Open Lending(LPRO) - 2023 Q1 - Quarterly Report

Part I. Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) For the quarter ended March 31, 2023, Open Lending reported total revenue of $38.4 million, a 23% decrease year-over-year, and net income of $12.5 million, a 46% decrease. The balance sheet shows total assets of $372.9 million and total stockholders' equity of $205.5 million. Cash flow from operations was strong at $29.5 million, though down slightly from the prior year. The financial statements reflect a challenging quarter with reduced loan certifications impacting top and bottom-line results Condensed Consolidated Balance Sheets As of March 31, 2023, total assets were $372.9 million, a slight decrease from $379.6 million at year-end 2022. The decrease was primarily in current contract assets. Total liabilities remained stable at $167.3 million. Stockholders' equity declined to $205.5 million from $212.8 million, largely due to an increase in treasury stock from share repurchases Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $372,898 | $379,631 | | Cash and cash equivalents | $210,589 | $204,450 | | Total current assets | $271,995 | $280,744 | | Total Liabilities | $167,349 | $166,807 | | Long-term debt, net | $142,829 | $143,683 | | Total Stockholders' Equity | $205,549 | $212,824 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2023, total revenue decreased 23% year-over-year to $38.4 million, driven by a significant drop in Profit Share revenue. Operating income fell 47% to $17.1 million. Net income was $12.5 million, a 46% decrease from the prior-year period, resulting in diluted EPS of $0.10 compared to $0.18 Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $38,361 | $50,068 | -23.4% | | Gross Profit | $32,930 | $45,280 | -27.3% | | Operating Income | $17,096 | $32,242 | -47.0% | | Net Income | $12,538 | $23,154 | -45.8% | | Diluted EPS | $0.10 | $0.18 | -44.4% | Condensed Consolidated Statements of Cash Flows For the first quarter of 2023, the company generated $29.5 million in cash from operating activities, a slight decrease from $31.9 million in the prior-year period. A significant use of cash was $22.4 million for financing activities, primarily driven by $21.3 million in share repurchases. The company's cash, cash equivalents, and restricted cash balance increased by $6.8 million to end the period at $215.3 million Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $29,508 | $31,932 | | Net cash used in investing activities | ($335) | ($186) | | Net cash used in financing activities | ($22,390) | ($820) | | Net change in cash | $6,783 | $30,926 | Notes to Condensed Consolidated Financial Statements (Unaudited) The notes detail the company's business as a provider of loan analytics and risk modeling for automotive lenders via its Lenders Protection Platform (LPP). Key accounting policies highlight significant estimates in profit share revenue recognition. The company has significant revenue concentration, with its two largest insurance partners accounting for 45% of total revenue in Q1 2023. Total debt stood at $146.6 million, and the effective tax rate for the quarter was 25.2% - The company's flagship product is the Lenders Protection Platform ("LPP"), a cloud-based automotive lending platform that links automotive lenders to insurance companies for near-prime and non-prime borrowers[19] - There is a significant concentration of revenue, with the two largest insurance carrier partners accounting for 33% and 12% of total revenue during Q1 2023[27] - Profit share revenue recognition requires significant estimates using a forecast model that projects loan performance, including prepayment rates, default rates, and loss severity[34] Long-Term Debt Summary (in thousands) | Component | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Term Loan due 2027 | $148,125 | $149,063 | | Total debt | $146,579 | $147,433 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 23% year-over-year revenue decline to a 26% decrease in certified loan volume, reflecting broader economic headwinds. The decrease in profit share revenue was the primary driver. Operating expenses increased by 21%, mainly due to higher G&A costs, leading to a significant contraction in operating margin from 64% to 45%. The company maintained strong liquidity, generating $29.5 million in operating cash flow and executed $21.5 million in share repurchases. Adjusted EBITDA fell 37% to $21.2 million Business Overview Open Lending is a leading provider of lending enablement and risk analytics for automotive lenders, focusing on the underserved near-prime and non-prime borrower market. Its core product, the Lenders Protection Platform (LPP), uses proprietary data and risk models to facilitate loan origination with default insurance. The company estimates the near-prime and non-prime auto loan market to be $270 billion annually, of which it currently serves approximately 2% - The company targets the near-prime and non-prime automotive loan origination market, which is estimated at $270 billion annually[80] - As of the report date, the company serves 437 active lenders and has facilitated over $19.2 billion in automotive loans since its inception in 2000[75] Executive Overview and Highlights The first quarter of 2023 saw a significant year-over-year decline in business volume and financial performance. Certified loans decreased 26% to 32,408, and the value of insured loans facilitated fell to $951.9 million from $1.2 billion. This slowdown directly impacted financial results, with revenue, operating income, and net income all decreasing substantially compared to Q1 2022 Key Operational Metrics | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Certified loans | 32,408 | 43,944 | | Value of insured loans facilitated (in thousands) | $951,893 | $1,182,567 | | Average loan size per certified loan | $29,372 | $26,911 | | Number of contracts signed with automotive lenders | 8 | 18 | Results of Operations Total revenue for Q1 2023 decreased by 23% to $38.4 million, primarily due to a 34% decline in profit share revenue resulting from lower loan certification volumes. Program fees also fell 12%. Cost of services rose 13%, and total operating expenses increased 21%, driven by higher G&A costs. Consequently, operating income dropped 47% to $17.1 million, and net income fell 46% to $12.5 million Results of Operations Summary (in thousands) | Line Item | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $38,361 | $50,068 | (23)% | | Gross Profit | $32,930 | $45,280 | (27)% | | Operating Income | $17,096 | $32,242 | (47)% | | Net Income | $12,538 | $23,154 | (46)% | - The decrease in revenue was driven by a $9.7 million (34%) decrease in profit share revenue and a $2.4 million (12%) decrease in program fees, linked to a 26% decline in certified loan volume[110][111][113] - General and administrative expenses increased by $2.7 million (36%), primarily due to higher professional fees, employee compensation, and business taxes[118] Liquidity and Capital Resources The company maintained a solid liquidity position, with $210.6 million in cash and cash equivalents. Net cash from operations was $29.5 million for the quarter. The company actively returned capital to shareholders, repurchasing 3.1 million shares for $21.5 million under its share repurchase program. As of March 31, 2023, $148.1 million was outstanding under its Term Loan, with no borrowings on its revolving credit facility - Under its Share Repurchase Program, the company repurchased 3,095,334 shares for a total of $21.5 million during the quarter, leaving $35.5 million available for future repurchases[133][135] Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $29,508 | $31,932 | | Net cash used in financing activities | ($22,390) | ($820) | Non-GAAP Financial Measures Adjusted EBITDA, a non-GAAP measure, was $21.2 million for Q1 2023, a 37% decrease from $33.8 million in Q1 2022. The Adjusted EBITDA margin contracted significantly to 55% from 67% in the prior-year period, reflecting the impact of reduced revenue and increased operating expenses Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Line Item | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income | $12,538 | $23,154 | | Interest expense | $2,387 | $803 | | Income tax expense | $4,235 | $8,310 | | Depreciation and amortization | $244 | $221 | | Share-based compensation | $1,844 | $1,281 | | Adjusted EBITDA | $21,248 | $33,769 | | Adjusted EBITDA margin | 55% | 67% | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks include general economic conditions affecting consumer auto lending, concentration risk with its key insurance partners, and interest rate risk. The interest rate risk stems from its variable-rate Term Loan due 2027, which had an outstanding balance of $148.1 million, and from its investments in money market funds and U.S. Treasury securities - The company faces concentration risk, relying on its three largest insurance partners for a significant portion of its profit share and claims administration revenue[145] - The company is exposed to interest rate risk on its $148.1 million outstanding variable-rate Term Loan due 2027, where borrowings bear interest at a rate equal to Adjusted SOFR plus a spread[146][147] Item 4. Controls and Procedures Based on an evaluation as of March 31, 2023, the company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective at a reasonable assurance level. No material changes were made to the company's internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[148] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[149] Part II. Other Information Item 1. Legal Proceedings As of the filing date, the company was not a party to any material legal proceedings - The company reports that it was not a party to any material legal proceedings as of the date of the Quarterly Report[151] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - The company states there have been no material changes in its risk factors from those described in its Annual Report[152] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2023, the company repurchased a total of 3,113,382 shares of its common stock. Of this amount, 3,095,334 shares were repurchased as part of the publicly announced share repurchase program, leaving approximately $35.5 million available for future repurchases under the program Share Repurchases for Q1 2023 | Period | Total Shares Purchased | Average Price Paid | Shares Purchased Under Plan | Value Remaining Under Plan (in millions) | | :--- | :--- | :--- | :--- | :--- | | Jan 2023 | 17,342 | $7.08 | — | $57.0 | | Feb 2023 | 97,606 | $7.32 | 96,900 | $56.3 | | Mar 2023 | 2,998,434 | $6.95 | 2,998,434 | $35.5 | | Total | 3,113,382 | | 3,095,334 | | Item 5. Other Information The company disclosed that on March 15, 2023, John J. Flynn, Chairman of the Board of Directors, entered into a 10b5-1 sales plan for the potential sale of up to 1,200,000 shares of the company's common stock - On March 15, 2023, the Chairman of the Board, John J. Flynn, entered into a 10b5-1 sales plan covering the sale of up to 1,200,000 shares of common stock, effective until June 14, 2024, or until all shares are sold[158]