially resulting in significant fines, penalties, and increased expenses (chunk 107)[107][108](index=108&type=chunk][109][110](index=110&type=chunk][111](index=111&type=chunk] - Fraudulent Activity: Risk of fraud in the financial services industry, which could increase charge-offs, negatively impact brand, and lead to regulatory intervention (chunk 112)[112][113](index=113&type=chunk][114](index=114&type=chunk] - System Disruptions: Reliance on efficient operation of computer systems and third-party data centers; disruptions from system failures, natural disasters, cyber-attacks, or technology changes could adversely affect business (chunk 117)[115][116][117](index=117&type=chunk][118](index=118&type=chunk][119](index=119&type=chunk] - Underwriting Model Effectiveness: Business depends on the accuracy of proprietary credit decisioning and scoring models; errors or incorrect/stale data could lead to mispriced loans and harm relationships (chunk 121)[120][121](index=121&type=chunk] - Information Accuracy: Reliance on accuracy and completeness of consumer information; misrepresented or outdated information could increase default risk (chunk 122)[122][123](index=123&type=chunk] - Competitive Industry: Highly competitive consumer lending industry; inability to compete effectively on factors like pricing, technology, and service could reduce revenues (chunk 124)[124](index=124&type=chunk] - Industry Concentration: Business is heavily concentrated in the U.S. automobile industry, making it susceptible to market fluctuations and targeted regulations (chunk 125)[125](index=125&type=chunk] - Expansion to New Verticals: Future expansion outside automotive industry carries risks of non-compliance with regulations, inaccurate demand prediction, and competition from experienced players (chunk 126)[126](index=126&type=chunk] - Employee Retention: Failure to attract and retain highly skilled employees, particularly in IT and sales, could negatively impact business (chunk 127)[127](index=127&type=chunk] - Credit Agreement Covenants: The Credit Agreement contains covenants that limit business activities and could lead to default if breached (chunk 128)[128](index=128&type=chunk][129](index=129&type=chunk][130](index=130&type=chunk][131](index=131&type=chunk] - Proprietary Rights Protection: Inability to sufficiently protect trademarks, copyrights, and trade secrets, or disputes over third-party intellectual property, could harm competitive advantage and incur significant costs (chunk 132)[132][133](index=133&type=chunk][134](index=134&type=chunk][135](index=135&type=chunk] - Risk Management Effectiveness: Risk management processes and models may be ineffective at predicting future losses or identifying new risks, leading to unexpected losses (chunk 136)[136](index=136&type=chunk][137](index=137&type=chunk][138](index=138&type=chunk] - Open Source Software: Use of open source software in the platform carries risks if license terms are misconstrued, potentially requiring public release of source code or limiting technology licensing (chunk 139)[139](index=139&type=chunk] - Future Acquisitions: Ineffective execution of future acquisitions or strategic initiatives could distract management, slow product improvements, or result in unexpected costs (chunk 140)[140](index=140&type=chunk][141](index=141&type=chunk][142](index=142&type=chunk][143](index=143&type=chunk] - Limited Public Company Experience: Management's limited experience in operating a public company could lead to increased time devoted to regulatory oversight, diverting focus from business growth (chunk 144)[144][145](index=145&type=chunk] Risks Related to Our Regulatory Environment Operating in a heavily regulated industry, the company is subject to evolving federal and state consumer protection laws, posing compliance and litigation risks - Consumer Protection Laws: Subject to various federal and state consumer protection laws, including those for credit transactions and insurance, with untested aspects for its business model. Non-compliance could lead to damages, license revocation, lawsuits, and civil/criminal liability (chunk 146)[146][147](index=147&type=chunk] - U.S. Administration Policy Changes: Potential legal, regulatory, and policy changes by the U.S. administration and Congress could affect the financial services industry and the company's business (chunk 148)[148](index=148&type=chunk] - Regulatory Transformation: The highly regulated industry is undergoing transformation, leading to uncertainty, increased compliance costs, and potential restrictions on products/services (chunk 149). Failure to comply could result in costly litigation, fines, and business model changes (chunk 151)[149][150][151](index=151&type=chunk][152](index=152&type=chunk][153](index=153&type=chunk][154](index=154&type=chunk][155](index=155&type=chunk] - State/Local Licensing: Risk of operating without necessary state or local licenses, which could lead to fines, injunctive relief, and rendering loans void or unenforceable (chunk 160)[159][160](index=160&type=chunk] - Regulatory Examinations & Investigations: Subject to inquiries and investigations by state and federal agencies (e.g., CFPB, state Attorneys General), potentially resulting in fines, penalties, and reputational damage (chunk 161)[161][162](index=162&type=chunk] - UDAAP Standard Uncertainty: The Dodd-Frank Act's UDAAP (Unfair, Deceptive, or Abusive Acts or Practices) standard remains uncertain, and features of automotive lender loans could be deemed non-compliant, adversely affecting the business (chunk 163)[163](index=163&type=chunk] - Privacy & Data Protection Regulations: Subject to privacy, information security, and data protection laws (e.g., GLBA, state privacy acts), which could increase costs, limit data use, and negatively impact business opportunities (chunk 164)[164][165](index=165&type=chunk][166](index=166&type=chunk][167](index=167&type=chunk][168](index=168&type=chunk][169](index=169&type=chunk] - Highly Regulated Partners: Automotive lenders and insurance carriers operate in a highly regulated environment, and changes to their regulatory landscape could indirectly affect Open Lending's business (chunk 156)[156](index=156&type=chunk][157](index=157&type=chunk][158](index=158&type=chunk] Risks Related to Ownership of Our Common Stock Stock ownership risks include market volatility, no cash dividends, dilution, sales by large holders, insider control, and anti-takeover provisions - Active Trading Market: No assurance of a sustained active trading market for common stock on Nasdaq, which could make selling shares difficult and impair capital raising (chunk 170)[170][171](index=171&type=chunk] - Stock Price Volatility: The market price of common stock has been and may continue to be volatile due to various factors, including operating results, management changes, regulatory shifts, and market speculation (chunk 172)[172][173](index=173&type=chunk][174](index=174&type=chunk][175](index=175&type=chunk] - No Cash Dividends: No current plans to pay cash dividends; stockholders may only receive a return on investment if shares are sold for a price greater than purchase price (chunk 180)[180](index=180&type=chunk][181](index=181&type=chunk] - Dilution from Future Offerings: Issuance of additional capital stock for financings, acquisitions, or incentive plans will dilute existing stockholders' ownership and reduce per-share value (chunk 176)[176](index=176&type=chunk] - Sales by Large Holders: Sales of substantial amounts of common stock by affiliated entities, executive officers, directors, and founders could cause the stock price to fall (chunk 177)[177](index=177&type=chunk] - Registration Rights: Exercise of registration rights by certain holders may adversely affect the market price of common stock (chunk 178)[178](index=178&type=chunk] - Control by Insiders: Executive officers, directors, and principal stockholders control a significant portion of voting stock, influencing corporate policies and potentially delaying/deterring changes in control (chunk 179)[179](index=179&type=chunk] - Anti-Takeover Provisions: Certain provisions in the certificate of incorporation and bylaws could hinder, delay, or prevent a change in control, potentially affecting the stock price (chunk 183)[182][183](index=183&type=chunk] - Exclusive Forum Provisions: Bylaws designate specific courts (Delaware Court of Chancery for state law claims, U.S. District Court for the Western District of Texas for Securities Act claims) as exclusive forums, potentially limiting stockholders' ability to choose a favorable judicial forum and increasing litigation costs (chunk 184)[184][185](index=185&type=chunk][186](index=186&type=chunk][187](index=187&type=chunk] - Analyst Coverage: Inaccurate or unfavorable research by securities and industry analysts could cause stock price and trading volume to decline (chunk 188)[188](index=188&type=chunk] Item 1B. Unresolved Staff Comments The company has no unresolved staff comments to report - There are no unresolved staff comments[189] Item 1C. Cybersecurity Open Lending implements comprehensive cybersecurity risk management, overseen by the Audit Committee, with no material threats identified to date Cybersecurity Risk Management and Strategy Cybersecurity risk management includes automated testing, vulnerability scans, third-party penetration testing, and mandatory employee training - Cybersecurity risk is identified and assessed through the enterprise risk management (ERM) process, linked to strategic planning - Measures include automated source code testing, scanning/alerts for security baseline compliance, and defined timeframes for addressing vulnerabilities - Annual evaluation of alignment with NIST framework and bi-annual third-party penetration testing for SOC II compliance - Mandatory regular cybersecurity awareness programs for employees, internal incident response tests, and phishing campaigns - Implemented phishing protection and data loss prevention tools, and regularly engages third-party service providers for program assessments - Third-party cybersecurity risks are assessed during due diligence and annually for key providers, with real-time assessments as needed[190][191][192][193][194][195] - To date, the company is not aware of any cybersecurity threats that have materially affected or are reasonably likely to materially affect its business[196] Cybersecurity Governance The Audit Committee oversees cybersecurity risk, with management providing regular updates on prevention, mitigation, detection, and remediation efforts - The Audit Committee of the Board of Directors is primarily responsible for cybersecurity risk oversight, informed by management presentations and direct participation in the ERM process[197] - Management leads cybersecurity risk management, monitoring prevention, mitigation, detection, and remediation, and provides quarterly updates to the Audit Committee[198] Item 2. Properties Open Lending leases two Texas office spaces totaling 30,789 square feet, deemed sufficient for current operational needs - Open Lending leases two office spaces in Texas, totaling 30,789 square feet, which are considered sufficient for current needs[199] Item 3. Legal Proceedings The company is not a party to any material legal proceedings and anticipates no material adverse impact from future ordinary course claims - The company is not currently involved in any material legal proceedings and expects future claims in the ordinary course of business not to have a material adverse impact[200] Item 4. Mine Safety Disclosures Open Lending has no mine safety disclosures to report - There are no mine safety disclosures[201] Part II Part II covers market information, equity purchases, management's discussion and analysis, market risk, and financial statements Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Open Lending's common stock trades on Nasdaq (LPRO), with no current dividend plans, and limited share repurchases in Q4 2024 Market Information Open Lending's common stock trades on Nasdaq (LPRO), with 23 registered stockholders as of March 25, 2025 - Open Lending's common stock is traded on the Nasdaq under the symbol 'LPRO'[202] - As of March 25, 2025, there were 23 registered stockholders of record, with the actual number of stockholders being significantly greater due to shares held in street name[202] Dividends The company has no current plans to pay cash dividends, with future declarations limited by debt covenants - The company has no current plans to pay cash dividends on its common stock[203] - Future dividend declarations are at the sole discretion of the Board of Directors and are limited by covenants in existing indebtedness[203] Purchases of Equity Securities by the Issuer and Affiliated Purchasers The company repurchased 52,122 shares in October 2024, including shares for payroll tax withholding obligations Share Repurchases (Q4 2024) | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | 10/01/2024-10/31/2024 | 52,122 | $5.71 | | 11/01/2024-11/30/2024 | — | — | | 12/01/2024-12/31/2024 | — | — | | Total | 52,122 | | - The repurchases include shares bought from employees to satisfy payroll tax withholding obligations related to share-based awards[205] Equity Compensation Plan Information Information regarding equity compensation plans is incorporated by reference from the 2025 Proxy Statement - Information regarding equity compensation plans is incorporated by reference from the 2025 Proxy Statement[206] Performance Graph A performance graph compares Open Lending's stock return against the S&P 500 and a selected Peer Group since June 2020 - A performance graph compares the cumulative total stockholder return of Open Lending's common stock, the S&P 500 Index, and a selected Peer Group since the Business Combination Closing Date (June 10, 2020)[207] - The Peer Group includes nine companies in the industry, such as Green Dot Corporation, LendingClub Corporation, and Upstart Holdings, Inc[207] Item 6. [Reserved] This item is reserved and contains no information - Item 6 is reserved[209] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Open Lending's financial condition and results for 2024 and 2023, highlighting a significant profit share revenue reduction Business Overview Open Lending provides lending enablement and risk analytics to automotive lenders, focusing on near-prime and non-prime borrowers through its LPP - Open Lending provides lending enablement and risk analytics to automotive lenders, focusing on near-prime and non-prime borrowers (credit scores 560-699) through its cloud-based Lenders Protection Platform (LPP)[211][212][213] - LPP uses proprietary risk models and data to project loan performance, underwrite default insurance, and recommend risk-based interest rates, supporting the full transaction lifecycle with speed and scalability[213][214][215](index=215&type=chunk] Executive Overview Open Lending targets near-prime and non-prime borrowers, facilitating certified loans and achieving financial success - Open Lending targets near-prime and non-prime borrowers, facilitating certified loans and achieving financial success[216] Financial Performance Summary (2024 vs. 2023) | Metric | 2024 (in millions) | 2023 (in millions) | | :--- | :--- | :--- | | Certified loans | 110,652 | 122,984 | | Total revenue | $24.0 million | $117.5 million | | Operating income (loss) | $(65.4) million | $29.1 million | | Net income (loss) | $(135.0) million | $22.1 million | Impact Related to Profit Share Revenue Change in Estimates Open Lending recorded a $96.1 million reduction in estimated profit share revenues in 2024 due to heightened delinquencies and underperforming vintages - During 2024, Open Lending recorded a $96.1 million reduction in estimated profit share revenues, with $81.3 million in Q4 2024, primarily due to heightened delinquencies and defaults on loans originated from 2021-2024[218] - Deterioration of 2021 and 2022 vintages: Accounted for ~40% of the Q4 2024 negative change, driven by declining used car values impacting loans originated when values were high - Macroeconomic Conditions: Continued elevated claims and delinquencies contributed ~20% of the Q4 2024 negative change - Borrower Cohort Underperformance: Two cohorts (credit builder tradelines and fewer positive tradelines) caused 2023 and 2024 vintages to underperform, accounting for ~40% of the Q4 2024 negative change[219][220][221][222](index=222&type=chunk] - The adjustment resulted in a $48.5 million reduction in contract assets and a $47.6 million excess profit share receipts liability for the year ended December 31, 2024[223] Highlights Operational highlights for 2024 include decreased certified loans, increased contracts signed, and a slight reduction in active lenders Operational Highlights (2024 vs. 2023) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Certified loans | 110,652 | 122,984 | | Value of insured loans facilitated (in thousands) | $3,111,753 | $3,614,303 | | Average loan size per certified loan | $28,122 | $29,388 | | Number of contracts signed with automotive lenders | 58 | 44 | | Number of active lenders at end of period | 441 | 454 | - Active lenders are defined as those certifying at least one loan in the preceding 12 months, including 39 new lenders in 2024 and 47 in 2023[224] Key Performance Measures Certified loans decreased by 10% year-over-year, with monthly-pay loans down 34%, and average program fees slightly reduced Key Performance Measures (2024 vs. 2023) | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Certified loans | 110,652 | 122,984 | (10)% | | Single-pay | 100,015 | 106,767 | (6)% | | Monthly-pay | 10,637 | 16,217 | (34)% | | Average program fees | $515 | $527 | (2)% | | Single-pay | $497 | $492 | 1% | | Monthly-pay | $720 | $825 | (13)% | - Certified loans decreased by 10% YoY, with monthly-pay loans seeing a significant 34% decrease. Average program fees per loan slightly decreased by 2%[226] Earned Premium (2024 vs. 2023) | Metric | 2024 (in millions) | 2023 (in millions) | | :--- | :--- | :--- | | Earned premiums | $336.9 million | $335.0 million | Industry Trends and General Economic Conditions Operating results are influenced by macroeconomic conditions, including unemployment, consumer spending, and demand for automotive financing - Operating results are impacted by the overall economy, including unemployment, consumer spending, demand for automotive financing, and lender liquidity[230] - Economic factors like inflation, interest rates, and market volatility influence consumer spending and borrowing patterns[230] Concentration The company relies on its insurance partners for a significant portion of its revenue, and termination or disruption of these relationships could materially impact revenue - The company relies on its insurance partners for a significant portion of its revenue, and termination or disruption of these relationships could materially and adversely impact revenue[231][232](index=232&type=chunk] Components of Results of Operations This section details revenue components (program fees, profit share, claims administration), cost of services, operating expenses, and other income/expense - Total Revenue: Generated from program fees (paid by lenders for LPP use, recognized upfront), profit share (participation in insurance partners' underwriting profit, estimated using a forecast model and recognized upon insurance placement), and claims administration service fees (3% of monthly earned premium, recognized over time) - Cost of Services: Primarily includes partner commissions, employee compensation for customer service/support/claims, actuarial fees, integration fees, credit bureau/data service fees, and amortization of capitalized software - Operating Expenses: General and administrative (employee compensation, data/software, professional fees), selling and marketing (employee compensation, business development, marketing programs), and research and development (employee compensation for product development, with some capitalized) - Other Income (Expense): Includes interest expense (variable rates on debt) and interest income (money market funds, U.S. Treasury securities)[233][234][235][236][237][238][239][240][241][242][243](index=243&type=chunk] Comparison of Year Ended December 31, 2024 and 2023 Total revenue decreased by 80% in 2024, primarily due to an $86.4 million decrease in profit share revenue and lower program fees Revenue Comparison (2024 vs. 2023, in thousands) | Revenue Type | 2024 | 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Program fees | $57,040 | $64,092 | $(7,052) | (11)% | | Profit share (New originations) | $52,979 | $66,113 | $(13,134) | (20)% | | Profit share (Change in estimates) | $(96,102) | $(22,812) | $(73,290) | 321% | | Total profit share | $(43,123) | $43,301 | $(86,424) | (200)% | | Claims administration and other service fees | $10,107 | $10,067 | $40 | —% | | Total revenue | $24,024 | $117,460 | $(93,436) | (80)% | - Total revenue decreased by $93.4 million (80%) primarily due to an $86.4 million decrease in profit share revenue and a $7.1 million decrease in program fees[244][245] - Program fees decreased 11% due to a 10% decrease in certified loan volume and a 2% decrease in unit economics per loan[246] - Profit share revenue decreased 200% due to a significant increase in negative change in estimate adjustment ($96.1 million in 2024 vs. $22.8 million in 2023) and a decrease in anticipated profit share from new originations (average $479 per loan in 2024 vs. $538 in 2023)[247][248] - Claims administration fees remained flat[249] Gross Profit Comparison (2024 vs. 2023, in thousands) | Metric | 2024 | 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $24,024 | $117,460 | $(93,436) | (80)% | | Cost of services | $23,855 | $22,282 | $1,573 | 7% | | Gross profit (loss) | $169 | $95,178 | $(95,009) | (100)% | | Gross margin | 1% | 81% | | (80)% | - Cost of services increased by $1.6 million (7%) due to higher employee compensation ($0.8 million) and data service provider fees ($1.1 million)[250] - Gross profit decreased by $95.0 million (100%) due to lower revenues and increased cost of services[251] Operating Expenses & Income Comparison (2024 vs. 2023, in thousands) | Metric | 2024 | 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Gross profit (loss) | $169 | $95,178 | $(95,009) | (100)% | | General and administrative | $43,867 | $43,043 | $824 | 2% | | Selling and marketing | $17,218 | $17,485 | $(267) | (2)% | | Research and development | $4,462 | $5,575 | $(1,113) | (20)% | | Total operating expenses | $65,547 | $66,103 | $(556) | (1)% | | Operating income (loss) | $(65,378) | $29,075 | $(94,453) | (325)% | | Operating margin | (272)% | 25% | | (297)% | - General and administrative expenses increased by $0.8 million (2%) due to higher corporate employee compensation ($3.2 million), partially offset by lower business taxes ($2.0 million)[253] - Selling and marketing expenses decreased by $0.3 million (2%) due to reduced marketing spending, partially offset by higher employee compensation[254] - Research and development expenses decreased by $1.1 million (20%) due to increased capitalized employee costs for the LPP platform[255] - Operating income (loss) decreased by $94.5 million (325%) driven by lower revenues and changes in expenses[255] Interest Expense and Income Comparison (2024 vs. 2023, in thousands) | Metric | 2024 | 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Interest expense | $(11,317) | $(10,661) | $(656) | 6% | | Interest income | $12,090 | $10,335 | $1,755 | 17% | - Interest expense increased by $0.7 million (6%) due to higher borrowing costs from increased applicable margins, partially offset by lower interest rates[256] - Interest income increased by $1.8 million (17%) from U.S. Treasury securities and Money Market accounts[257] Income Taxes Comparison (2024 vs. 2023, in thousands) | Metric | 2024 | 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Income (loss) before income taxes | $(64,605) | $28,858 | $(93,463) | (324)% | | Income tax expense | $70,405 | $6,788 | $63,617 | 937% | | Effective tax rate | (109.0)% | 23.5% | | | - Income tax expense increased significantly by $63.6 million (937%) in 2024, primarily due to recording a full valuation allowance on all deferred tax assets[258] Liquidity and Capital Resources Principal liquidity needs are for working capital, capital expenditures, and debt service, with existing cash and credit facilities providing near-term liquidity - Principal liquidity requirements are for working capital, capital expenditures, and debt service/repayment[259] - Cash Flow and Liquidity Analysis: Cash from operating activities is significantly derived from profit share arrangements, subject to variability from forecast model assumptions. Existing cash resources and the Revolving Credit Facility are expected to provide sufficient near-term liquidity - Cash Flow Data (in thousands): | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,598 | $82,658 | | Net cash used in investing activities | $(3,896) | $(2,178) | | Net cash used in financing activities | $(6,447) | $(42,330) | - Cash Flows from Operating Activities: Decreased by $65.1 million in 2024, primarily due to reduced cash collections from program fees, profit share, and claims administration fees ($79.3 million decrease), and increased interest payments ($2.3 million increase). Partially offset by a $13.0 million reduction in income tax payments and an $1.8 million increase in interest income - Cash Flows from Investing Activities: Net cash used was $3.9 million in 2024 (vs. $2.2 million in 2023), mainly for capitalized software development costs - Cash Flows from Financing Activities: Net cash used was $6.4 million in 2024, including $4.7 million principal payment on Term Loan, $1.4 million for shares withheld for payroll taxes, and $0.3 million for excise tax payments. This is a significant decrease from $42.3 million used in 2023, which included $37.3 million for share repurchases - Debt: As of December 31, 2024, $140.6 million was outstanding under the Term Loan due 2027, with no amounts outstanding under the Revolving Credit Facility - Share Repurchase Program: The Board authorized a $75.0 million share repurchase program in November 2022, which expired March 31, 2024. The company repurchased 5,233,065 shares for $37.3 million in 2023 and 2,643,306 shares for $18.0 million in 2022[260][261][262][263][264][265][266][267][268][269][270][271](index=271&type=chunk] Non-GAAP Financial Measures Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures used by management to evaluate operating performance, excluding certain non-cash charges - Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures used by management to evaluate operating performance and make strategic decisions, excluding certain non-cash and variable charges[272] Adjusted EBITDA Reconciliation (2024 vs. 2023, in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net income (loss) | $(135,010) | $22,070 | | Interest expense | 11,317 | 10,661 | | Income tax expense | 70,405 | 6,788 | | Depreciation and amortization expense | 1,674 | 1,159 | | Share-based compensation | 8,677 | 9,492 | | Adjusted EBITDA | $(42,937) | $50,170 | | Adjusted EBITDA margin | (179)% | 43% | - Adjusted EBITDA decreased by $93.1 million (186%) in 2024, reflecting the decrease in operating income primarily driven by the reduction in estimated future profit share revenue on historic vintages[273] Critical Accounting Policies and Estimates Financial statement preparation requires significant judgments and estimates, particularly for profit share revenue, income taxes, and deferred tax assets - The preparation of financial statements requires significant management judgments and estimates, particularly for revenue recognition (profit share), depreciation/amortization, contingencies, share-based compensation, and income taxes[274][275][276](index=276&type=chunk] - Profit Share Revenue Recognition: Involves estimating variable consideration from insurance partners over the loan term using a forecast model based on prepayment rate, loan default rate, and severity of loss projections. These assumptions are updated quarterly, leading to material adjustments to profit share revenue, contract assets, and excess profit share receipts liability - Income Taxes: Involves estimating current tax liability and deferred tax assets/liabilities. A valuation allowance is recorded when deferred tax assets are not likely to be realized. Uncertain tax positions are recognized based on a two-step process (recognition threshold and measurement), re-evaluated quarterly[277][278][279][280][281][282][283][284][285][286][287](index=287&type=chunk] Recent Accounting Pronouncements Recent ASUs on income taxes, expense disaggregation, and segment reporting will result in additional disclosures but no financial statement impact - ASU No. 2023-09 (Income Taxes): Effective for annual periods after December 15, 2024, requires additional income tax disclosures. Expected to have no impact on financial statements but will result in additional disclosures - ASU No. 2024-03 (Expense Disaggregation): Effective for annual periods after December 15, 2026, requires new disclosures about certain costs and expenses. Expected to have no impact on financial statements but will result in additional disclosures - ASU 2023-07 (Segment Reporting): Adopted for fiscal year beginning January 1, 2024, improving reportable segment disclosures. Did not impact results of operations, cash flows, or balance sheets[288][407][408][409][410][411](index=411&type=chunk] Contractual and Other Obligations Estimated future obligations as of December 31, 2024, total $10.3 million current and $140.4 million long-term, primarily debt and lease liabilities Estimated Future Obligations (as of December 31, 2024, in millions) | Obligation Type | Current (within 12 months) | Long-term (beyond 12 months) | | :--- | :--- | :--- | | Debt | $7.5 | $133.1 | | Operating leases | $0.8 | $3.3 | | Non-cancellable minimum purchase commitment (credit data services) | $2.0 | $4.0 | | Total | $10.3 | $140.4 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk Open Lending faces market risks from economic conditions, consumer behavior, competition, insurance partner concentration, and interest rate fluctuations Market Risk The company is exposed to market risks from general economic conditions, consumer spending, and competition in vehicle financing - The company is exposed to market risks from general economic conditions, consumer spending levels, willingness to finance vehicle purchases, and ability to afford financial obligations[290][291](index=291&type=chunk] - Economic factors like unemployment, inflation, interest rates, and market volatility influence consumer behavior and borrowing patterns[291] - Competition to acquire and maintain relationships with automotive lenders, including those affiliated with financial institutions, also poses a market risk[291] Concentration Risk Open Lending relies on its three active insurance partners for significant revenue, and their disruption could materially impact the business - Open Lending relies on its three active insurance partners for a significant portion of its profit share and claims administration service fee revenue[292](index=292&type=chunk] - Termination or disruption of these relationships could materially and adversely impact revenue[292](index=292&type=chunk] Interest Rate Risk Earnings and cash flows are subject to interest rate fluctuations on investments and variable-rate debt, including the $140.6 million Term Loan - Earnings and cash flows are subject to fluctuations from changes in interest rates on investments (money market funds, U.S. Treasury securities) and variable-rate debt (Term Loan due 2027)[294](index=294&type=chunk] - As of December 31, 2024, $140.6 million was outstanding under the Term Loan due 2027, bearing interest at Adjusted SOFR plus a spread (4.429% + 2.375% = 6.804% effective rate)[295](index=295&type=chunk] - An unused commitment fee (0.225%) is charged on the Revolving Credit Facility's unused portion ($150.0 million as of December 31, 2024)[295](index=295&type=chunk] Item 8. Financial Statements and Supplementary Data Consolidated financial statements and supplementary data are included in this Annual Report starting on page F-1 - Consolidated financial statements and supplementary data are provided starting on page F-1[296] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[297] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no material changes Disclosure Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2024 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2024[298] Management's Report on the Effectiveness of Internal Control over Financial Reporting Management assessed and concluded internal control over financial reporting was effective, with an unqualified attestation report from Ernst & Young LLP - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2024, using the COSO 2013 framework, and concluded it was effective[300] - Ernst & Young LLP, the independent registered public accounting firm, issued an unqualified attestation report on the company's internal control over financial reporting[301] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the period covered by this report - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the period covered by this report[302] Item 9B. Other Information No insider trading arrangements were adopted, modified, or terminated by directors or officers during Q4 2024 - No insider trading arrangements (Rule 10b5-1 or non-Rule 10b5-1) were adopted, modified, or terminated by directors or officers during Q4 2024[303] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections There are no disclosures regarding foreign jurisdictions that prevent inspections - There are no disclosures regarding foreign jurisdictions that prevent inspections[304] Part III Part III incorporates information by reference from the 2025 Proxy Statement, covering governance, compensation, and security ownership - Item 10. Directors, Executive Officers and Corporate Governance: Information incorporated by reference from the 2025 Proxy Statement - Item 11. Executive Compensation: Information incorporated by reference from the 2025 Proxy Statement - Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters: Information incorporated by reference from the 2025 Proxy Statement - Item 13. Certain Relationships and Related Transactions, and Director Independence: Information incorporated by reference from the 2025 Proxy Statement - Item 14. Principal Accountant Fees and Services: Information incorporated by reference from the 2025 Proxy Statement[306][307][308][309][310][311](index=311&type=chunk] Part IV Part IV details the exhibits and financial statement schedules filed as part of the report, including the consolidated financial statements Item 15. Exhibits and Financial Statement Schedules This section lists financial statements and exhibits, with schedules omitted as information is in consolidated financial statements or notes - Consolidated financial statements are included in Part IV, Item 15 of this Annual Report[313] - All financial statement schedules are omitted because the required information is included in the consolidated