Greetings, and welcome to the Open Lending Fourth Quarter and Full Year 2024 Earnings Conference Call. As a reminder, today's conference call is being recorded. On the call today are Jessica Buss, Chairman of the Board of Directors and Chief Executive Officer; and Chuck Jehl, Interim Chief Financial Officer and a member of the Board of Directors. I would like to pass the call over to [Ryan Gardella] (ph) Investor Relations to read the Safe Harbor statement. Please go ahead.

Thank you, and appreciate you all joining us. Prior to the start of this call, the company posted the fourth quarter and full year 2024 earnings release and supplemental slides to its Investor Relations website. In the release, you will find a reconciliation 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 and other forward-looking statements that represent the company's view as of today, March 31, 2025. Open Lending disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to today's earnings release and our filings with the SEC for more information concerning factors could cause actual results to differ from those expressed or implied with such statements. And now I will pass the call over to Chuck to give an update on our business and financial results for the fourth quarter and full year 2024.

Thank you, and good morning, everyone, and thank you for joining us today. While the automotive lending industry and broader automotive market continued to navigate through challenging market conditions, we continue to focus on taking prudent steps aimed to maximize our future opportunity. Specifically, we are focused on strategic efforts intended to drive new customer acquisitions and certified loan growth from new and existing customers, optimize profitability for our lenders, our insurance carrier partners and ultimately Open Lending, make targeted investments that are expected to improve the experience of our lender customers and their borrowers. As part of our goal of optimizing profitability, each quarter, we review the performance of our active certified loans to identify trends and adjustments we believe are needed to improve performance of our new originations. For the fourth quarter of 2024, we identified new information that negatively impacted our outlook on the performance of our back book of loans, which has in turn, negatively impacted our operating results. In summary, this review led to an $81 million negative Change In Estimate or CIE, associated with our profit share revenue contract asset to reflect our expectations of the performance on the approximately 411,000 active certified loans in our portfolio. The negative CIE was a result of further deterioration of our 2021 and 2022 vintages, as well as two additional factors that have negatively impacted performance of our 2023 and 2024 vintages. For fiscal year 2024, we generated 110,652 certified loans, $24 million in revenue and adjusted EBITDA of negative $42.9 million, largely due to our fourth quarter results and the impact of the negative CIE. I recognize these results are disappointing to our shareholders. They are equally disappointing to me and to the Board. To address this issue, we have implemented corrective actions that are designed…

who has been serving as the Chairman of the Board has been named Chief Executive Officer effective immediately. I will support Jessica as Interim Chief Financial Officer during the transition period and will assist in identifying a permanent CFO. Before moving on to our financials in more detail, I'd like to pass the call to Jessica.

Thank you, Chuck, for your many contributions to Open Lending. Since joining the company in 2020, Chuck has been a critical part of the management team, leading the company through a challenging and volatile period for Open Lending and the industry. I am looking forward to continuing to work with you as a member of the Board. And thank you, everyone, for joining us here today. I have served on the Board of Open Lending for the past 5 years and most recently held the title of Chief Executive Officer of Argo Group, a subsidiary of Brookfield Wealth Solutions. I have spent my entire career in the insurance industry, and I intend to bring that experience and expertise to bear on the current challenges and opportunities at Open Lending as we further our legacy of serving the underserved. In the coming days or weeks, we plan on taking concrete steps to review the overall operations of our business. At a high level, my goal as CEO of Open Lending will be to focus on profitable unit economics, growth, the right rate for individual loans and a pricing approach that seeks to enhance predictability and reduce volatility for both unit economics and our contract assets. We are moving through a complex macroeconomic environment, and we expect that tariffs and other developments may prolong or exacerbate this environment. Now more than ever, I believe we need a sophisticated, segmented and real-time data-driven pricing model designed to enhance predictability of the profit share component of revenue. In addition, we intend to continue to enhance and refine our tools and scorecards in an effort to predict the drivers of frequency and severity of defaults. Further, we will be identifying potential cost efficiencies and process improvements throughout the loan life cycle that may further streamline our business, as well as planning to focus our future investments on our core Lenders Protection program. Together, I believe this will drive value for our business and all our stakeholders. I look forward to providing more details in the coming weeks and months as well as getting to know each of you better and hearing your unique perspectives.

Thank you, Jessica. Now I'd like to provide an update on our financial results for the fourth quarter of 2024. During fourth quarter of 2024, we facilitated 26,065 certified loans, compared to 26,263 certified loans in fourth quarter of 2023. Total revenue for the fourth quarter of 2024 was negative $56.9 million, which includes $81.3 million of the aforementioned ASC 606 negative change in estimate associated with our profit share. To break down total revenues in the fourth quarter of 2024, program fee revenues were $13.7 million. Profit share revenue was negative $73.2 million, net of the negative change in estimate and claims administration fees and other revenue was $2.5 million. As a reminder, profit share revenues comprises the expected earned premiums less the expected claims to be paid over the life of the contracts unless the expense is attributable to the program. The net profit share to us is 72%, and any losses in the net profit share are accrued and carried forward for future profit share calculations. The negative change in estimate during the fourth quarter of 2024, reduced our contract asset and for certain loans caused the cash consideration previously received to be in excess of the expected profit share revenue. The amount of excess funds and the forecasted losses were recorded as an excess profit share receipts liability. Profit share revenue in the fourth quarter of 2024 associated with new originations was $8.2 million or $314 per certified loan, as compared to $13.2 million or $501 per certified loan in the fourth quarter of 2023. The $81.3 million negative profit share change in estimate recorded in the current quarter is associated with cumulative total profit share revenue previously recognized of approximately $410 million for periods dating back to January of 2019, the ASC 606 implementation date…

The floor is now open for questions. [Operator Instructions] Today's first question is coming from Vincent Caintic of BTIG. Please go ahead.

Hi, good morning everyone. Thanks for taking my questions. Jessica, welcome. I look forward to working with you. Maybe focusing -- just kind of on your perspective, Jessica, with your long insurance company background. If you can kind of give us an overview of what you think from the insurance perspective, is going on essentially with Open Lending, maybe a broad question. And when we look at what's -- stock price is down 16% free market. And so there is kind of questions on what structurally needs to change, if anything, and what the economics are going to be. And so maybe you can talk about your perspective of what happened and what needs to change in order to move the company going forward? And if there is any big structural changes need to happen economically? Thank you.

Yes. Thanks, Vincent. I appreciate the question. So maybe just to start, if you don't mind talk a little bit about sort of why I decided to make the change and come here in a little bit about my background. I've been on the Board of Directors for the last five years and have watched the company evolve over time. And I think through that process, what we've learned is half of our unit economics really come from our profit share, which is truly an insurance product. And I spent my entire career in the insurance industry and really feel like an insurance type approach to both pricing, claims, operations would really be beneficial to the foundation that the company has already built. And so that's my perspective that I'd like to bring in is really to be to focus on profitable unit economics and to enhance the predictability and reduce the volatility, as I said in my comments around our profit share component. And the way that we are going to do that is to build on the already good pricing work that's been done by the team, but to do it in a more sophisticated segmented in a real-time basis, bringing performance at a forward, segmenting our business, looking at both how we can price on a real-time basis like an insurance company would price a true insurance product, we would do rate reviews quarterly, we would implement rate increases. But it also includes implementing rate decreases for better performing loans. So we need to look at each individual loan, price it appropriately, drive in better risks, drive out poor performing risk or get the right adequate rate. And I think that's sort of what we've seen. Also, I believe that we can use more feedback data, like…

Okay. That's super helpful detail. I'm encouraged by that. Thank you, Jessica. And maybe just to give us some perspective, it sounds like there is a lot of -- perhaps a lot of infrastructure and a lot of things that need to be done? Just how difficult or how much work and how much investment needs to be put in to achieve these things, just to give us some perspective? Thank you.

Yes. I would say that the infrastructure and the piping and the tools are built. The team has done a great job with scorecard with LP2.0. [Matt Roe] (ph) has joined us as Chief Underwriting Officer. That was a big addition to the company last year, really bringing in sort of the underwriting view. We now have actuaries on staff that are helping on the pricing side. And then Josh has joined us on the product side. And really, what we need to do, again is sort of bring that all together. And we will need to build probably more in-depth data, and we will need to accelerate, as I mentioned, receiving performance and delinquency data into the system and adjusting that. And then I think sort of the biggest add will be this idea of predictive modeling. So how do we take that data, be better predictors of how ultimate loss costs will perform over time and then measuring whether we are right or not, and then adjusting that on a real-time basis, again like a true insurance product. So I think it's not as much about true large infrastructure changes as it is about rethinking how we collect data, what data we retain from how we price and then how we measure, how we perform relative to that and then building predictive models, which again, isn't infrastructure, it is more actuarial type predictive modeling like done in an insurance company. So it will take time for that to earn through, right? I mean, we've taken some corrective actions as Chuck has mentioned in his comments with underwriting changes on super thins, and we've taken some rate increases on poor performing files that we've taken some decreases on big files where we've actually performed better. And again those are good changes. We'll continue to get more and more granular in that approach. And so everything earns-out over multiple years, right? But I think we would expect to see a pretty big lift from the changes that we've already made and then we'll continue to get better and better, and we'll see better performing results with hopefully, again, less volatility around adjustment going forward.

Okay. Thank you very much. And last one from me. And sorry, I'm just getting a lot of these investor questions on it, and it is kind of a separate topic, but just trying to understand the remaining exposure from the profit share and the make-whole agreements and so forth. So it was very helpful to get the data point that 40% of your active certified loans are from that vintage of 2021, 2022. So if I just take the [40% times the 411,000] (ph) that’s 165,000 certs. But if I can understand like what's the remaining principal balance and maybe insurance at risk? Just so I can understand how much make-whole can be -- so clawed back? And what other remaining exposure there might be? Thank you.

Yes. And Vincent, this is Chuck. If you think about -- you're right on the 40% of the in-force loans and the amount of loans are still in the portfolio. The adjustments we've taken on the change in estimate in the fourth quarter in prior quarters. We've virtually taken the unit economics that we had previously booked on those vintages pretty much down -- all the way down to not zero necessarily, but written down pretty far. And it's just on a vintage-by-vintage basis, but you are asking about principal balance. I mean I don't have that number right in front of me of what's left outstanding on that. But the loans, as you know, amortized more heavily to the front-end of the loans from an amortization perspective. So just -- again, that would be something we'd have to get back to you on. I don't have that in front of me. But the amount of the write-down those vintages has been pretty significant. I mean the prior adjustments in the, call it, past seven quarters and then of course, with this adjustment in the fourth quarter because 40%, roughly of the $80 million that we took in the quarter was related to the '21 and '22 vintages specifically.

Okay, got it. I’ll get back in the queue. Thank you Jessica, thank you Chuck.

Yeah, thanks Vincent.

The next question is coming from John Hecht of Jefferies. Please go ahead.

Good morning guys. Thanks for taking my questions and congratulations, Jessica, I look forward to working together. The first question I have is the credit builder tradelines and kind of the modifications in dealing with that customer base. How much does this affect of like your addressable market? And then where can you go to offset the loss of that type of customer?

John, this is Chuck. I'll start and then Jessica can jump in. But as we said in the prepared comments, this is new information, obviously, that we started seeing in, call it, late third quarter and primarily in fourth quarter as we did our analysis and it became a bigger piece of our book throughout 2024, but 30% of our 2024 volume was these fewer positive tradelines as we referred to them, and then 15% of thin files and then 15% super thin roughly. So this is just the ones that have fewer than 3 positive tradelines. So we've adjusted for that. And we took action in, gosh, in late third quarter and then again in the fourth quarter and actually in Q1 to kind of minimize those. When we put out an outlook for Q1 of, call it, between 27,000 search and 28,000, so that's actually up sequentially from where we hit for Q4. And so an addressable market, it wasn’t a huge piece of our business. We didn't like the performance of it. We put corrective action to prevent those loans coming into the portfolio. So I don't see it as a huge impact of our go-forward volume.

Yes. I mean maybe the other thing that I would add is that certainly, we are looking to be able to scale the business across all market cycles, but we are looking at quality over quantity right now. And I think where we get to a segmented pricing is that we start to attract and replace those super thins with better performing business from what has historically been our base customer, our credit unions. And we'll be able to do that through the pricing mechanism itself because while the super thins will get priced out or even underwriting through underwriting rules, we'll be able to write more of the better quality business by giving those policies, again, a more appropriate rate, which could be rate decreases. And we'll be able to actually target that. So we will be optimizing the portfolio with a more targeted approach of what we want to write. So more or less being hunters and gatherers of the types of loans that we want in our portfolio.

Okay. And then the second question I have is, what do you guys think needs to happen in the market for the OEMs to I guess, have more flow coming through their channels?

Yes. Some of what we've seen in the OEMs is kind of across the portfolio, but John it was OEMs and to a lesser extent, through some of our credit union customers. We think these credit builder risks, as well as these fewer positive tradelines. So some of that was impacted in the tightening actions that we took this year and excuse me -- last year in '24, but we are very excited about signing OEM 3, which we put out a release, gosh, a month or so ago now, maybe two months ago. And that is in pilot and excited about that new relationship. And it's growing across their dealerships. And as you know, in the past, we can't mention the name, but very excited about that. So I think that will definitely be helpful in growing the combined OEM business throughout '25.

Great. Thanks very much.

Thanks John.

The next question is coming from Peter Heckmann of D.A. Davidson. Please go ahead.

Good morning. Thanks for taking the question. As regards to your insurance carriers, correct me if I'm wrong, but I think you have three insurance carriers that are active currently. How does their capacity compared to maybe the 110,000 loans that you certified in 2024, continue to have something that's well in excess of that?

Oh, yes. I mean the capacity from our three active carriers is plenty of capacity, Pete, to continue growing the company into the future at much larger certain levels.

Yes, I would say -- maybe to add to that, we've been having ongoing conversations with the carriers. They are very excited about the work that we're doing. They're very pleased with the overall long-term performance of the portfolio. And we have no restrictive caps on the amount of capacity. They like to do more business with us. So I would say that, that piece of the ecosystem is very healthy for us.

Okay. Great. And then how do you feel that some of the credit unions that historically participated in direct mail for refinancing. How do you think they're positioning for 2025? Do you think rates need to come down another 50 basis points? Or is it more -- other dynamics that they're looking at?

Yes. I think it's more. I mean refi I think, was about a little less than 4% in 2024 of our business. So we were encouraged late last year thinking we'd have more rate reductions, Pete, but we've all seen that, that's kind of slowed and paused a bit. But as we've always said, we don't really need rates to necessarily come down. We just needed them to stabilize, which we've seen. It's been more of the credit unions kind of working through their loan to share and their capacity issues that they had throughout, call it, '23 and '24. And we’re seeing that improving loan to shares coming down a bit. Deposit growth, I think it was actually about 4.6% across the credit union business, which, if you recall the deposit growth was got to a low of about 1%, 1.5%. So that's encouraging, they are building deposits, which in turn follows with lending in auto, and they love the short-term auto paper and we ought to start seeing that benefit as well. And that will -- across all channels, including refi.

Okay. So no guarantees, but certainly the setup appears that the refi could see a bit of a recovery in 2025?

Yes. I think the consumers where some of these loans are priced in the past would definitely benefit from an affordability. So yes, absolutely.

All right. Thank you.

Yeah, thanks Pete.

[Operator Instructions] The next question is coming from John Davis of Raymond James. Please go ahead.

Hi, good morning guys. I'll add my congrats to Jessica, look forward to working with you. Just to touch on the insurance carriers maybe from a little bit of a different angle. How is our profitability been -- it sounds Jessica in response to last question, the relationship is good there. But just curious are they still making money? Are they seeing losses? And is there any potential risk to the 72% that you guys get to keep? Could there be any downward pressure on that too for the insurance companies to improve their profitability?

Yes. So long-term profitability for the insurance companies has been very strong, like all market cycles and all products and insurance, there's going to be years where certain products don't perform as well as expected. And certainly, in certain vintages, we have seen that. But again, across the board, performance has been strong. Also remember that the insurance carriers get to keep 8% off the top. So their combined ratio leverage is very stable as it relates to sort of changes in the loss ratio they experienced. So their combined ratios have performed, again, very well over time. There have been a few vintages, of course, where they've been higher than expected certainly. But again, those relationships are very strong. There has been no discussions about changing the percentage -- the percentage of profit share participation by the insurance carriers or us, so we would expect that to continue as it always has.

Okay. That's helpful. And then if I look at the profit share per cert kind of the change in estimate, I think it was roughly $300 in the fourth quarter. It is historically been closer to $500. And I guess, Jessica and Chuck, there is a couple of thoughts there. Were you over-earning at $500 million? Is $300 million the right way to think about 2025? And what do you need to do to get that going closer to historical levels versus the fourth quarter?

Yes. So the $300 million represents a constrained profit share under 606 guidelines which advises that we have to book a constrained profit share where we think that it is more likely not that there will not be a reversal of the profit share. Historically, the $500 million was booked based on a projected 60% loss ratio. If you sort of look at what we've booked in CIE adjustments over the past quarters, that would have taken that $500 down closer to kind of the $300 range. And we have taken the corrective actions that we believe will, over time bring that fact to $500, which again is really based on a 60% loss ratio target. However, we are not going to reflect that until we see that those actual constraints and underwriting changes have taken effect and that we see an actual improvement in the loan performance.

The only thing I would add is, John -- J.D., is we've always under the 606 constrained is just based on the recent performance and what we've seen in the back book and that further deterioration we've talked about and then some of these recent cohorts that are not performing, just put some further constraint under -- that's acceptable under the guidance. So as Jessica said, hope those will perform better ultimately, and we'll get back to those unit economics.

Yes. And I guess the last part of your question is what do we need to do? And I think that is what we talked about earlier is that we need to get this real-time sophisticated pricing so that we don't end up in situations or we try to reduce again the volatility around the 606, so that we feel more confident in the 60% with less volatility around the performance around that number, but we would expect us to continue to price future vintages that would result in something closer to what you've seen as a historical $500 unit economic for profit share.

Okay. It sounds like in the near term, $300 plus or minus is the right way to think about it until you guys actually start seeing some improvement. Is that fair? Okay. And the last one for me, just last one for me on tariffs. Obviously, likely helps credit as used car prices go up, it hurts affordability. So maybe just talk a little bit about how you guys think about, obviously, a lot of moving pieces, and we'll see. But at a high level, maybe just give us some comments there?

Yes. I think what we said, and I think I mentioned it in my comments, is that we would expect tariffs to be positive on sort of the back book as it increases collateral prices and then, therefore, would reduce severity on sort of on defaults. I think the question is, if tariffs stay in place, what does that do to the MUVVI going forward in terms of used car prices in the long term as it will likely increase those as sort of new cars become more expensive, then used cars become more expensive and become less affordable. We don't want to end up in the same position that we ended up in '21 and '22, where we had the height of used car prices and we weren't pricing it appropriately. So I think our viewpoint would be if we believe that is going to long-term effect used car prices being overinflated or being at an all-time high, then we will need to adjust pricing to reflect that in our potential severity calculations going forward. It would be positive on the back book.

Ladies and gentlemen, as there are no further questions, I will now hand the conference over to Jessica for her closing comments.

Thank you. We appreciate your interest and support, and I'd like to again thank the team members of Open Lending for your hard work and dedication to our company. Thanks, and have a great day.

Thank you.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines. I'll lock off the webcast at this time, and enjoy the rest of your day.