Good afternoon and welcome to Open Lending's Third Quarter 2020 Earnings Conference Call. As a reminder, today's conference call is being recorded. On the call today are John Flynn, Chairman and CEO; Ross Jessup, President and COO; and Chuck Jehl, CFO. Earlier today, the company posted its third quarter 2020 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 views as of today, November 10, 2020. Open Lending disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to today's earnings release in our filings with the SEC for information concerning factors that could cause actual results to differ materially from those expressed or implied by such statements. And now John, I'll pass the call over to you for your opening remarks.

Thank you, operator, and good afternoon everyone. Thanks again for joining us for our third quarter 2020 earnings conference call. Before we dive in, I want to congratulate both Ross and Chuck on their respective appointments; I very much look forward to continuing to work with them on growing our business. Today, I'd like to start by reviewing our third quarter highlights and our progress on our growth objectives. Then Ross will provide an update on our OEM opportunity. Finally, Chuck will review our Q3 financials in greater detail. During the third quarter, we certified 20,696 loans, which was an increase of 8% quarter-over-quarter. We also reported revenue of $29.8 million, which was an increase of 35%, and adjusted EBITDA of $19.7 million, which was an increase of 29% quarter-over-quarter. Chuck is going to go over our third quarter results in more detail in a few minutes, but we're very encouraged by these results. As we previously discussed, the vast majority of our growth is attributable to our existing lenders that are already on the platform. Our lending partners, especially credit unions, have been very resilient and continue to utilize our platform throughout the COVID-19 pandemic. We believe that the low interest rate environment, the increased demand and value of used cars, and consumers moving out of the cities and being reluctant to use public modes of transportation are driving these positive trends. We've also seen an influx of cash into these credit unions and banks, which is creating the need for them to lend more money and to shorter duration loans, typically like a two to three-year auto loan. We also continue to add customers and sign new partnerships driven by our strong value proposition. During the quarter, we added 11 new customers, and we currently have approximately 340 active customers on our platform that are generating searches this year. We continue to bring in additional resellers as well. We recently launched our first bank on the FIS originate platform, which we believe is going to open doors for us to market to other banks that use the FIS platform. We announced some new larger partnerships in the third quarter, including A+ Federal Credit Union, which is a $1.9 billion institution based here in Austin, Texas; Sound Credit Union, a $2.1 billion institution based in Tacoma, Washington; and First Investors Financial Services, which is a $1 billion institution based in Houston, Texas. One of our key competitive advantages is our exclusive insurance carriers' relationships. As you already know, we currently have two insurance partners, and we've identified a third carrier that we're working to finalize terms on, which will be similar to the terms we have with our existing carriers. I also want to note that adding a third carrier will not negatively impact the volume of our existing carriers. While our core business of helping credit unions and banks make more auto loans continues to grow strongly, we are making progress with some of our other growth objectives. Our largest opportunity in front of us right now is the $1 billion OEM captive market, which I'm going to turn it over to Ross in a few minutes to provide an update here, but first I wanted to touch base on a few other initiatives that we're working on. Our enhanced focus on the refinance program to drive additional certified loan volume is working out very well. This opportunity with near-prime consumers allows them to lock in a lower rate, saving them as much as $150 to $200 per month. This is a huge savings for a family just trying to make ends meet during this time of economic uncertainty. During the quarter, we grew our business with existing channel partners and signed four new credit unions and banks to the refi program. We've also been working on other funding sources with third parties to expand our funding sources outside the banks, credit unions, and the OEMs we currently partner with. We're also looking to broaden our offering into adjacent asset classes such as leases and establish a broader auto lending platform and to make our risk decisioning available to our clients beyond the near-prime space. With that, I'm going to go ahead and turn it over to Ross, so he can jump into the OEM opportunity that we have in front of us.

Thank you, John. OEM captive certification originations were strong in the third quarter, which demonstrates tremendous growth despite the COVID-19 pandemic. We have good news for both OEMs. Let's start with OEM number two; I'm sure you saw the very exciting news about OEM number two being back online in October. This is a very good sign for our business, and they have begun to ramp production back up throughout October. We are encouraged by the number of applications being submitted and the opportunity ahead with OEM number two. Based on the October trends, it seems like OEM number two will get back to its pre-COVID levels very soon. Moving on to OEM number one, the nationwide expansion of OEM number one has manifested itself in certification growth of over 150% from April to September, and we are currently seeing applications from over 90% of their nationwide dealerships. As stated previously, OEM number one decided to expand their credit spectrum to customers with credit scores up to 679 from their previous cap of 619. Initially, they have been sitting on denied applications, and we'll be adding countered applications soon. This expansion launched as a pilot for three months in one of their four geographic areas, with the goal of being expanded nationwide by January 2021. Starting in late September, they are now utilizing our platform for 560 to 679 credit scores. This is a great example; our customer has expanded their usage with us and has seen tremendous benefit from our product. We're excited to use this when talking to other OEMs and banks that we're targeting. We continue to make progress on our subvention efforts for the OEMs. The work our technology and finance teams are doing with OEM number two on subvention enhancement will allow us to help them finance new vehicles throughout our Lenders Protection Program, which increases the potential opportunity with the OEM. This rollout is on schedule and should be ramping over the next few weeks. As soon as this is rolled out, OEM number one wants to explore this as well. In terms of CECL relief, we are very excited that OEM number two received CECL relief from the SEC, as well as from their independent auditors. We look forward to providing more insight on this next quarter. We are also working to add multiple OEM opportunities that are in our pipeline, and some could possibly launch in 2021. I do want to point out, however, that the addition of a third OEM is not in our financial projections for 2021. One way of proving our value to prospective OEMs is by completing data studies. These studies show captives the lift opportunities by looking at how many loans they are saying no to today that they can say yes to through our platform. We are working closely with a third OEM captive that completed a data study, as well as numerous other OEM captives that are in the discussion and evaluation stage. These studies were very beneficial in the signing of OEM number one and two, so we are hopeful this will be the case for other OEMs and banks. I'll turn it over to Chuck to discuss our financials in greater detail. Chuck?

Now moving to our third quarter results, we've facilitated 20,696 certified loans, and 11 new contracts were executed with lenders during the three months ended September 30. In addition, we have six active implementations with 'go live' dates in the next 60 days. Total revenue for the quarter was $29.8 million, with profit share making up $18.5 million, including $3.8 million from performance obligations that were satisfied in previous periods as a result of improved macroeconomic conditions and our overall portfolio performing better than we expected in the second and third quarters of 2020. Program fees were $10.1 million, and claims administration fees were $1.1 million. Gross profit was $27.3 million in the third quarter 2020, an increase of 35% due to higher levels of loans certified compared to the third quarter of 2019 and the ASC 606 change in estimate discussed previously. Selling, general administrative expenses were $7.7 million in the third quarter 2020, compared to $5.4 million in the previous year quarter. The increase in SG&A costs is a result of incremental costs related to becoming a public company. In the short term, we expect to experience an increase in our SG&A expenses as we continue implementing the internal control and compliance procedures required of public companies. Operating income was $19.5 million in the third quarter 2020, compared to $14.8 million in the previous year quarter. The increase is primarily driven by an 8% increase in certified loans quarter-over-quarter, and the recognition of $3.8 million in profit share related to historical advantages due to the better than expected performance of the portfolio. As a result, operating margin increased slightly to 92% in the third quarter 2020, from 91% in the third quarter 2019. Net loss for the third quarter of 2020 was $71.1 million, compared to $14.7 million net income in the third quarter of 2019. We had $83.1 million in expenses in the quarter that were associated with the business combination, specifically a non-cash charge as a result of the change in fair value of the contingent consideration earn-out shares, which were accounted for as liability awards. All contingent earn-out share milestones were met in the third quarter of 2020. So beginning in the fourth quarter 2020, net income will not be burdened by any changes in the value of contingent consideration earn-out awards as these shares were issued in the third quarter of 2020. Let me now turn to adjusted EBITDA, which excludes the significant charges associated with the business combination. Reconciliation from GAAP to non-GAAP financial measures can be found at the back of our press release. Adjusted EBITDA for the third quarter of 2020 was $19.7 million, compared to $15.3 million in the third quarter of 2019. We exited the quarter with $294.9 million in total assets, of which $115.1 million was unrestricted cash. On October 13, 2020, our warrant redemption period expired. As a result of all warrant-related transactions, the company received approximately $105.3 million in cash and issued approximately 9.2 million shares. We are working closely with our Board to evaluate the best use of proceeds, and we'll provide an update when we know more about the use of proceeds. I also wanted to briefly give you an update on our share count. We have approximately 128 million diluted shares outstanding as of November 9. We posted an updated investor presentation, third quarter 2020 earnings supplemental, to our Investor Relations site, which has a slide that lays out our fully diluted share count. Moving on to our guidance for 2020, based on our third quarter 2020 results and performance into October, we are reaffirming our previously issued fiscal 2020 guidance ranges of the following: total search to be between 85,000 and 101,000; total revenue to be between $89 million and $108 million; adjusted EBITDA to be between $54 million and $70 million; and adjusted operating cash flow to be between $34 million and $41 million. Our team is continuously evaluating the macroeconomic climate, and we still feel confident in our previously provided fiscal 2021 guidance. As the business continues to rebound from April's lows, we look forward to sharing a more meaningful guidance update early next year. With that, I'll turn the call back over to the operator for Q&A.

Thank you. We will now begin the question-and-answer session. Our first question comes from David Scharf with JMP Securities. Please go ahead with your question.

Hi, good afternoon. And thanks for taking my questions.

Yes, hi David.

Hi. I wanted to just follow up a little on what was a tremendous kind of profit share figure. Should we largely think about this along the same lines as we thought about so many other lenders during this reporting season? Who effectively probably over-reserved in the early days of COVID, reset their allowance levels? Should we view this as sort of a one-time event related to potentially overly cautious underwriting of some of those early vintages as we think about that level of share per cert going forward?

You bet. Hey David, it's Chuck. Good to talk to you. As we've talked about previously, we have a very disciplined process, a quarterly process that we follow that includes our risk team, our Chief Risk Officer, Ross, John, and myself, and various people. If you think about what we recorded in Q3, the $3.8 million in change in estimate is really just a better performance of the book in the second and third quarter. When we did this and made the estimate back in the first quarter, it was a $12 million adjustment, and that was based on the facts and circumstances we had at the time. Nobody really knew about COVID and how bad it was going to be. We looked at this in the third quarter and realized the favorability of the period through the third quarter through September 30. We continue to have stress levels into the fourth quarter and into next year because none of us really know if there's going to be another wave of COVID or what will happen. So that's our process; it's very disciplined and we continue to follow it on a quarterly basis.

Got it, got it. That’s helpful. And it maybe is one follow-up, on the credit union side on the demand front, is there the equivalent of almost, well, a same-store kind of growth figure? I mean, for kind of your active credit unions during the quarter, like the percentage increase in their contracts and…

Well, I think what you’re going to find is we have a lot of credit unions that will continue to grow their line of business with us, whether it’s opening other avenues like the refinance channel, or they might go from just doing indirect to direct. What you’ll find is every credit union has churn in their auto portfolio where they typically try to keep as a fixed percentage of their total loans in auto with about a three-year average life. What we see is a lot of credit unions, once they get their feet with our program and see that the yield is higher than their prime, will continue to increase their volume in our LENPRO portfolio versus filling that term with prime loan. So that’s a matter of the appetite for certain asset classes versus scores within that asset class. So, yes, we get a lot of same-store sales, it continues to grow.

I think something to add, David, is that if you look at our active customers, the net incremental amount of customers we’re reporting compared to last quarter is not just all new customers being signed up. We have some customers that were affected by COVID and now they’re back again. So it’s really yes, our product has withstood a lot of the uncertainty and folks are seeing the value proposition and have stepped up and are coming back.

And I guess one other thing I'd add to that comment to David is we have a credit union right here locally in Austin that I just had lunch with their EVP last week. They’re probably only a $700 million shop, but they ended up attracting $70 million worth of cash in the last two to three months, just because they were scared of the markets and bringing money into safe places. So these guys are calling us, we’re getting what could be hot money, which is why we’re looking for assets to put that back out. I think you’ve seen a lot of growth. I guess that’s where I was going earlier. What drives it is, if they’re getting a bunch of cash in, they’re going to do a lot more auto loans with our program. I think every time the markets get a little scared, people consider credit unions to be a safe place to put their money.

Got it. Are you finding that influx of deposits is actually leading them to look even further down the FICO spectrum?

Exactly. Yes, there are only so many sub-prime auto loans, and the beauty of what we do is it's incremental flow. They’re reviewing these applications. They’re just denying them. So our clients now utilizing our program are capable of buying down into those lower tiers because they’ve already got the processes set up.

Perfect. Thank you.

Thank you. Our next question comes from the line of Ashish Sabadra with Deutsche Bank. Please proceed with your question.

Thanks for taking my question. Good momentum in the business. I wanted to drill down on the OEM. So on OEM number two, good to see that they are back. I was wondering if you can talk about the monthly run rate, how it’s ramping up, and once the subvention functionality is implemented. How should we think about the turn rate going forward? And when do we get back to the normalized run rate of 10,000 to 12,000 certs per month? Thanks.

It’s great to talk to you. We’re really excited. Earlier this month, the division that operates outside their dealerships has relaunched, and we're seeing a significant number of applications coming in. In fact, during our very first month back, they exceeded all but one of the previous months. So, things are definitely moving in a positive direction. I believe that in the next couple of months, we should return to the levels seen in Q1. Regarding their division that operates in the U.S., we've been present in one of their 14 markets. This month, we will be launching the U.S. operations in the other areas. There will be a gradual ramp-up, but I expect that by 2021, we will be fully operational on the U.S. side. Later this month, we aim to launch in one of the markets, which will aid us with the new operations. This will also take a few months to ramp up. Therefore, I anticipate that by the second or third quarter of 2021, we should be fully functional across the country, both inside their dealerships and on the new and used sides. Overall, things are progressing well; everyone is in alignment, and the training and implementation plan is already in motion.

That’s great. That’s great. And maybe just on OEM number three, I was wondering if you could just provide an update on the data study. Have you already completed the data study and what are the next steps for OEM number three?

Yes. So we actually have completed it. We delivered it in some reform as well as the individual detailed application form. They are doing their own analysis now, looking at the results and the pockets that they think we can be utilized in. We should be hearing back from them very soon. I had a conference call with the CEO a couple of weeks ago, and that went really well. The next steps would be hearing back from them discussing the areas of interest that provide the most lift and then going from there. So it’s a very, very great opportunity.

That’s great. And then maybe if I can sneak in a third one, just on the CECL relief. I understand you’re planning to provide more information next quarter. But I just wanted to better understand quickly the CECL relief that we yet to receive. That would be applicable for any OEMs or any banks; would that be a fair statement? I just wonder if you could give any brief color on this call. Thanks.

You bet. Basically, the way our policy, our insurance policy is styled is to provide them a level of certainty as to what percentage of the deficiency balance we will cover. From that, they'll get CECL relief that mirrors that. The SEC agreed with that and their auditors. Basically, what it does is take the future claims payment that we’ll be making so you can offset the allowance account right there on that line item on the financials. You show a net number as opposed to recognizing the future claims payment as other income. We’re pleased to have this behind us now, and we definitely look to replicate that to other lenders, not just OEMs, but credit unions that are going to have to deal with CECL soon. I think everything we’re doing today will have multiple years of benefit for some of the new lenders that are having to adhere to that.

Yes, I mean, you’ve got the larger banks that need to comply today and then credit unions beginning in early 2023. We’re gearing up to make that a big selling point.

That’s great. Congrats once again on such a solid quarter. Thank you.

Thank you.

Thank you for your time.

Thank you. Our next question comes from Mike Grondahl with Northland Securities. Please proceed with your question.

Hey, congrats guys on OEM number two. It sounds like the progress on OEM number three. That’s great for the business. The six credit unions that you’re implementing and the 11 new ones in the quarter. Does anything stick out size-wise compared to the 340 you have? Or would you describe all of them as average or anything to call out?

No, I think that’s a great question. We are trying to highlight that we think we’re signing up larger shops now. We’re getting a lot of interest from you heard us talk about A plus and Sound; they’re all up in the billion-plus size. We’re starting to attract some of the larger shops that can produce significantly higher numbers with our program today. So we’re really excited about the size of the shops that are hearing about us.

Great, great. And then the four new refinance partners roughly, refi — what percent of your business was that in the third quarter? How should we think about that going forward?

That goes about 11% of our volume in the third quarter, up from 7% in the second quarter, and it’s continuing to grow.

Great. Well, guys, I guess, look forward to hearing more about OEM two next time you report and congrats there. Take care.

Thank you.

Thanks, Mike.

Thank you. Our next question comes from the line of Joseph Vafi with Canaccord. Please proceed with your question.

Hey guys, great progress, and welcome on board, Chuck.

Thank you.

It’s good to see the team expanding. So just a few questions here. Number one, John, I was interested in some of your earlier comments on business model expansion here, including expanding funding sources, moving into adjacent asset classes and maybe moving beyond near-prime, or if you wanted to provide a little more color on any or all of those about what — when we might see some of that happen. And then any other comments you might have on that?

Yes. As far as expanding beyond the near-prime space, we’ve actually already started that data study. Our Chief Risk Officer, Ken, has gone out and gathered a ton of data from all three bureaus. We've been given a lot of data from some of our larger shops as it relates to the performance they have in their prime portfolios. So they're all willing to give us data that you would typically have to go out and pay to get, as it relates to how these super-prime and prime loans are performing with a long history of performance data. We’re just now starting to model that; I can’t give you a definitive date as to when that study will be done, but I know we are actively working on that right behind, obviously, subvention for our IT team has been first and foremost because that’s going to be a big bang moving forward with the OEMs.

I think the expansion is thoroughly going north on the credit side, not south.

Yes. This was all aimed at more of the prime loans as more of a SaaS model or something that's already built. That's just building the data into it. As far as funding sources, even prior to taking us public back in June, we were working with a number of different equity firms that were looking to put some capital together to be a funding source for this segment of the loans, knowing that they can generate some significant yield. We put that on the back burner just to get through the SPAC process and going public back in June. We've got a lot of interest now from people looking to put some decent-sized pools of money together to back what we currently have flowing through the pipeline of applications that we just can't find homes for until we get more lenders on. We’ve got some significant volume that we can fill a funding source with that could be backed by our insurance, which is really just creating another funding source, like a credit union or a bank. It’s just a new customer.

Great. Thanks for that. And then just on OEM number one, I mean, it sounds like the relationship continues to expand; the FICO score range is expanding and other things. How penetrated do you think you are in OEM number one versus where you might get?

I think we're just now being noticed inside of them by the C-level executives. Our portfolio continues to grow, and from everything we hear, it's performing very well, which is exactly why they decided to move north on the credit side. It’s hard for me to estimate, but it’s still in the 2% to 3% range of the overall opportunity in the non-prime. But we definitely, what they're telling us is our automated decisioning is really saving them a lot on the cost of underwriting and providing them the ability not to have to find a partner to refer these loans to and keep that person in the ecosystem. So it’s exactly what we promised during our sales process, and we’re living up to it and we’re excited. I think the expansion we received from the additional credit tiers hasn’t really hit yet, as you know, we launched this in one of their four markets, and it started late in the month. I think our progress will really be shown in Q4 and certainly Q1 of next year as we continue to expand.

Okay. And then maybe, I just have one more follow-up that might relate to what you just said, Ross, regarding the guidance on the cert range being still fairly wide, given that we're in Q4. I’m guessing that perhaps that has to do with OEM ramps from here and what may or may not happen in Q4? Is that kind of directionally correct at least?

Yes. I think it is. What we're focused on is executing the plan and running the business. When COVID first hit and we reassessed our guidance that was out there before we were even a public company, we went through and performed sensitivity analyses, high and low ranges, and affirmed that guidance. That’s what we did today, reaffirmed that, and a lot of work went into it. We’re focused on execution. Q3, we're all very excited about the results; we performed well, but we take a prudent view of the economic backdrop in the country and what we feel like through the performance through Q3. Those trends will continue into Q4.

I think looking at 2019, coming out of 78,000 certs to where we're going to end up the year and going through what we've gone through, I think we’re very pleased with our position right now. Certainly, November and December are going to be growth months as well from that. So we’re excited about 2021 with everything we have going on.

Great. Congrats guys. Thanks very much.

Thank you.

Thank you. Our next question comes from Vincent Caintic with Stephens. Please proceed with your question.

Hey, good afternoon, and thanks for taking my questions. I should just first clarify the profit share. So that was really strong this quarter, but I want to follow up on David's question. The $12 million in profit share that you reversed in the first quarter; it's not like you put that back in the third quarter, right? So it’s sort of what we saw in the third quarter is something that is sustainable going forward in terms of profit share.

That's right. Vincent, this is Chuck. How are you doing? I think about it this way: we had about a $711 average profit share per cert before the change in estimate based on the prior vintages. That was a little under $15 million of the $18.5 million that's on the P&L. Then we had the $3.8 million that was part of the net of the $12 million that was reversed back in March. That’s just realized better than the expected performance on the portfolio in the second and third quarters. The profit share of $896 per cert, if you take straight search for the quarter and divide it into the revenue number, that number is inflated by the $3.8 million we recognized on prior vintages.

It’s kind of even more than that, right? Because during Q1 of 2020, we had about a $1.6 million that I think about. So yes.

Okay. Got you. So a little bit — so that $3.8 million. Okay. Perfect. Makes sense.

It’s got another way, we’ve got $9.1 million of that $12 million, and we'll follow the 10-Q later this week, but that's not been reversed. So we're still, obviously, looking forward. We don't have a crystal ball and we run our process.

It’s kind of more than that too, right, because during Q1 of 2020, we also had about a $1.6 million that I think about by that as well. So, yes.

Okay. That makes sense. That's very helpful. Thank you. Secondly, on the guidance, it's been a great nine months so far, and I guess to the prior question about, the guidance is kind of wide and all of the different areas. I mean, is there — when you think about the four different items, what would take you to the low end of the range in each of those, since it seems like performance has been very strong?

I think I said, when I answered Joe's question, we feel good about the guidance, we reaffirmed it, Vincent. The trends going into October, we feel really good about into November even now. So we reaffirmed and feel good about hitting our guidance, and really meeting expectations there. So don't want to really go any further into it than that. We feel good about where we're heading, and October was — the trends were really good and continue into November. We had 67,400 certs year-to-date by September, and the range is 85 to 101. If you just think about the math and what a projected Q4 would look like, we’ll be in the middle of the goalpost, or we feel maybe better than that.

Right. Makes sense. Okay, perfect. Thank you. Just last one for me, it's great all the details you provided on the OEM one and two, and potentially number three. So wanting to size what the opportunity set is. So, for example, when you say OEM number one is going to FICO score of 679 versus 619 prior. Is that more, I guess, sizing up maybe what the application set is for that, because I'm assuming that's probably more than the 2% to 3% that you're capturing now, maybe even more than double that? When you say separately, when you say about OEM number three, and looking at the different data sets, I guess, broadly speaking, when you sign up an OEM, how many applications that were turned down previously could you say yes to, so like how much incremental upside can that OEM generate? Thank you.

Yes, this is Ross. So first of all, OEM number one, when it relates to the 560 to 619, we actually are seeing pretty much all their applications, okay. When you look at how they upsized the credit going for 620 to 679, they're only sending us the denied apps that are coming through now. The goal is to add countered apps where they're asking for down payments, and that's probably running off the customer. With our program, they can make that full extension of credit. That’s the next phase is convincing them to add that. I believe the third piece of that is to try to get them to move up that 619 floor to something like a 639 and everything below that. We basically increased the credit score for everything that we see from them. Today from an application standpoint, that increase we'll probably get just that additional lift, which is probably about 30% of our overall where they were known in the past. I think that could be much, much higher, especially because they’re in a pilot right now. So once they get this added to the three markets, we should take their volume. We're already seeing it; it’ll be double today what it was just three months ago. There’s lots of opportunity there. That’s even before we get to discuss how to help them on the new car side through subvention.

Great. Thanks so much.

Thank you.

You bet.

Thanks.

Yes. Hi, good evening, gentlemen. Thanks for taking my questions. A lot of the exciting stuff has been asked and answered thus far. That said, I was curious; is there any update on the sort of cadence of discussions with a potential third OEM that I know we’ve been chatting about prior?

Yes. We believe we’re in the final stages of that. We had a verbal meeting with those guys last week on the phone where they said that on November 20, they hope to get senior management’s complete sign-off on it. After that, they consider it to be a rubber stamp event at their February Board meeting, and they’d like to be writing their first cert by as early as April.

Yes, that's great to hear. I appreciate that detail. As a follow-up to one of the other comments made earlier, you were talking about essentially like new pools of capital or investors looking to take loans that you guys are able to originate. I was just curious; it sounds like you've had some good success adding incremental credit unions and other participants to the mix up to 340 with six more in trials. Is a rate limiting factor on the certs at the moment the sort of capital/lender side, or is it the insurance side?

When you say the rate...

I don't think it's the insurance side whatsoever. I think some of the capacity comes from a geographic standpoint where there might be some applications in a certain area that we might not have as much coverage as in other areas. We’re trying to fill in possible gaps from that standpoint. You have lenders who do have liquidity issues every now and then, and have to kind of come and go throughout the loan side. We’re just trying to shore that up so we can keep that steady flow.

Got it.

And then the other thing we're working on now without bringing names into it, you end up with a lot of auto buying services if you will that cater to the likes of Costco members or Walmart members or have different places like that, that are always reaching out to us for, if we bring you into here, do you have enough funding sources for it? We’re trying to position the company to be able to handle both sides of the coin, if you will. You’ve got applications coming in, we can inundate our existing funding sources with. If we can bring a large pool of capital to the mix, they can stay in the game if these others reach their loan-to-share balances or just run out of liquidity. We want to be able to have that cash available.

I think one thing you mentioned is, we actually don't originate, right? We insure the risk on it. So, we're definitely not a lender.

And this is not any funding sources that we would own any piece of. This is just pulling together through a business plan and a white paper to show folks the kinds of returns they could make using our platform and funding auto loans through that cash.

Right. Yes, yes, absolutely. Absolutely understood on that front. I guess the last follow up, I would just ask, I guess, on – I think on the last call I asked around, once the industry of OEMs starts to catch wind of the successes at OEM one, OEM two, OEM three. I think I referred to something of like a domino effect. Is it premature to think about an OEM for discussion starting to take place yet or maybe it is?

Not at all, Matt. We've got lots of discussions going on. Just we only have one that we're active on; they just got to study now, but we have numerous that we are having detailed discussions with, not only with the captive but with their OEM as well. We can actually sell the value prop each way to help the OEMs see about moving that all, making more sales and all backend products after sales. A lot of great discussions are underway now.

I think you hit the nail on the head, Matt, with your comment about the domino effect. That's exactly what happened in the credit union space. Once you bring on a real big one and everybody views it as a leader in the industry, they figure if they did their due diligence, what’s to prevent them from jumping on the bandwagon? The first two OEMs that we talked to, one of the first questions we got was, what other OEMs do you do business with? What are we missing? You get that one or two up and running. All of a sudden, it becomes a great flagship account to go out and show people that this does work and it’s working well for the others.

Thanks for the question.

Yes. That makes a lot of sense. Thanks so much for taking the questions. I appreciate it. I'll jump back in the queue.

Good, thanks, Matt.

Thanks for your comments.

Thank you. Our next question comes from Lance Jessurun with Jefferies. Please proceed with your question.

Hey guys. Thanks for taking my question. Just in the interest of time, sorry to beat a dead horse on the OEM thing, but realistically, how many OEMs could you look at launching definitively in FY 2021?

Tentatively?

If all the stars were aligned? I mean, over the next three years, there are probably seven or eight great candidates, five of which we — they definitely know who we are. We've had discussions and we're just kind of going through the process with them, looking at value prop, and tried to answer questions regarding potential CECL relief and all that.

To Ross's point too, when he talks about the OEMs versus the captive, we're attacking these multiple angles, not just the Chief Lending guy. We've got relationships now with IT people. Ross and I spent an hour on the phone last week with the gentleman at Sagent who is responsible for selling the loan origination platform that does the LOS for three of the majors that we're talking to. He wants to discuss how to approach them from the IT side to show them exactly how this is built — how the watch is made. And the more time we spend on stuff like that, the easier these OEMs are to land.

Got it. And then to ask a follow-up on the ease of landing them. How should we think about the rate of origination volume with the new OEMs? I know, COVID put a big hamper on OEM one, but how fast could we expect your future OEM partners to ramp up?

I think, going back to what John said; one of the keys is having an integration into their loan origination platform. The call we had with the gentleman is also the LOS provider for three of our seven or eight targets that we’re in discussion with. Once we have that integration with their system, it is a very easy API-driven integration to have our technology platforms talk to each other. I think that's the first hurdle; getting on, proving the value prop, getting on the IT roadmap from a project standpoint; we are prepared. Just us having to learn and integrate subvention into our technology has been a seven-month process. All of our discussions with other OEMs utilize the same kind of marketing dollars, time-based, or this instead, for this unit for this period of time. It fits well with what we already have developed. I believe the first OEM we launched took exactly one year from the first day we ever presented. Once we get the nod from an OEM, it could be four to six months to implement them. So, looking at that, we could have two-year for the next four or five years to get out there. If I look at various tiers, OEM number one that we launched has the capability of doing 1,000 to 2,000 loans a month. The second one is in that 8,000 to 12,000 range, and the other ones we’re targeting are of equal sizes as OEM number two. There’s a big, big TAM.

Awesome. Thanks for taking my questions, guys.

Thank you.

Thanks.

Thank you. Our next question comes from Peter Heckmann with Davidson. Please proceed with your question.

Hey, most of my questions have been answered. Thanks for staying on long though. Can you just maybe talk about some of the major variables that play into some of your estimates and how you see some of that macro data trending in terms of unemployment, used car values, total new/used car sales? How maybe additional unemployment stimulus or direct stimulus play into some of those estimates and how you think about 2021?

Yes. I think when we look at the 606 calculation, the things we factored down are, of course, unemployment, vehicle values, default trends, and whether legally we can go out and repossess the vehicle at this time. The fact that what's the supply demand of new cars impacts used cars; we considered all of these things. Before we started working with the OEMs, 85% of our business was used cars. So it's a fantastic market, and what we're seeing now is that a lot of our lenders are benefiting from it. The new car production was so low that it offset much of the risk that could have come from the Hertz situation with their bankruptcy and the supply of used cars coming off-lease.

In Manheim year-over-year, it’s up 16%. The used car value index is up 167 points...

It happened in April, and it’s amazing how quickly it recovered...

Got it. Got it.

I think just everything has gotten better than we had originally thought. We’re all excited about the future. And the other thing we kept hearing, even during these times where extensions were being granted, we reached out to most of our shops, and they were telling us that consumers who had your car loans weren't even looking for extensions; they were continuing to make their car payments.

Yes. I just received something from our Chief Risk Officer today. We all received it, looking at our expected claims over the last four or five months compared to what has actually come in. We’re still, as of last month, 35% to 40% below where we thought they would be. We definitely have had a favorable performance and it’s probably a combination of satisfactions we would have expected on one hand. Still, you have some that are out there. Our delinquencies are in check, and we’re really pleased with how things are going now.

That's great. And I assume you'll probably continue to review the data for another quarter or two, but I guess would there be a consideration of potentially reversing the pricing increase from earlier in the year?

We'll go through the same process we went through in the quarter. What we do is meet as a management team; we take the same inputs and we look at how that is as Chuck explained. We come to a conclusion. We also have our service providers like KPMG and EY upon that as well.

I appreciate it. Thanks much.

Thank you for your questions, Peter. Thank you. It appears we have no additional questions at this time. So ladies and gentlemen, this does conclude today's teleconference.