Earnings Call: Q1 2021

May 11, 2021

Good afternoon, and welcome to Open Lending's First Quarter 2021 Earnings Conference Call. As a reminder, today's conference call is being recorded. On the call today are John Flynn, Chairman and CEO and Ross Jesuk, President and COO and Chuck Yell, CFO. Earlier today, the company posted its Q1 2021 earnings release to its Investor Relations website. In the release, you will find reconciliations of non GAAP financial measures to the most comparable GAAP financial measures discussed on this call. Before we begin, I'd like to remind you that this call may contain estimates and other forward looking statements that represent the company's view as of today, May 11, 2021. 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 that could cause actual results to differ materially from those expressed or implied by such statements. And now I'll pass the call over to you, John, for your opening remarks. Thank you, operator, and good afternoon, everyone. Thanks again for joining us for our Q1 2021 earnings conference call. I'd like to start today by reviewing our Q1 highlights as well as the progress we've made on our growth objectives. Then Ross is going to provide an update on our OEM opportunity along with some recent changes to our underwriting. And finally, Chuck is going to review And our outlook for full year 2021. During the Q1, we certified 33,318 loans, which was an increase of 19% as compared to the Q1 of 2020. We reported revenue of 44,000,000 which was an increase of 152 percent and adjusted EBITDA of $30,300,000 which was an increase of 2 17% as compared to the Q1 of 2020 as well. The Q1 was a record quarter for the company And March was especially notable as it was a record month in our company's history from a certified loan perspective. We certified over 14,500 loans in March and the momentum has continued into the 2nd quarter. We also continue to make solid progress on our growth opportunities. During the quarter, 14 contracts were executed with new customers And we currently have over 360 active customers on our platform that have generated certified loans in the past 12 months. We announced a new partnership with Noble Credit Union, which is a $1,000,000,000 institution based in Fresno, California, And we've also recently signed 6 other large institutions, which we will announce once they go live on our platform. We continue to show progress on the credit union front and we believe we still have a huge runway for growth ahead of us. We continue to have productive conversations with multiple regional bank prospects, and we are currently working on 2 data studies for these types of institutions. We've begun making traction with companies in the online lending channel who funnel applications to funding sources. We are currently working on a data study with 1 of these institutions to look at their applications that were not funded in the last quarter, which represents approximately 270,000 applications at various credit scores. Also during the quarter, We added 7 new credit unions and banks to the refinance program and have 28 credit unions that are acting as funding sources behind these Refinance Channel Partners. We noted an uptick in volume and it was a greater than 75% increase in applications in March of 2021 as compared to March of last year. PenFed Credit Union has grown its CERT volume from approximately 700 loans in February to over 1,000 in March. In March, we co hosted a webinar with KPMG and we published a white paper on CECL relief that can be found on our website. The webinar had over 100 attendees and has generated positive feedback and inbound calls from current and prospective OEM, bank and credit union partners inquiring as to how we can help. We plan to do more of these webinars in an ongoing basis to educate potential partners on our offerings. As the CECL deadline approaches for credit unions, we believe this is a great growth opportunity for us to expand our wallet share. And then lastly, we continue to make very good progress on adding additional insurance carrier partners to our platform. We are in active discussions with various top insurance carriers as we feel there is enough volume to support a 3rd or a 4th insurance carrier without jeopardizing our relationship with the other two carriers. This is an important initiative for us, and we will continue to provide a more meaningful update on our progress as we execute this initiative. So with that, I'm going to turn it over to Ross to review our OEM business and our progress on that front as well as talk about some of the underwriting changes that we're currently making. Thanks, John. As we have spoken previously, the OEM captive market is substantial and a major growth opportunity for us. As of today, we currently serve 2 OEM captives, which we expect to continue to ramp, and we continue our ongoing discussions building out our pipeline of other OEMs for the future. Now let me provide an update on our progress growing OEM 1 and 2. OEM 1, We experienced certification growth of approximately 164% in the Q1 of 2021 as compared to the Q1 2020. We are very happy with this progress and growth. OIBDA number 1 is currently utilizing our platform for an expanded credit score offering, which is 560 to 679 in all four regions that they service. They launched 1 region in January and the remaining 3 regions last week for the credit score ranges 620 to 679. We anticipate this could add an additional 300 certs per month, taking OEM number 1 to approximately 1300 certs per month once fully ramped. In addition, this week, We are launching expanded loan terms from 72 to 75 months in one of their 4 regions initially as a pilot. Moving on to OEM 2. As you may recall, OEM 2 launched originally in October 2019 with their captive finance arm and paused doing business in April 2020 due to the COVID-nineteen pandemic. They came back online in October 2020 and production has ramped to near pre COVID levels. Certified loan growth was approximately 60% in Q1 'twenty one as compared to Q4 'twenty. We are now active for both new and used across the nation for OYO 2. Production continues to ramp up and we are making good progress Moving forward towards its full ramp of 8,000 to 10000 search per month by the end of 2021. We launched SOVENTION in January in one market and were delayed for the February launch due to the Texas storms. As of early March, we are live across the nation with subvention. We expanded terms to 75 months in early April and the initial feedback is very positive. So for both new and used, They're ramping in line with expectations, and we are excited about the opportunities to continue to broaden our services with them as the relationship grows. William number 3, as we previously disclosed, we completed a data study for William number 3, and included a 51% increase in approvals demonstrating a strong value proposition to their business. We both are encouraged by the results and will update you as our relationship moves forward. Moving on to OM number 4. As previously disclosed, We completed our data study, which included a 57% increase in approvals from applications they are denying. We are also encouraged by these results and the progression of our discussions, and we'll update you as well on the relationships as they move forward. Let's move on to an update on the underwriting initiatives. When COVID-nineteen hit last year, we tightened our underwriting standards by incorporating a 5% vehicle valuation discount, which resulted in higher loan to values, LTVs, that increased premiums and improved the quality of the credit of our book during that pandemic, and we changed our income verification thresholds. With the macroeconomic environment improving, we felt it was the appropriate time to change these standards back to where they were pre pandemic as we have had fewer defaults in claims than expected. We removed the 5% vehicle discount in mid April and or removing the proof of income for 620 to 680 credit scores for direct and the refinance channels in May. We expect both of these changes will increase our certified loan volume through more attractive rate offerings. I'll now turn it over to Chuck to discuss our Q1 financials in more detail. Great. Thanks, Ross. During the Q1 of 2021, we facilitated 33,318 certified loans and 14 contracts were executed with new customers. In addition, we have nearly a dozen active implementations with go live dates in the next 60 days. Total revenue for Q1 2021 increased 152 percent to $44,000,000 as compared to Q1 2020, with profit share making up $27,700,000 of total revenue, including $5,100,000 from performance obligations that were satisfied in previous periods as a result of improved macroeconomic conditions and the continued overall portfolio performing better than expected due to fewer defaults and claims as compared to a $12,000,000 reduction in performance obligations satisfied in previous periods in the Q1 of 2020. Profit share associated with new originations in the Q1 of 2021 was $22,600,000 or $6.80 per certified loan as compared to $15,800,000 or $5.64 per certified loan in Q1 of 2020. Program fees were $14,900,000 in Q1 of 2021 as compared to $12,700,000 in the previous year quarter and claims administration fees were $1,400,000 in the Q1 of 2021 as compared to $900,000 in Q1 of 2020. Gross profit was $40,600,000 in Q1 2021, an increase of 172% due to higher levels of loan certified as compared to Q1 2020 and the ASC 606 change in estimate discussed earlier. The positive adjustment in the Q1 of 2021 related to ASC 606 resulted in a $17,100,000 change quarter over quarter and represents the continued improvement of our portfolio performance from a risk perspective related to frequency and severity of defaults and prepayments over what we anticipated last year when the pandemic began. Gross margin was 92% Q1 of 2021 compared to 86% in Q1 of 2020. Selling, general and administrative expenses were 11,200,000 in the Q1 of 2021 compared to $6,000,000 in the previous year quarter. The increase in SG and A cost reflects an increase compliance and reporting requirements of public companies. Now moving to operating income, it was $29,400,000 in Q1 of 2021 compared to $8,900,000 in Q1 of 2020. The increase was primarily driven by the 19% increase in certified loans as compared Q1 of 2020 and the recognition of the $5,100,000 in profit share related to historical vintages as a result of better than expected performance of the portfolio as a result of lower than anticipated defaults and claims. Net income for Q1 of 2021 was $12,900,000 compared to $8,200,000 net income in Q1 of 2020. Adjusted EBITDA for the Q1 of 2021 was 30,300,000 as compared to $9,600,000 in Q1 of 2020. There's a reconciliation of GAAP to non GAAP financial measures that can be found at the back of our press release. Now moving to the balance sheet. We exited the quarter with $326,800,000 in total assets, of which $127,000,000 was unrestricted cash, dollars 97,200,000 was contract assets, both current and non current and $83,900,000 in net deferred tax assets. We had $286,600,000 in total liabilities, which $173,300,000 was an outstanding debt and $92,400,000 related to our tax receivable agreement liability. On April 6, 2021, we completed an underwritten public offering of 10,350,000 shares of our common stock at a public offering price of $34 per share. All shares were sold by existing stockholders and certain executive officers of Open Lending. Upon closing of the offering, we entered into an agreement to repurchase from the selling stockholders an aggregate number of shares of Open Lending's common stock equal to $20,000,000 or 612,745 shares at the same per share price paid by the underwriters to the selling stockholders in the offering. Also, I wanted to briefly give you an update on our share count. We had approximately 126,800,000 shares outstanding at March 31, 2021. We posted an updated investor presentation and Q1 2021 earnings supplemental to our Investor Relations website, which includes a slide that lays out our current share count post the April secondary offering. Before reviewing our guidance 2021, there are a few items I wanted to point out. In March, we entered into a new credit agreement, which included a senior Term loan facility of $125,000,000 along with a revolving loan facility of up to $50,000,000 The new facilities were used to refinance the company's existing term loan agreement and will result in approximately $9,000,000 in annual interest expense savings. In April, we paid $36,900,000 to settle our long term obligation related to the tax receivable agreement to terminate a $92,400,000 liability at $0.40 on the dollar. This settles the TRA holders present and future right to the tax receivable agreement. Now moving to our guidance for 2021. Based on our Q1 results and trends into the Q2 of 2021, We are reaffirming our previously announced guidance ranges as follows: total certified loans to be between $161,000 206,000 Total revenue to be between $184,000,000 $234,000,000 adjusted EBITDA to be between 125,000,000 $168,000,000 and adjusted operating cash flow to be between $81,000,000 $111,000,000 Now with that, we will turn it back over to the operator, and we are happy to take some questions from the group. Thank you. The first question is from Peter Heckmann from D. A. Davidson. Please go ahead. Nice results. I wanted to ask, with the underwriting Standard change that's going to take place here in May. Can you talk about what that might represent in terms of a change in the Revenue per loan or as well as any other thoughts for modeling purposes? Yes, Peter. This is Ross. The change actually will not affect the average revenue Per loan, but should change our capture rate, meaning that many more closed loans compared to the number that are approved. So There is the change that would happen on potentially on the revenue side was we do have A reduced amount of premium coming in, but I think whenever you factor that in as well as Our continual reduction of claims and prepayments Compared to where we estimated, I think there's a balance in there. So we don't actually think our overall per cert Revenue is going to change that materially. Mainly, we're just going to be able to capture that many more. Yes. It is Chuck, Pete. I would just say on that profit share, I think in that range of that call it $6.50 per cert, which is what we've kind of been discussing kind of longer term for the average there and About $11.50 per certified loan in total. Okay, that's helpful. And then, what was my other Just as regards the loans by OEM, did you say you continue to expect OEM number 2 Should be able to ramp to 8,000 to 10000 loans per month? And if so, what kind of time frame are you thinking about there? Yes. I still think we're tracking right in line with that towards the end of the year. And so it is 8% to 10% number. Okay, great. Thank you. Thanks, Pete. The next Question is from David Scharf from JMP Securities. Please go ahead. Great. Good afternoon. Thanks for taking my question. I was just wondering, we're at the tail end of a reporting season in which obviously consumer lenders pretty much across every asset Class experienced much better credit performance than maybe initially anticipated. Obviously, you're no exception and it's As we think about just some of the puts and takes that impact the demand for your service From your lending partners, does sort of this benign credit environment and Perhaps evidence of other lenders, even OEM captives or credit unions potentially loosening some of their underwriting requirements. Does that represent any sort of headwind in which maybe their approvals internally could be supported or Does it just sort of trying to really understand sort of the puts and takes, if you will, whether or not there's any Evidence that some of your lending partners might relax and therefore not require Is much incremental help from you on near prime borrowers? Hey, guys. This is John Flynn. I'll take the first stab at that and Ross or Chuck, if you want to jump in, Amit. We talk to all of our clients on a regular basis. And What we're finding is every one of the particularly credit union have an influx of cash That they're trying to find a home for it. They have virtually no yield on investments They're all trying to reach and find out how they can get more yield on these auto loans. So when you dig into what they Actually get on a pro form loan, it's next up and I mean you've got to be so razor thin margins when they're doing a 1.9 Interest rate on a new car loan versus being able to generate up to 300 basis points net On a near prime loan, yes, I have a call yesterday with a gentleman who runs about a $900,000,000 credit union I need to find a home for $100,000,000 that just flowed through the credit union. Can we sign up for your refinance to your channel partners or capturing those people that got stuck with a higher rate And refinance them into something here. So I personally don't see rates again. Some of the banks might get a little bit more competitive. I don't think they can ever compete with the credit unions, A, cost of funds, the fact that they don't pay income taxes. I think we have such a opportunity ahead of us with all of these credit unions that, I don't see them Filling up those buckets with their prime loans, but that's my 2nd question. Ross or Chuck, do you want to add anything? Yes. I'll just add one thing To pile on that, John, is a lot of the data studies we're doing are from time periods just over the past 5, 6 months. So we're still seeing That these lenders are declining applications that we can approve and help with. We also We're seeing that from our capture rates that are ticking up. So I don't see that As a current threat that but we certainly have our eye on it to manage. Got it. No, that's helpful. And I mean it sounds like The credit union universe is not using the kind of current credit environment to sort of open their funnel and dip down into more near prime themselves. Just one quick follow-up. Any update on just I believe conversions with Bancorp Processors in sort of that channel, because I believe you were in the process of Potentially integrating with 1 or more in the near term. Yes. We recently as last week, we've had a number of really productive calls with Sagient, which I think you've heard us talk about is the LOS for at least 3 of the captives that we're aware of and they are the LOS for the one captive that Ross alluded to in the earnings call that moving pretty quickly down the path of wanting to do something. So What they heard from Nat Cat is that they believe it was and that something would happen. All of a sudden, they're all reaching out and want to get the The specs in place to get this thing laid out, what they hope to get 4th quarter at once. So we've got that one going. We've talked The other day with a very large shop, a platform known as ACAPs, which is more of an antiquated LOS, but It's an extremely large shop that funds $1,000,000,000 of loans every month. We are Yes, trying to reach out and figure out how to work with a number of these. But the other one that I think is Coming to fruition, we launched with us, I think I mentioned to you, the FIS platform originate within Ibank. Now we have 1 or 2 more banks that have come pretty close to finishing their diligence that have mentioned that they've been on that same platform. So, a lot of good things going on in that realm. Got it. Terrific. Congratulations. Thank you. Thanks, Dave. The next question is from Joseph Vafi from Canaccord. Please go ahead. Hey, guys. Good afternoon. Really good results. A lot of good stuff here. Maybe we'll start. I think you said that the March 3rd number was 14,500. And if that's right, then relative to a run rate off of The full Q1, that's a big bump for the month. So I was wondering if you could maybe discuss a little bit And more breakout on what happened in March to bring that run rate up so much, and if it's Sustainable and then maybe I'll have a follow-up after that. Thanks. Yes. Hey, Joe, it's Chuck. Yes, as we stated in our prepared comments, March Q1 was a record quarter for the company at 33,300 search and March notable is a record month. And as we said in the prepared comments, That momentum has gone into the Q2. So we're very encouraged by that as we continue to ramp and grow the business. App volume is up significantly in all channels and that's driving the increase. Obviously with The stimulus that's out there and the economy is performing even though we're coming out of a worldwide pandemic. Our business It's doing well and I think we proved it in 2020 as well as heading into 2021. This business performs through cycles and is resilient through recessions and downturns. So but the app volume is driving obviously a lot of the volume in where we're heading. Okay. Maybe just maybe a little quick follow-up there though. Any other color like, I mean, that's kind of a That's a big bump relative to the quarter. And so just was it OEM driven? Was it more broad based? Kind of some more color on what was the where did those first come from in March? You bet. I mean, it came from all channels. And on our website, we've got an updated Q1 supplemental on the KPIs, Joe. So if you think about the credit union and banks, just quarter over quarter, and I can also talk to Q4 to Q1, But our credit union banks are up 16% and then the OEMs are up 24% over Q1 of 2020. And that's what on a blended basis, That's 19% CERT growth Q1 of 'twenty one over 'twenty. I think you heard in Ross' prepared comments about OEM 1 and 2. They're performing and ramping as well over OEM1 is up 164% over Q1 Of 2020 and OEM2 as they came back online in the Q4 is up 60% in CERC growth just compared to Q1 of 'twenty one back to Q4 of 'twenty. So it's across the board. Credit union banks and OEMs are growing and That's what we've expected from the business. Hey Chuck, the one thing I'd add is John Flynn. You remember, We had signed a bunch of accounts in 2020 that we couldn't get launched until the Q1 of 2021 just because The COVID and the holiday itself, I think you're starting to see what we had talked about last year that a lot of shops that had signed Add a little bit of a I think it's bringing back to the fact that Chuck just alluded to, It's across the board. How much did we launch, CHOP 14 or somewhere in the Yes, that's right. John, I think it's a great point. Of the 55 new contracts signed in 2020, we had about 20 of those that came online in Q1 of 2021. That's driving a lot of the increase. And of those 55, 52 of them are live in writing search and contributing to the growth in Q1. I think you add to it, Joe, the fact that tax refunds were a little delayed this year. So we certainly are seeing that momentum continue in To Q2, which is great. That's great. So it sounds like it's pretty broad based. Maybe just one more quick one. This online lending channel that I think you mentioned, That seems pretty intriguing to a lot of potential and I know it's early there, but kind of how do you look at that Versus kind of your other core markets, which are different, in some respects, just to help us understand to frame the opportunity relative to John, do you want to handle the online lending? I think what we're seeing from the online lending standpoint is A lot of our refinancing channel partners get applications from them. A lot of these guys, They don't have a real funding force behind it. They farm it out. I think when we even put Ross, you did the analysis there was a number there that had 2 funding sources behind them It represented like one funding source was like, I don't know, 3% of their volume, the other 30 some percent. And one of them just said they weren't going to go forward What I think is beautiful about our model is the fact that whether the steps are coming from an online lending source, whether LendingClub LendingTree, channel partners that go out and look for through the use of softphones, People that got too high of an interest rate when they did the card and then market to those people to repay it into us Jack, it was debt over 3 plus lending sources sitting behind these applications has a huge runway ahead of it. And I alluded to the fact in my comments about the one online lending platform that we just did a data before. They pointed out that they have 270,000 apps a quarter that fell through the cracks, whether it's because the rate was too high that they were coming back or They're requiring too much for down payment. So we're starting to get inbound calls from the likes of people like that that are looking for us to bring Our funding source to their platform. I think it will continue to grow. Great. Thanks very much, John. The next question is from John Davis from Raymond James. Please go ahead. Hey, good afternoon guys. Just wanted to follow-up a little bit on the starts and the strength in March. I think any comments on April I think your guide implies pretty healthy triple digit growth from here on out, if I just use the midpoint. And I'm curious, I think the underwriting changes are new. So I assume those weren't contemplated in the original guide. And so I guess theoretically if that does drive higher capture rates that Could drive upside to the certain guide, but just kind of curious there if that was contemplated or if that was a new decision that was made recently? Hey, John. How are you doing? It's Chuck. Yes, I mean, if you think about I'll start with the guidance and what we reaffirmed today for full year 2021. We did come off the record quarter, the record month, but I'd also tell you 161,000 search to 206,000 search It's a wide range. However, our business is running well. We're executing against our plan And we feel good going into the Q2 and beyond with the growth and what our business can generate. From adding the underwriting changes and the impact being that the range is that broad, We'd like to think that that's built in and that's the upside and the opportunity between the low and the high. I would point you on the low end of the range of that Guide is 70% year over year growth and on the high end it's 120% growth. The midpoint you referenced is 95%. We are very focused on continuing to grow the business and it's tremendous growth at any point in that range. Okay, great. Anything we should think about just from sequentially? I think I would say the balance of the 3 quarters you need Even it gets to 70% pretty close to triple digit growth. So just as we kind of think about the cadence through 2Q, through 4Q, Do you expect the growth to just build? I mean, obviously, 2Q, you have, I guess, easier COVID related comp. But just curious if there's any call outs sequentially from here? Yes. I think Q3 and Q4, a little heavier growth there and more modestly into Q2. But the business is, again, we feel operating and executing very well. Okay, great. And then just as a follow-up, Ross, I think you gave an update on OEM number 3 and number 4. Are we in A situation now where you're just you've kind of done everything you can do for OAN number 3 and you're waiting on them. And then where are we with OAN 4 as far as you're done with the study, is there more follow-up? Just any more color you could give would be helpful. Yes. We definitely have had numerous meetings with our teams, IT wise as well as Finance and I think they have a lot that they are looking at and figuring out where we Need to be scheduled in. I think both of them is really not a matter of if, but when. And certainly, The meetings that John alluded to earlier with the Sajent folks will certainly benefit One of those that are looking to try to measure out what the IT endeavors are and to get those on the table to discuss moving forward. So yes, we're very excited about it for sure and As well as some of the status of other conversations. So looking forward to being able to report more here next quarter. Okay. Thanks, guys. Thank you. The next question is from Vincent Caintic from Stephens. Please go ahead. Hey, thanks. Good afternoon. Thanks for taking my questions. First question, actually on the non OEM side. So you highlighted a couple of opportunities, so the 7 new V5 partners, 14 new customer contracts and I saw you're getting implemented within 60 days. With the OEMs, you've kind of given what you think is The upside in the monthly certification volume, I'm wondering for this non OEM opportunities, if you can talk about the potential monthly Certification volume and what's the upside from here? Thank you. Yes, go ahead, John. I was just going to say, Vincent, one of the things we found over the past year and it's even more prevalent than this Last quarter and this quarter is finding some of the larger shops versus multiple little shops. So I think Yes, the upside is obviously there. I don't know if you put a number to it. I know you've done some Graphs that show where our growth is coming from, did you want to take any of specifics or no? No, Vincent, hi, it's Chuck. From obviously the credit union, to get to the range of the guide that we've talked about, Not only do OEM 12 execute sort of the core credit union and bank business. We're not giving guidance out on individual customers at the credit union and bank level, but we feel like that business year over year with the pent up demand, With the accounts that came on in Q1 that were signed last year, we're going to have really nice growth in the credit union and bank business as well. I mean, you can see in Q1, it was 16%. That's helpful. Are you able maybe without talking about a specific customer, just kind of broadly, I know there's different sizes of credit unions, but does a, say, a typical credit union do a couple of 100 a month versus a bank would be Couple of 1,000 a month, I'm just kind of wondering if maybe there's a sense of size that you could help with us if there's anything you could offer? I think the thing I'd add to that, Jeff, we're looking at credit unions that can certainly do a couple of 100 a month for sure. We did just sign and are getting ready to launch a bank. And we believe once fully ramped They do up to a1000 a month because it's launching through a finance channel partner and that's the goal they've given us. That's not going to happen in the 1st 90 days. They're launching it in certain states to get it started and then they'll roll it out as they get comfortable with it. But I think some of the credit union sizes that we're talking about can certainly do $300 a month, Some $400 a month. You heard me speak to the fact that once we get Pentagon fully launched on Just one of our refinance channel partners, their SERC growth went from 700 in February to over 1,000 in March or March to April, I figured the months were, but you can see that kind of growth from some of the shops that have So liquidity, they want to get us there, especially since we launch them into a refinance channel partner. Vincent, we usually tier credit union opportunities. Tier 1 is 100 or more, Tier 2 is 50 or more, then we go to 10 or more and then below that. So we do that and so we kind of have those tiers that we assign based off of our expectations and then we kind of juggle those around. So I wish there were more 500 A month, but we like the Tier 3s, 2s and 1s equally, just more of them. Okay, great. That's helpful. Thank you. Because I don't think I think it's underappreciated about the non OEM opportunities since we don't talk about it too much. So thank you for that. Second question, kind of on the profit share and the expectations. So your profit share was really good this quarter and I saw the $5,000,000 positive profit share adjustment. I was just wondering, when you think about profit share going forward, credit has been great. What's built into your future credit expectations like when you think about the loss curves that you had put on your slide deck in the past and the recoveries You've had has it gotten appreciably better? And I'm thinking about it in future quarters in 2020, is there Yes. I'll start and then Ross can jump in. As it relates to the $5,100,000 and change in estimate and profit share in Q1, that is attributable to The business performing better than expected, less defaults and less claims. And as we've talked about on various other calls, We've got a very robust process that John Ross and I are involved in. We've got a very talented risk team that evaluates this on a monthly and quarterly basis. And We believe there's unknown still in the future, but we believe that $650 per cert On average, we think it's a good average to use in your modeling purposes. And as it relates to loss curves and things like that out into the future, We look at it quarterly. We have that robust process that we follow. We sit down with the risk team and we evaluate. And If the stress that we had in the model didn't materialize, we'll have a positive adjustment, which is what we had in the Q1. We all know that we're benefiting certainly from the used car index being at record levels, which are Certainly helping our LTVs and rates, but it's helping others as well. So there obviously is a risk out there Once the chip shortage is made up and new cars are back being produced and all that, what the effect of that is on used cars. And That's one of the reasons we continue to stress the future, not knowing when that's going to happen, but having these various probabilities in place to look at that. And so but clearly, we know that there's definitely a tailwind right now. Okay. That's very helpful. Thanks so much. Yes. Thanks Vincent. The next question is from James Faucette from Morgan Stanley. Please go ahead. Yes. Thanks for all the great color and commentary. I want to follow-up on that last comment and that actually was My key question was any way to at least guesstimate how much of a benefit you are getting from the right now from the strength of the Used car market and the value of used cars specifically. And then can you outline for us a little bit How you're in your planning, how you're expecting that to normalize over what period and at what rate and kind of how we should think about that impact? You bet. So I think, first of all, on the used car side, one thing to note that we still are Close to 85 percent used versus new. So from an origination and a forecast standpoint, the effect of the decrease in new Should not materially impact us because I think it will be made up from the use side of it. The underwriting and our profit share, I'll let Chuck continue on this. But obviously, we have stress on what claim severities could be out in the future When you have that depreciation of value and it's built into our model and that's something obviously that we drew up quarterly. Yes, James, yes, I'll jump back in. But yes, that's something we as I said to Vincent's comment that we look at on a quarterly basis and we've got some stress on severity Throughout 2021 and into 2022 in our model that we have in there. So from a planning perspective, That's how we assess it, but we reassess it on a quarterly basis based on new facts and circumstances. Got it. Got it. And from As you kind of play that out and think about like an eventual return to the availability of new cars, etcetera, Do you think that overlaid with the people that you're talking to and the OEMs, We should see a change in that used versus new car mix in a meaningful way And anything we should take into account that way? Well, I'll just tell you, when you talk to the OEM, they want to talk to How much you can help them move metal. When you talk to the captive finance side, they want to talk to you about How to monetize some of these trade ins and used cars that are out there. And so really it's a win win deal and both sides of it benefit. Now that we have SOVENSION launched throughout the country for OEM number 2 and as they continue to get Used to that in the various tiers that it's working in. I think that really bodes well for End of Q3 and Q4 when we was chip shortage, hopefully, can get back to a level That can meet the demand, and we certainly will benefit from that from the new side. That's great. Thank you so much, guys. Thanks, James. The next question is from Sameer Kaluja from Deutsche Bank. Please go ahead. Hi, thanks for taking my question. What I wanted to get a sense on was the insurers you're working with. You mentioned you're working with Insurance 3 and 4, any color you can provide on the timelines when you expect them to be live? John, do you want to take the first part of that? Yes. We're working closely with at least 4 different carriers Throughout the year, our hope would be to have at least one of them up and running by Q3. So that's our game plan. We're in the process of I'm negotiating the final contracts. The other 3 that SAPI on that one, are all very strong, very strong financial. That's just a general, again, us seeing the right timing so that we can commit to a minor amount of premium for each of them. So The game plan is to hopefully have one of them running by the Q3 here. Got it. And a quick follow-up I had On the online channel, you've mentioned conversations with 1 and a little bit of color on the scale of applications. Any sense on any more you're talking to who are at similar scale or other people you're talking to are much lower? I think it's a matter of about all the 250,000 to 270,000 Turndown the order, but I think by the nature of the fact that we're aggregating a bunch of them, Yes. I think that there's a significant number of applications that will be flowing through from that Grouping, if you will, of online lenders. And again, these aren't just people that have sites out there like Yes, LendingClub's LendingTree. This is coming from the 7 different refinance channel partners that we have That go out and target consumers, like I mentioned earlier, by pulling soft pulls on Zip code people to be able to find out who was in a specific area bought a car for the last 6 months And they can back in what that interest rate is and their FICO score and target that consumer directly. So it's not necessarily just the online Lenders that are out there that people can jump in and apply to it. People that are actually being directly marketed to That we know can save $100,000,000 $150 a month, which really increases the close rate significantly. Got it. Great. Thank you. The next question is from Mike Grondahl from Northland Securities. Please go ahead. Yes. Hey, thanks guys. I think you commented that you're doing a data study for 2 different regional banks. How far are you along with that? And Any guess at sort of how long that sales cycle is? Well, I can tell you that one of the banks We reached out to us earlier this week and said that we've made a pass there, 1st grouping of due diligence and that We're now starting to talk with them about what the interface would look like and things like that. That one and the other one that we mentioned out of the Houston area, We believe should be live here probably within the next 60 days through one of our refinance channel partners. So We're getting pretty good traction from these real size banks that I think can generate some pretty good volume and that's pretty quickly. Got it. Thank you. The next question is from John Hecht from Jefferies. Please go ahead. Afternoon. Thanks for taking my questions. And many have been asked and answered. But I'm wondering if you guys talk about tightening your LTVs in the quarter, but Wondering if you look out at the overall end markets, is there anything you're seeing with respect to other banks Either losing or tightening or taking down or up their LTVs and anything that's going on with pricing that is worth noting? Yes. I think in the past when we talked about tightening LTVs, when we did that 5% decrease in value, That didn't necessarily tighten our LTVs, but it basically put an application in a higher LTV classification, which generated more premium. So our LTVs Are still, I believe, are higher than most lenders in the first place. And That's besides just buying deeper, expanding on that right side on the LTV is the other side of the value prop In there. So I would imagine that the vehicle values themselves remaining at highs record highs Kind of takes care of that and just through the math works out to be higher LTVs than a lender typically would go, assuming they use NADA, trade or Kelly Wholesale on that. I think the thing I'd add to that, Brock, Just to tell you, all we're in essence going back to pre COVID underwriting rules, we tightened those things up as it relates to Ross Mention bumping them up in the LTV area, really just because we weren't sure where COVID was going to go. Our results pre COVID We're pretty stellar. And I think that's not going to hurt us with the fact that these fair values have stayed up today. Yes, we've gotten to the fact that we're going back to some COVID underwriting rules, I think is really just going to help us, again, as Ross explained earlier, get Our book to book ratio up significantly in an area where our performance was always good to begin with. Yes. One other thing to add, John, if you recall from our comments earlier, we actually are offering a bit longer term than we have in the past where 72 months was our gap before, and we're going to 75, and we're doing that not only with A couple of the OEMs, but initially with a handful of other customers before we spread it to all our clientele. Okay. That's all very helpful. And you've launched some venture now with the 2 OEMs. I'm wondering does that Obviously, that gives you more breadth to take more volume with them. Does it also allow you to go into different products like leases? Or is it still mostly lending products? Yes. So just to be clear, SOVENSION is only live in OEM number 2. We have not launched in OEM number 1. That's certainly on the table to discuss. They've asked us to circle back once we have some experience with that. And so, we're just waiting For time and experience to circle back, but that clearly is an opportunity that can get them well ahead of that 1300 run rate that they have So it really just increases the I guess the opportunity set within the OEM or does it also bring you into different products? Well, I think it just allows us More wallet share per OEM, but I think the leasing side is something that is Something that we will explore. It's not on the radar this year, but it's a gigantic market. If we could figure out how To underwrite and provide that credit risk for the credit side, but not take on residual risk, That's what we're kind of trying to go through the process evaluating now. Okay. Thank you guys very much. Thank you. This concludes today's conference call and the question and answer session. I'd I'd like to turn the call back over to John Flynn for any closing remarks. Yes. Thank you very much, operator. And again, thanks to everybody that Stay down the line, ask questions. Again, we're very excited about where the company has come to and where it's going. As you know, we're kind of an open book. So any questions you have, feel free to reach out whenever and we're happy to jump on the phone. So Thanks again for all of your input and questions. Yes. Thank you. Thank you. This concludes today's conference. May disconnect your lines at this time. Thank you for your participation.