Open Lending(US:LPRO)2021-11-12 21:08PART I. Financial Information Presents the company's financial performance, condition, cash flows, management's analysis, and risk disclosures Item 1. Condensed Consolidated Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements, highlighting revenue growth, net income, and increased equity Condensed Consolidated Balance Sheets Details the balance sheet, showing stable assets, reduced liabilities, and increased stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $293,243 | $294,009 | | Cash and cash equivalents | $90,864 | $101,513 | | Total contract assets | $114,262 | $89,342 | | Total Liabilities | $165,653 | $267,387 | | Long-term debt, net | $143,828 | $152,859 | | Tax receivable agreement liability | $— | $92,369 | | Total Stockholders' Equity | $127,590 | $26,622 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Presents the income statement, showing doubled revenue and a significant turnaround from net loss to net income Statement of Operations Summary (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Total Revenue | $164,025 | $69,259 | | Gross Profit | $150,143 | $62,441 | | Operating Income | $115,062 | $32,431 | | Gain on extinguishment of TRA | $55,422 | $— | | Change in fair value of contingent consideration | $— | $(131,932) | | Net Income (Loss) | $118,242 | $(112,766) | | Diluted EPS | $0.94 | $(1.56) | Condensed Consolidated Statements of Cash Flows Details cash flows, showing increased operating cash and significant cash used in financing for debt repayment Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $68,423 | $16,375 | | Net cash used in investing activities | $(1,785) | $(1,097) | | Net cash (used in) provided by financing activities | $(77,026) | $92,590 | | Net change in cash | $(10,388) | $107,868 | | Cash at end of period | $93,760 | $117,766 | Notes to Condensed Consolidated Financial Statements Provides key notes on corporate actions, accounting estimates, revenue concentration, debt refinancing, and TRA termination - The company's business relationships with its three insurance partners generated approximately 65% of total revenue for the nine months ended September 30, 2021, indicating a significant concentration of revenue37 - In March 2021, the company retired its 'Term Loan due 2027' and entered into a new credit agreement for a 'Term Loan due 2026' and a revolving facility, resulting in a non-cash loss of $8.8 million from debt extinguishment5758 - On April 12, 2021, the company exercised its right to terminate the Tax Receivable Agreement (TRA) with a single payment of $36.9 million, resulting in a recognized gain of $55.4 million114115 Contract Asset Changes (Profit Share Component, in thousands) | Description | Nine Months Ended Sep 30, 2021 | | :--- | :--- | | Beginning Balance (Profit Share) | $83,177 | | Increase from new business | $77,605 | | Positive adjustment from prior periods | $24,414 | | Payments received | $(78,541) | | Ending Balance (Profit Share) | $106,655 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operations, highlighting strong revenue growth, increased loan volume, and strategic actions Key Financial and Operational Metrics (in millions, except as noted) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | % Change | | :--- | :--- | :--- | :--- | | Certified Loans | 129,058 | 67,404 | 91% | | Total Revenue | $164.0M | $69.3M | 137% | | Operating Income | $115.1M | $32.4M | 255% | | Net Income (Loss) | $118.2M | $(112.8)M | (205)% | | Adjusted EBITDA | $118.4M | $44.7M | 165% | - The company signed a producer agreement with a third insurance carrier partner, American National Group, Inc., to provide additional credit default insurance policies for its LPP platform150 - Profit share revenue for the nine months ended Sep 30, 2021, included a $24.4 million positive adjustment related to historical business, reflecting continued improvement in portfolio performance compared to initial pandemic-era expectations176 Item 3. Quantitative and Qualitative Disclosures about Market Risk Discloses market risks including economic conditions, competition, interest rate fluctuations, and concentration risk - The company identifies significant concentration risk, as a large portion of certified loan volume is expected from OEM Captives and a significant portion of profit share revenue relies on its largest insurance partner206 - The company is exposed to interest rate risk through its variable-rate debt under the New Credit Facility, which is tied to LIBOR or an Alternate Base Rate plus a spread207 Item 4. Controls and Procedures Management confirms effective disclosure controls and procedures, noting changes from new ERP system implementation - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period209 - The company implemented a new Enterprise Resource Planning (ERP) system during Q3 2021, leading to changes in processes and the design of certain internal controls210 PART II. Other Information Presents other required information including legal proceedings, updated risk factors, and equity security sales Item 1. Legal Proceedings Reports no material legal proceedings as of the filing date - The company reports no material legal proceedings as of the date of the Quarterly Report212 Item 1A. Risk Factors Updates risk factors, including new credit agreement covenants, LIBOR phase-out, and semiconductor chip shortage - The New Credit Agreement contains covenants that could limit the company's ability to incur debt, engage in M&A, or pay dividends, with breaches potentially leading to default and acceleration of the loan214215217 - The company acknowledges risk related to the planned phase-out of LIBOR, which is a reference rate for its credit facility, and the transition to alternative rates like SOFR218 - The global semiconductor chip shortage is identified as a significant risk, as it has reduced new vehicle production, lowered inventory, and pushed prices higher, thereby diminishing demand for automotive loans and the LPP platform220221 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities or common stock repurchases during the period - No shares of common stock were repurchased by the company during the three-month period from July 1, 2021, to September 30, 2021222223