Open Lending(US:LPRO)2022-08-05 20:08Financial Performance - Total revenue for the three and six months ended June 30, 2022, was $52.0 million and $102.1 million, respectively, compared to $61.1 million and $105.1 million for the same periods in 2021, representing a decrease of 14.9% and 2.9%[79] - Operating income for the three and six months ended June 30, 2022, was $32.8 million and $65.1 million, respectively, compared to $44.9 million and $74.3 million for the same periods in 2021, showing a decline of 27.0% and 12.4%[79] - Net income for the three and six months ended June 30, 2022, was $23.1 million and $46.3 million, respectively, compared to $76.0 million and $88.8 million for the same periods in 2021, representing a decrease of 69.6% and 47.9%[80] - Adjusted EBITDA for the three and six months ended June 30, 2022, was $34.0 million and $67.8 million, respectively, down from $46.1 million and $76.3 million for the same periods in 2021, indicating a decline of 26.2% and 11.1%[81] - Profit share revenue decreased by $9.7 million and $9.1 million, or 25% and 14%, during the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021[110] Loan and Insurance Metrics - The company facilitated 44,531 certified loans in Q2 2022, down from 46,408 in Q2 2021, and 88,475 certified loans in the first half of 2022, compared to 79,726 in the same period of 2021[78] - The average loan size per certified loan increased to $29,043 in Q2 2022 from $25,221 in Q2 2021, and to $27,984 in the first half of 2022 from $24,469 in the same period of 2021[83] - Insurers' earned premiums were $70.9 million and $138.1 million for the three and six months ended June 30, 2022, compared to $53.9 million and $100.6 million for the same periods in 2021, reflecting an increase of 31.5% and 37.2%[90] - The near-prime and non-prime automotive loan origination market is estimated at $270 billion annually, with the company currently serving less than 2% of this market, indicating significant growth potential[77] - The company signed a program management agreement with Arch Specialty Insurance Company on May 2, 2022, adding a fourth insurance carrier partner for credit default insurance policies[91] Operational Changes - The number of active lenders decreased to 371 at the end of Q2 2022 from 348 at the end of Q2 2021, while the number of contracts signed with automotive lenders was 18 in Q2 2022, down from 22 in Q2 2021[84] - Cost of services increased by $1.0 million, or 23%, and $2.3 million, or 32%, during the three and six months ended June 30, 2022, respectively, primarily due to increases in employee compensation costs and fees paid to third-party partners[114] - Research and development expenses increased by $1.4 million, or 183%, during the three months ended June 30, 2022, compared to the prior year, driven by growth in the R&D organization[118] - Selling and marketing expenses increased by $1.0 million, or 35%, during the three months ended June 30, 2022, primarily due to increased travel and business development activities[117] Cash Flow and Debt - Net cash provided by operating activities for the six months ended June 30, 2022, was $53.6 million, an increase of $20.6 million compared to $32.9 million in the same period last year[125] - Interest expense decreased by $2.5 million, or 56%, for the six months ended June 30, 2022, compared to the same period in 2021, due to lower borrowing costs[121] - As of June 30, 2022, the company had outstanding amounts of $121.1 million related to the Term Loan due 2026[131] - As of June 30, 2022, the company had outstanding amounts of $121.1 million under the Term Loan due 2026 and $25.0 million under the Revolving Facility, both maturing on March 19, 2026[142] - Borrowings under the New Credit Facility bear interest at a rate of 1.75% to 2.50% for LIBOR loans and 0.75% to 1.50% for ABR loans, with an unused commitment fee of 0.200% to 0.275% per annum on the average daily unused portion of the Revolving Facility[142] Tax and Legal Matters - Income tax expense decreased by $14.7 million, or 63%, during the three months ended June 30, 2022, compared to the same period in 2021, primarily due to a decrease in income before income taxes[122] - The effective tax rate for the three months ended June 30, 2022, was 27.1%, compared to 23.4% for the same period in 2021[122] - The company is not currently a party to any material legal proceedings, and future legal matters are not expected to materially impact financial position or results[147] Risk Factors - The company relies on three largest insurance partners for a significant portion of profit share and claims administration service fee revenue, indicating a concentration risk that could adversely impact revenue if disrupted[141] - The company is exposed to market risks including changes in interest rates and consumer attitudes toward vehicle ownership, which are monitored as part of its risk management program[139] - Economic factors such as unemployment rates, inflation, and overall consumer confidence influence consumer spending and borrowing patterns related to auto purchases[140] - The company faces competition from various auto lenders, which impacts its ability to acquire and maintain relationships with auto lenders[140] Internal Controls - The company has evaluated its disclosure controls and procedures and concluded they were effective at the reasonable assurance level as of the end of the reporting period[144] - There were no changes in internal control over financial reporting that materially affected or are likely to materially affect the company's internal control during the reporting period[145] - Management applies judgment in evaluating the cost-benefit relationship of possible controls and procedures, recognizing that no controls can provide absolute assurance[144]