Earnings Call
Open Lending Corp (LPRO)
Earnings Call Transcript - LPRO Q4 2023
Operator, Operator
Good afternoon, and welcome to Open Lending's Fourth Quarter and Full Year 2023 Earnings Conference Call. As a reminder, today's conference call is being recorded. On the call today are Keith Jezek, CEO; and Chuck Jehl, CFO. Earlier today, the Company posted its fourth quarter and full year 2023 earnings release and supplemental slides 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 would like to remind you that this call may contain estimated and other forward-looking statements that represent the Company's views as of today, February 27, 2024. 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 from those expressed or implied with such statements. And now, I'll pass the call over to Mr. Keith Jezek. Please go ahead.
Keith Jezek, CEO
Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Open Lending's fourth quarter and full year 2023 earnings conference call. I am pleased to report that excluding a negative change in estimate associated with our profit share, we exceeded the high end of our guidance range for certified loans and revenues in the fourth quarter. I am proud of our team and would like to thank each of our team members for delivering these results. For the full year 2023, we certified nearly 123,000 loans and delivered total revenue of $117.5 million, adjusted EBITDA of $50.2 million, and generated $75.5 million in cash before repurchasing $37.3 million in our common stock. As I reflect on 2023, the automotive lending environment, which directly impacts Open Lending, faced constrained inventory levels, the highest Fed funds rate in over 20 years, a high consumer affordability index, which represents the weeks of income needed to purchase a vehicle, and worsening credit availability and credit performance metrics. Additionally, credit unions experienced decades low share growth and the highest loan to share ratio since prior to the pandemic. Against this market backdrop, we continue to improve our product and technology, further refine our go-to-market strategy, and invest in key talent to position us well for growth as industry conditions improve. We remain focused on our mission to change lives by making transportation affordable. Notably, one of our most significant accomplishments in 2023 was launching an enhanced lenders protection proprietary scorecard in the fourth quarter. Our new scorecard includes three additional alternative data sources beyond LexisNexis. The additional data provides us with access to 350 million detailed transactions, over 170 million consumer checking accounts, and an expanded suite of credit report attributes developed and maintained by TransUnion. Our model leverages AI machine-learning algorithms and is trained and validated against a large set of proprietary lenders protection data to identify the most predictive credit risk attributes for our borrowers. We anticipate that over time, the new scorecard could lower default frequency by better predicting risk, which we expect will improve our lenders, our carriers, and ultimately Open Lending's performance. This effort was recently recognized by the National Association of Federal Credit Unions, or NAFCU, who selected Open Lending as the winner of the 2023 NAFCU Innovation Award for our Enhanced Lenders Protection Scorecard. The award recognizes companies making the most valuable and innovative contributions to credit union success, including groundbreaking advancements in technology and software. In addition to the new scorecard, the team delivered on additional improvements to our product and technology in 2023, including our co-application underwriting logic to further align with our default probabilities, implemented a prequalified decision helping bolster our lender's ability to provide a better direct-to-consumer experience, developed and deployed a new claims adjudication platform to improve internal efficiency and turnaround time of our claims process, and incorporated complex logic for decisioning that is difficult for lenders to implement in loan origination systems, thereby enhancing and improving our customers' daily workflows. Through these actions and others, we have and will continue to implement improvements to our product and technology with the expectation of making it easier to do business with Open Lending. Turning to our go-to-market execution, in the fourth quarter of 2023, we added 15 new accounts as compared to 19 in the prior year quarter. Of the accounts recently added, I am pleased to report that 20% of these were larger accounts with combined total assets of almost $20 billion. In comparison, in Q4 2022, only 5% were of a similar size. This is a testament to our focus on signing new accounts that are more likely to contribute meaningful certified loan volume, have lending capacity, and operate loan origination systems for which we already have existing successful technology integrations. In addition, we continue to closely monitor macroeconomic and auto sector conditions. First, I would like to provide further insights into the challenges we faced in 2023. On affordability, consumers faced elevated vehicle prices brought on by supply and demand shock, high interest rates, and higher total cost of ownership with gas, insurance, and maintenance expenses up almost 15% year-over-year. Auto industry loan delinquency rates reached 15-plus year highs as consumers continue to be stretched with declining savings rates, which was 3.7% in December 2023, down from a peak of over 30% in April 2020. In addition, total credit card debt is now $1.13 trillion, which is up almost 15% year-over-year, indicating even more pressure on the consumer. In this environment, we have seen most all auto lenders tighten their underwriting standards and shift towards prime and super prime consumers as lenders seek to perceive safety of these borrowers. Credit unions continue to be challenged as they experience the slowest share or deposit growth since 1991, with Q3 2023 share growth of 1.7% compared to the lowest level before FY2023 of approximately 3.5%. This, combined with high loan to share ratios, has led to a slowdown in loan growth throughout 2023 impacting Open Lending as credit unions represent approximately 75% of our total certified volume. Looking ahead to 2024, we do anticipate market stabilization. Cox Automotive recently released its 2024 forecast and called for a return to normalcy in the U.S. auto market. The report predicts 2024 will be the best year for car buyers since the pandemic. Cox is expecting vehicle inventory to rise in 2024, prices to decline slightly and incentives to be higher. Additionally, the interest rate environment has been stable since August 2023 and many signs point to potentially lower rates later this year; should that happen, we would expect that to be a benefit to consumer affordability. For used vehicles specifically, the Manheim Used Vehicle Value Index, or MUVVI, a leading indicator of wholesale used auto prices, declined to 7% in 2023 compared to 2022, though the index remains approximately 35% higher than pre-pandemic levels. Cox's current forecast projects only a 0.5% increase in the MUVVI in 2024, suggesting used auto prices are unlikely to increase materially in the near-term, which would be a net benefit for Open Lending. Historically, these cycles in the automotive industry have always proven to rebound and are nearly always led by used autos. As you may have heard me say previously, consumers can defer the purchase of a new vehicle, but ultimately they cannot defer the purchase of transportation. Now, turning to our core customer credit unions, there are early signs of increased share growth. Preliminary data suggests average credit union share growth in Q4 2023 was 2%, an almost 20% sequential increase compared to Q3 2023. This represents the first increase in share growth since Q1 2021, but as seen in prior cycles, it will take time for loan growth to improve as credit unions build up shares, so that their loan-to-share ratio can decrease from their near 10-year plus highs of 85% in Q4 2023. Lastly, auto loan growth in Q4 2023 was 2.9%, near the lowest levels observed since the beginning of the pandemic, which was 1.8%. Based on this data, and absent any further deterioration, the slowdown of lending at credit unions may be approaching a bottom. Moving to the OEM captive segment in Q3 2023, these lenders had the highest market share of all lender types at 30% of total autos financed in the U.S., up from only 21.5% in Q3 2022. This fact has reflected in Open Lending certified loan volumes from OEMs, which for the full year 2023 increased over 15% compared to the prior year. Should these lenders continue to capture share in the market, we anticipate we will continue to benefit. With the automotive market expected to stabilize and credit union lending possibly nearing a bottom, and growth in the OEM segment, we believe there are signs that the market conditions will improve in the near future. Our goal is to be well-positioned for that inevitable return to growth. Now, let me turn to our priorities for 2024, which we anticipate will help us maximize near-term opportunities and allow us to capture the growth. First, we will optimize the core business. We plan to further enhance our sales and account management capabilities to better serve our existing clients and more rapidly and effectively acquire new credit union customers to capture market share over time. We will continue to closely monitor developing market conditions, particularly around credit metrics such as defaults and delinquencies, and make underwriting and pricing adjustments as needed throughout the year to optimize performance and profitability. We will continue to evaluate the appropriate number of carrier partners with a balanced allocation across our partners based on our current certified loan volume along with anticipated future growth. To that end, we recently signed a program management agreement with Core Specialty Insurance Holdings, enabling them to be an additional provider of credit default insurance policies for our lenders protection platform. One of the central reasons why auto lenders have come to rely on and trust Open Lending is that we have the stability and firm backing of our A-rated insurance carrier partners. We are pleased to have Core Specialty join us in adding to that stability on behalf of our lenders and the consumers they serve. Secondly, we plan to expand our focus in the bank segment where we already have dozens of producing lenders and signed two new bank customers in FY2023. We are investing in a dedicated team with existing relationships within community and regional banks who are capable of selling the unique value proposition of our product to this segment. Based on our analysis, this is a very significant opportunity and importantly, most participants in this market are larger than our average credit union customer. Additionally, based on our conversations with bank prospects, they have the lending capacity and the appetite to lend in this environment. To wrap up, I would like to express my continued confidence in the long-term opportunities before us. I'm encouraged by the response of our team during these difficult times in our industry. I would like to again sincerely thank all of our team members for their efforts. I remain confident about our position in 2024 and beyond as we execute on our mission to change lives by making transportation affordable. I believe our value proposition to the various players in the auto retail ecosystem is strong, in fact, as strong as ever, and by executing on our priorities in 2024, we'll be well-positioned to capture the pent-up demand as the auto industry inevitably recovers. With that, I'd like to turn the call over to Chuck to review Q4 results in further detail, as well as provide our thoughts on the outlook for Q1 2024.
Chuck Jehl, CFO
Thanks, Keith. During the fourth quarter of 2023, we facilitated 26,263 certified loans compared to 34,550 certified loans in the fourth quarter of 2022. Total revenue for the fourth quarter of 2023 was $14.9 million, which includes an ASC 606 negative change in estimate of $14.3 million associated with our profit share, compared to $26.8 million in revenue in the fourth quarter of 2022, which includes a negative change in estimate of $12.8 million. Excluding the negative change in estimate in the fourth quarter of 2023, we exceeded the high end of our guidance range for both certified loans and revenues. To breakdown total revenues in the fourth quarter, program fee revenues were $13.5 million and claims administration fees and other revenue were $2.6 million, while profit share revenue was negative $1.1 million due to the impact of the previously mentioned negative change in estimate. As a reminder, profit share revenue is comprised of the expected earned premiums, less the expected claims to be paid over the life of the contracts, and less expenses attributable to the program. The net profit share to us is 72% and the monthly receipts from our insurance carrier partners reduce our contract asset. Profit share revenue in the fourth quarter of 2023 associated with new originations was $13.2 million or $501 per certified loan as compared to $18.9 million or $546 per certified loan in the fourth quarter of 2022. As a reminder, U.S. GAAP revenue recognition rules related to variable consideration require that we reevaluate the reported profit share revenue estimate for prior periods based on new available information each quarter. This process requires the evaluation of both internal and external information available during the period to quantify the change in estimate for the quarter. Profit share change in estimate is a measure of current quarter cumulative actual data combined with changes to previously forecasted frequency of default, severity of loss, and prepayments. In applying this accounting standard, to the extent new information presents a negative impact to previous forecast, the change in estimate will result in a negative impact to our operating results, and vice versa, when new available information represents a positive adjustment to previous forecast, this will result in a positive impact to our operating results. The Q4 2023 $14.3 million negative change in estimate is associated with cumulative total profit share revenue recognized of over $380 million for periods dating back to ASC 606 implementation date in January of 2019 and represents over 400,000 insured enforced loans in the portfolio. Importantly, to put this in perspective, the cumulative profit share change in estimate since 2019 is a positive $5.6 million, which includes the impact of the negative adjustment recognized in the fourth quarter of 2023. As Keith mentioned, auto industry delinquency rates have increased to 15-plus year highs, which we considered in combination with the higher than expected claim submissions and adjusting projections to reflect higher frequency of default, the primary driver of the current quarter negative change in estimate. In addition, the Manheim Used Vehicle Value Index, or MUVVI, declined faster than industry projections at the end of Q3, and as a result, severity of loss was also a negative factor in the current quarter. Lastly, lower than expected prepayments were a slightly favorable factor as premiums on loans enforced remained in the portfolio longer than previously projected. As you may recall, we implemented multiple price increases over the past two years to appropriately price for the risk that we are taking and we will continue to evaluate further price adjustments. In addition to pricing, as Keith mentioned earlier, we launched an enhanced scorecard in late Q4 2023, which we anticipate will lower default frequency by better predicting risk. We are now better positioned to take additional targeted credit and pricing actions with a focus on driving improved performance for our lenders, our carrier partners, and ultimately Open Lending. Operating expenses were $17.9 million in the fourth quarter of 2023 compared to $17.2 million in the fourth quarter of 2022. Operating loss was $8.3 million in the fourth quarter of 2023 compared to operating income of $4.8 million in the fourth quarter of 2022. Net loss for the fourth quarter of 2023 was $4.8 million compared to a net loss of $4.2 million in the fourth quarter of 2022. Basic and diluted loss per share was $0.04 in the fourth quarter of 2023 as compared to a loss of $0.03 in the previous year quarter. Adjusted EBITDA for the fourth quarter of 2023 was a loss of $2.1 million as compared to a profit of $8.5 million in the fourth quarter of 2022. Excluding profit share revenue change in estimate, we generate $12.2 million in adjusted EBITDA in the fourth quarter of 2023. There's a reconciliation of GAAP to non-GAAP financial measures that can be found at the back of our earnings press release. We exited the quarter with $374 million in total assets, of which $240.2 million was in unrestricted cash, $29.3 million in contract assets, and $70.1 million in net deferred tax assets. We had $168.5 million in total liabilities, of which $145.3 million was outstanding debt. In fiscal year 2023, we generated $75.5 million in cash before acquiring $37.3 million or 5.2 million shares of our common stock at an average price of $7.13 per share. We have $20 million remaining under our current share repurchase program, which expires at the end of the first quarter of 2024. Now moving on to our Q1 2024 guidance. While we are encouraged that market conditions appear to be stabilizing, the following factors were considered in our Q1 2024 guidance. The continued impact of affordability due to constrained inventory levels, continued elevated vehicle prices, and high interest rates, total cost of ownership and of course, inflation, continued lending capacity challenges at our credit unions, elevated cost of funds making credit unions less competitive when consumers have other options, tighter underwriting standards as lenders continue to shift their focus towards prime and super prime borrowers, and a high percentage of cash buyers due to elevated interest rate environment. Accordingly, our guidance for the first quarter of 2024 is as follows. Total certified loans to be between 24,000 and 28,000, total revenue to be between $26 million and $30 million and adjusted EBITDA to be between $10 million and $14 million. We have a strong balance sheet, no near-term debt maturities and generate positive cash flow, all of which afford us the resilience needed to navigate current market conditions. At Open Lending, we have navigated through these economic cycles before. Based on our analysis and experience, what is different in this cycle versus the prior two is the impact of inflation and how it is impacting our target market consumer. As the sector and macroeconomic conditions inevitably recover, we expect to capture pent-up demand and capitalize on the thoughtful and measured investments we have made during economically challenging times. We'd like to thank everyone for joining us today, and we'll now take your questions.
Operator, Operator
Thank you. We will now be conducting a question-and-answer session. The first question comes from Peter Heckmann with D.A. Davidson. Please go ahead.
Peter Heckmann, Analyst
Good afternoon. Thank you for taking my question. Can you discuss the outlook for refinancing auto loans? It seems that rates have stabilized and might start to decrease. We didn't anticipate much activity in the fourth quarter, but what is your perspective on your lending customers' willingness to restart some refinancing programs?
Chuck Jehl, CFO
Yes. Hi Pete, it's Chuck. I'll start and then Keith can jump in. You're correct that we've seen rates stabilize since August, and we haven't experienced any further changes since then. It seems unlikely that there will be a rate cut in March, which is what we're all hearing now. Rates have stabilized somewhat. The key for us regarding our refinance business is our primary customers, the credit unions, and their lending capacity, which is somewhat restricted. Even if there's an opportunity to refinance, the ability to complete the loan is crucial. We believe we've noticed some signs of improvement, as Keith mentioned in the prepared comments, but I'm not sure if you want to add anything else.
Keith Jezek, CEO
Yes, that's a great question. I mean we certainly believe that there'll be very large pent-up demand for refi as these rates have been put on the books, as you're probably noting in the last year at the highest rates in the last 25 years. And so we anticipate a large pent-up demand for refi volume in the future. In fact, it tipped up ever so slightly, just below 1 percentage point in our certified loans in Q4, right.
Peter Heckmann, Analyst
Got it. Got it. And then just in terms of the average size of the institution, I haven't run all the numbers yet, but I guess we're really not seeing the benefit of that just because of the appetite or the lack of appetite for underwriting a whole lot of loans below prime. Is that having certainly the number of, I think you ended the year with, what, 470 or so active financial institutions? I mean, certainly if we apply some of the metrics that we saw in prior periods to that, I mean there really is a significant potential for higher loan volumes as the market normalizes.
Keith Jezek, CEO
Well, you raise a good point. Again, it's Keith speaking. There is no doubt, as you're well aware; our strategy over the last 18 months has been to focus solely on the larger accounts. And as we begin to ramp up, these institutions will begin to add what we hope is significant volume as reflected in their larger asset size in general. And as you've heard me talk about, we just want to make sure that we have the successful integrations already with their losses, so we can install faster. And in fact, our time to first cert volume, first Cert revenue has gone from roughly 180 days down below 100 days. So not only are we targeting the bigger accounts, but we're able to get to first revenue much, much faster.
Peter Heckmann, Analyst
Okay. All right. Thank you. I'll get back in the queue.
Keith Jezek, CEO
Thanks, Pete.
Operator, Operator
Thank you. Next question comes from the line of David Scharf with JMP Securities. Please go ahead.
David Scharf, Analyst
Hi, thanks for taking my questions today. Keith wanted to follow-up on some of the commentary on credit union growth. You noticed the slowest deposit growth, in, I guess, 25 plus years. Were you indicating I was writing down too quickly, did you start to see some first signs of a rebound in the fourth quarter? Just trying to get a sense for in different rate environments, what the competitive aspects are of credit unions versus kind of regionals and community banks, how they typically respond to a lower rate environment, what advantages, and just how your value prop is either more or less compelling to a credit union in various rate environments. Because increasingly it seems like in recent quarters, the discussions have been focusing more on the liquidity of this customer as opposed to what's now a familiar refrain about the consumer side of your marketplace bottomed out.
Keith Jezek, CEO
I'm sorry; can you repeat that last sentence?
David Scharf, Analyst
I'm sorry. Really trying to get a sense of, I mean, are you getting increasing conviction that credit union lending capacity is finally bottomed out?
Keith Jezek, CEO
We have noticed positive signs, as I mentioned earlier, indicating an increase in share growth, which gives us reason for optimism. However, we must take a moment to consider that many lenders, including credit unions, have paused activities due to the lag effect from the Federal Reserve's decisions aimed at tightening and slowing the economy. This has resulted in a decline across consumer finance. Despite this, we are beginning to observe a growth in our credit unions, and we believe that any forthcoming relief in interest rates will reverse the current trend of deposit outflows. Consequently, we expect that the tightening of consumer credit will only be a temporary situation. Historical patterns suggest that such conditions are often short-lived, allowing credit unions to return to their essential role in community-based lending.
David Scharf, Analyst
Got it. As a follow-up, taking a step back from the various external shocks and unique aspects of this cycle, one of the themes the company has consistently communicated is the value proposition of CECL relief to potential new lenders. In a higher loss environment, where there is a need to reserve for greater lifetime losses upfront, I would assume the value proposition would increase. However, it appears that this hasn't necessarily been the case in the current environment. Can you discuss the conversations with potential clients during the sales cycle and how CECL relief is influencing those discussions? Are you finding that many potential lenders are overwhelmed by uncertainty, making CECL relief less of a factor at this time?
Keith Jezek, CEO
Well, and again, this is Keith speaking. I love the nuance of your question, because what we are seeing is, in addition to being what we call in the industry lent out. So their loan to share ratios being at decades high and with share growth being at decades low, they had to in 2023, for the first time, take on these CECL reserves. So it was this, almost this triple whammy to slow down the potential growth in lending. Our value proposition, the discussions that we have around CECL are just as valid and just as valuable as ever before. And we're engaged weekly in conversation with current customers and prospective customers about the value of the program to get them this much needed relief.
David Scharf, Analyst
Got it. Thank you very much. Very helpful.
Keith Jezek, CEO
Thank you.
Operator, Operator
Thank you. Next question comes from the line of Kyle Peterson with Needham & Company. Please go ahead.
Kyle Peterson, Analyst
Hey, great. Good afternoon, guys. Thanks for taking the questions. I wanted to start off on some of the profit share developments in the ASC 606 adjustments. Just wanted to kind of get a sense of how you guys are thinking about, at least in the 1Q guide, some of the different macro assumptions, just so we can kind of model in what the expected changes on the prior period developments are. Obviously, we've taken a couple negative revisions the last couple of quarters, but what are you guys assuming at least over the next couple of months here on that front?
Chuck Jehl, CFO
Yes, it's Chuck. Let’s take a moment to reflect on the industry. The credit market has declined through fiscal 2023, affecting all players; consumer savings have diminished, credit card debt has risen, and delinquency rates have also increased, leading to a steady rise in loan losses across lenders. Delinquency rates for auto loans have reached their highest levels in over 15 years. Despite the strength of our decision and pricing engine at Open Lending, we are not insulated from the overall credit performance like a lender would be. It's crucial to understand that we do not operate as a lender, and we rely on the defaults and delinquencies of lenders and their servicing efforts. Therefore, we are not a servicer. Given this backdrop, it’s worth noting that our 60-plus day delinquencies are currently 100 basis points better than the non-prime industry average. We stand at 4.5%, while the industry averages 5.5%. Regarding the $14.3 million we recorded this quarter, it's primarily due to the frequency and severity of defaults. The Manheim Used Vehicle Value Index fell more than anticipated, which affected us negatively; conversely, prepayment speeds were better than we had expected, providing a positive impact. All of these factors contributed to the $14.3 million adjustment. Looking ahead, we feel that the more challenging vintages from late 2021 and into 2022 are behind us, and we hope to move past these issues soon. I hope this information is helpful.
Kyle Peterson, Analyst
That's helpful. I appreciate the color. And just to follow-up a little bit, I know there's been a lot of conversation with some of the different bank volatility and concerns about concentration, specifically in some commercial real estate assets and such. But how have some of your conversations gone, I guess particularly with the bank clients, given some of the regulatory impetus to diversify the loan book, has there been more appetite from some banks that might have historically skewed a little more commercial to maybe partner with you guys to diversify the loan book, or you guys not seen any impacts from some of the recent volatility with your New York community banks and such as of late?
Keith Jezek, CEO
Yes. And this is Keith speaking. I think it's a good question. We were just at a large automotive finance conference the last couple of weeks ago, and there's a heightened interest from banks to grow the book of business around auto and then specifically to kind of grow this book of business around this near non-prime sector. As you well know, they need to check all types of fair lending boxes and chief among those is the CRA, the Community Relief Act. So there's a great deal of interest in growing this book of business with the bank segment. That's one of the reasons why, as I noted in our 2024 priorities, that we're focusing more heavily on that cohort.
Kyle Peterson, Analyst
Very helpful. Thanks, guys.
Keith Jezek, CEO
Thank you.
Chuck Jehl, CFO
Thank you.
Operator, Operator
Thank you. Next question comes from the line of John Hecht with Jefferies. Please go ahead.
John Hecht, Analyst
Yes. Afternoon, guys. Thanks very much. First question is, how do we think about, I guess, seasonality of Certs this year? I mean, usually there is a seasonal element to the business, but at the same time, you're talking about maybe trends bottoming out and maybe as you go through the year, you might get some organic growth, kind of same-store sales type of activity with the newer counterparties that you guys have signed up. So, I mean, do you think that Certs, which you kind of in the middle of the range, you kind of sit flat in the first quarter from Q4? Is there a chance or an expectation that the Cert activity would grow throughout the year or will it follow more seasonal trends as we think about forecasting?
Chuck Jehl, CFO
Hey, John, it's Chuck. As we consider our quarterly guidance, there are many factors to weigh, including consumer affordability, inventory levels, and high prices. We've discussed lending capacity at credit unions and growth in shares and deposits, particularly in the prime and super prime segments. Given the current climate, it's challenging to make accurate projections. Although we anticipate flat performance from Q4 to Q1, March typically performs well for the company because of tax season. However, there has been a delay in tax refunds and the refund amounts are smaller, all of which influenced our forecasts for the quarter. Looking at the full year, we initially expected a Fed cut in March, but that now seems unlikely. We hope to see changes later in the year, though it's still difficult to predict.
John Hecht, Analyst
Okay. And then thinking about program fees and profit share levels per Cert, I think is the current range, I mean, I think you've been around $520 of program fees per Cert for a little while. The profit share has kind of drifted lower. But as you re-price some of the premiums, where do we think those go on a trajectory basis?
Chuck Jehl, CFO
Yes. We'll begin with program fees, which depend on the mix. In terms of volume units, we have volume discounts applied to our program fees, so modeling an average program fee around $520 is reasonable, and around $500 for profit share is also a good figure to use. We have implemented a new scorecard to better predict risk and the likelihood of default. Even at the $500 profit share level, we've previously discussed the ultimate loss ratio, and we have stressed the new vintage from Q4 to a loss ratio of about 64%. The new vintages are performing better compared to the older vintages, which had poorer performance in late 2021 and 2022. Therefore, there might still be some potential for improvement. We have recorded it at $500, accounting for that stress in the current environment, but we are optimistic about its performance.
John Hecht, Analyst
Thank you guys very much.
Chuck Jehl, CFO
Okay. Yes. Thank you.
Keith Jezek, CEO
Thank you.
Operator, Operator
Thank you. Next question comes from the line of John Davis with Raymond James. Please go ahead.
Unidentified Analyst, Analyst
Hey, can you guys hear me?
Chuck Jehl, CFO
Hey, JD, yes, we're here.
Unidentified Analyst, Analyst
Thanks for taking the question. This is Taylor on for JD. Just to follow-up on the refi question, it looks like refis were about 5% of total Certs during the quarter. So it's obviously been much higher previously, but still up quarter-over-quarter. So just curious how we should think about refi as a percent of total Certs in 2024, just with the mentioned large pent-up demand.
Chuck Jehl, CFO
Well, quarter-over-quarter refi at 5% in the fourth quarter of 2023 is actually down from 14% in Q4 2022. So it's just been since the rate hikes and even starting in, I guess, early 2022, when the Fed started taking action, we went from a peak of 43% in February of 2022 down to just single-digits on the refi. We still believe it's a great opportunity for us, and as our lenders have capacity and free up the balance sheets, it'll come back, because obviously, affordability we talked about is huge to the near and non-prime consumer, and there's a lot of opportunity there to refi. But to give you the exact percent of what that's going to be in 2024, it's hard to say right now, just based on the kind of the impacts to our core customer and the lending capacity challenges.
Keith Jezek, CEO
And I would just add, and this is Keith, that we just think of it as a potential nice upside to the business. We know it will all happen. And we know this; we call it a refi tsunami will hit. There are shores. We're just not sure exactly when that will happen.
Unidentified Analyst, Analyst
Got you. That's helpful. And then just on adding any new OEMs, I think recently you've mentioned multiple OEMs in the pipeline, so just curious if there's any update there on how conversations are progressing.
Keith Jezek, CEO
Yes, great question. This is Keith. Progressing really nicely, as you've heard me say before, multiple large prospects in the pipeline, solid material progression through milestones throughout the sales process. These are long sales cycles, and we're cautiously optimistic that we'll have success with a couple of them. In addition to that, we keep adding just kind of larger enterprise type accounts in and around the OEM captive space as well. So the pipeline is growing. The progress through the pipeline is growing objectively, and we're very optimistic about the future with additional captives. As you heard us say in the prepared remarks, the captives have now eclipsed all other lender types as the number one source of auto loan originations in the U.S.
Unidentified Analyst, Analyst
Thanks for taking the question.
Keith Jezek, CEO
Thank you.
Chuck Jehl, CFO
Thank you.
Operator, Operator
Thank you. There are no further questions at this time. I would now like to turn the floor over to Keith Jezek for closing comments.
Keith Jezek, CEO
Well, thank you, operator, and thank you, everyone, for your time today. I just wanted to say, as we look forward, it's important to remember that the near and non-prime then file and credit invisible borrowers are not going away. These borrowers will find access to credit. Open Lending offers a unique solution that combines over two decades of credit risk with default insurance that allows all lenders to offer fair rates to these borrowers while meeting their individual yield targets. Thank you again.
Operator, Operator
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.