UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 11, 2020
OPEN LENDING CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 001-38339 | 82-3008583 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
Barton Oaks One
901 S. MoPac Expressway
Bldg. 1, Suite 510
Austin, Texas 78746
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: 512-892-0400
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| Common stock, par value $0.01 per share | LPRO | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition. |
On August 11, 2020, Open Lending Corporation (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended June 30, 2020. A copy of the press release and additional supplemental financial information are attached as Exhibits 99.1 and 99.2, respectively, to this Current Report on Form 8-K and are incorporated by reference herein.
The information furnished under this Item 2.02 and in the accompanying Exhibits 99.1 and 99.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference in such filing.
| Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits
| 99.1 | Earnings Release issued by the Company on August 11, 2020. | |
| 99.2 | Supplemental Earnings Information Q2 2020 | |
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| OPEN LENDING CORPORATION | ||
| By: | /s/ Ross Jessup | |
| Name: | Ross Jessup | |
| Title: | Chief Financial Officer | |
Date: August 11, 2020
2
Exhibit 99.1
Open Lending Reports Second Quarter 2020 Financial Results
AUSTIN, TX, August 11, 2020 – Open Lending Corporation (NASDAQ: LPRO) (the “Company” or “Open Lending”), a leading provider of lending enablement and risk analytics solutions to financial institutions, today reported financial results for its second quarter of 2020.
“While the COVID-19 pandemic rapidly changed the world, the economy and specifically the auto/dealership industry, we are very encouraged by the recent trends in the automotive loan market. The low interest rate environment, demand for used cars, and commuters shifting away from public modes of transportation are driving these positive recent trends. Automobile sales and prices are improving, our lending partners are continuing to utilize our platform and we have a healthy pipeline of new lenders who would like to integrate our technology platform within their business model,” said John Flynn, CEO and President of Open Lending. “We are also thrilled to have completed our business combination with Nebula Acquisition Corporation in June, which we believe provides us with the capital to execute on our growth plan.”
Three Months Ended June 30, 2020 Highlights
| • | The Company facilitated 18,684 certified loans during the second quarter of 2020, compared to 20,008 certified loans in the second quarter of 2019 |
| • | Total revenue was $22.1 million, compared to $25.2 million in the second quarter of 2019 |
| • | Gross profit was $20.2 million, compared to $23.1 million in second quarter of 2019 |
| • | GAAP net loss of $(49.8) million, compared to GAAP net income of $17.5 million in second quarter 2019. Second quarter 2020 results were negatively impacted by approximately $60 million in costs associated with the business combination with Nebula Acquisition Corporation (“Nebula”). The majority of these costs, approximately $48.8 million, were attributable to the change in fair value of contingent consideration earn-out shares awarded as part of the business combination with Nebula. Given the share price performance milestones have all been met as of August 10, 2020, net income beginning in the fourth quarter of 2020 and beyond will not be burdened by any changes to fair value of the contingent consideration earn-out shares. |
| • | Adjusted EBITDA was $15.4 million, compared to $18.1 million in the second quarter of 2019 |
Adjusted EBITDA is a non-GAAP financial measure. Reconciliations of this non-GAAP financial measure to its most directly comparable GAAP financial measure are provided in the financial tables included at the end of this press release. An explanation of this measure and how it is calculated is also included under the heading “Non-GAAP Financial Measures.”
Business Combination
On June 10, 2020, Open Lending, LLC and Nebula, a special purpose acquisition company sponsored by True Wind Capital, L.P., announced that they completed their previously announced business combination. Upon completion of the business combination, Nebula changed its name to Open Lending Corporation, and its common stock began trading on the NASDAQ Stock Market under the ticker symbol “LPRO” on June 11, 2020.
2020 Outlook
Based on second quarter results, the Company remains confident in its previously issued guidance.
| Full Year 2020 Outlook | ||
| Total Certified Loans | 85,000 – 101,000 | |
| Total Revenue | $89 - $108 million | |
| Adjusted EBITDA | $54 - $70 million | |
| Adjusted Operating Cash Flow (1) | $34 - $41 million |
| (1) | Adjusted Operating Cash Flow is defined as Adjusted EBITDA, minus CAPEX, plus or minus change in contract assets. |
The guidance provided above includes forward-looking statements within the meaning of U.S. securities laws. While the financial guidance takes into account the anticipated impact of the global COVID-19 pandemic, the impact of the pandemic is unprecedented and the future effect of the pandemic on the global economy and our financial results remains highly uncertain, and our actual results may differ materially. See “Forward-Looking Statements” below.
Conference Call
Open Lending will host a conference call to discuss second quarter 2020 financial results today at 5:00 pm ET. Hosting the call will be John Flynn, President and CEO, and Ross Jessup, CFO and COO. The conference call will be webcast live from the Company’s investor relations website at https://investors.openlending.com/ under the “Events” section. A replay will be available two hours after the call and can be accessed by dialing (844) 512-2921 or (412) 317-6671 for international callers; the conference ID is 13706479. The replay will be available until Tuesday, August 25, 2020. An archive of the webcast will be available at the same location on the website shortly after the call has concluded.
About Open Lending
Open Lending, through its flagship product, Lenders Protection, offers loan analytics, risk-based pricing, risk modeling and default insurance, ensuring profitable auto loan portfolios for financial institutions throughout the United States. For more information, please visit www.OpenLending.com.
Forward-Looking Statements
This press release includes certain statements that are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995, including statements related to market trends and the anticipated impact of the recent novel coronavirus (COVID-19) pandemic on factors impacting the Company’s business, the Company’s new lender pipeline, consumer behavior and demand for automotive loans and future financial performance under the heading “2020 Outlook” above. Forward-looking statements generally are accompanied by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “plan,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” and similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These statements are based on various assumptions and on the current expectations of the Company’s management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond the Company’s control. These forward-looking statements are subject to a number of risks and uncertainties, including general economic, political and business conditions; the potential effects of COVID-19; applicable taxes, inflation, interest rates and the regulatory environment; the outcome of judicial proceedings to which Open Lending is, or may become a party; failure to realize the anticipated benefits of the business combination; the amount of redemption requests made by the Company’s stockholders; those factors discussed in other documents of the Company filed, or to be filed, with the SEC. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. There may be additional risks that the Company presently does not know or that they currently believe are immaterial that could also cause actual results to differ from those contained in the forward-looking statements. In addition, forward-looking statements reflect the Company’s expectations, plans or forecasts of future events and views as of the date of this press release. The Company anticipates that subsequent events and developments will cause their assessments to change. However, while the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing the Company’s assessments as of any date subsequent to the date of this press release. Accordingly, undue reliance should not be placed upon the forward-looking statements.
Non-GAAP Financial Measures
Included in this press release is financial information that has not been prepared in accordance with GAAP. The Company uses Adjusted EBITDA, a non-GAAP financial measure, internally in analyzing our financial results and believe it is useful to investors, as a supplement to GAAP measures, in evaluating our ongoing operational performance. The Company believes that the use of this non-GAAP financial measure provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial results with other companies in our industry, many of which present similar non-GAAP financial measures to investors.
Adjusted EBITDA is a non-GAAP financial measure used by management to evaluate its operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Accordingly, the Company believes these measures provide useful information to investors and others in understanding and evaluating its operating results in the same manner as its management and board of directors. In addition, they provide useful measures for period-to-period comparisons of our business, as they remove the effect of certain non-cash items and certain variable charges. Adjusted EBITDA is defined as net income excluding interest expense, income taxes, depreciation and amortization expense, share-based compensation expense, change in fair value of contingent consideration and transaction bonuses as a result of the Business Combination. Adjusted EBITDA margin is defined as Adjusted EBITDA expressed as a percentage of total revenue.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of Adjusted EBITDA to its most directly comparable GAAP financial measure provided in the financial statement tables included below in this press release.
Contact:
ICR for Open Lending
Investors
openlending@icrinc.com
OPEN LENDING CORPORATION
Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Assets |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 26,252 | $ | 7,676 | ||||
| Restricted cash |
2,412 | 2,222 | ||||||
| Accounts receivable |
3,193 | 3,767 | ||||||
| Current contract assets |
19,491 | 29,782 | ||||||
| Prepaid expenses |
1,629 | 479 | ||||||
| Other current assets |
328 | 205 | ||||||
| Deferred transaction costs |
— | 1,081 | ||||||
|
|
|
|
|
|||||
| Total current assets |
53,305 | 45,212 | ||||||
| Property and equipment, net |
669 | 299 | ||||||
| Non-current contract assets |
43,235 | 33,169 | ||||||
| Deferred tax asset, net |
89,177 | — | ||||||
| Other assets |
148 | 506 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 186,534 | $ | 79,186 | ||||
|
|
|
|
|
|||||
| Liabilities and stockholders’ deficit |
||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ | 3,086 | $ | 1,337 | ||||
| Accrued expenses |
924 | 2,006 | ||||||
| Income tax payable |
569 | — | ||||||
| Current portion of notes payable |
4,463 | 2,484 | ||||||
| Other current liabilities |
2,647 | 2,366 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
11,689 | 8,193 | ||||||
| Estimated fair value of contingent consideration |
395,891 | — | ||||||
| Long-term notes payable, net of unamortized debt issuance costs |
155,128 | 829 | ||||||
| Other long-term liabilities |
88,077 | — | ||||||
|
|
|
|
|
|||||
| Total liabilities |
$ | 650,785 | $ | 9,022 | ||||
| Commitment and contingencies |
||||||||
| Redeemable convertible preferred Series C units, 0 and 14,278,603 units issued and outstanding as of June 30, 2020 and December 31, 2019, respectively |
— | 304,943 | ||||||
| Stockholders’ deficit |
||||||||
| Preferred stock, $0.01 par value; 10,000,000 shares authorized, and 0 shares issued as of June 30, 2020 and December 31, 2019, respectively |
— | — | ||||||
| Common stock, $0.01 par value; 550,000,000 shares authorized and 91,849,909 issued and outstanding as of June 30, 2020; 110,000,000 authorized and 37,631,052 issued an outstanding as of December 31, 2019 |
918 | 376 | ||||||
| Additional paid-in capital |
(92,912 | ) | 7,626 | |||||
| Accumulated Deficit |
(372,257 | ) | (242,781 | ) | ||||
|
|
|
|
|
|||||
| Total stockholders’ deficit |
(464,251 | ) | (234,779 | ) | ||||
|
|
|
|
|
|||||
| Total liabilities and stockholders’ deficit |
$ | 186,534 | $ | 79,186 | ||||
|
|
|
|
|
|||||
OPEN LENDING CORPORATION
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share data)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenue |
||||||||||||||||
| Program fees |
$ | 8,793 | $ | 9,482 | $ | 21,505 | $ | 17,457 | ||||||||
| Profit share |
12,163 | 14,943 | 15,938 | 25,779 | ||||||||||||
| Claims administration service fees |
1,111 | 758 | 2,054 | 1,431 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total revenue |
22,067 | 25,183 | 39,497 | 44,667 | ||||||||||||
| Cost of services |
1,827 | 2,067 | 4,322 | 3,594 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Gross profit |
20,240 | 23,116 | 35,175 | 41,073 | ||||||||||||
| Operating expenses |
||||||||||||||||
| General and administrative |
14,650 | 3,315 | 18,218 | 6,407 | ||||||||||||
| Selling and marketing |
1,295 | 1,889 | 3,373 | 3,645 | ||||||||||||
| Research and development |
349 | 332 | 707 | 578 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Operating income |
3,946 | 17,580 | 12,877 | 30,443 | ||||||||||||
| Change in fair value of contingent consideration |
(48,802 | ) | — | (48,802 | ) | — | ||||||||||
| Interest expense |
(3,644 | ) | (82 | ) | (4,408 | ) | (168 | ) | ||||||||
| Interest income |
44 | 5 | 61 | 8 | ||||||||||||
| Other income |
3 | 2 | 3 | 6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income/(loss) before income taxes |
(48,453 | ) | 17,505 | (40,269 | ) | 30,289 | ||||||||||
| Provision (benefit) for income taxes |
1,352 | 21 | 1,364 | (99 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income / (loss) attributable to Open Lending Corporation |
$ | (49,805 | ) | $ | 17,484 | $ | (41,633 | ) | $ | 30,388 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income/(loss) per common share attributable to Open Lending Corporation: |
||||||||||||||||
| Basic and diluted net income (loss) per share |
(1.01 | ) | (0.19 | ) | (0.80 | ) | (0.53 | ) | ||||||||
| Weighted average shares of common stock outstanding |
49,547,284 | 37,631,052 | 43,589,168 | 37,631,052 | ||||||||||||
OPEN LENDING CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities |
||||||||
| Net income (loss) |
$ | (41,633 | ) | $ | 30,388 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Share-based compensation |
2,676 | 1,010 | ||||||
| Depreciation and amortization |
671 | 52 | ||||||
| Change in fair value of contingent consideration |
48,802 | — | ||||||
| Deferred income taxes |
775 | — | ||||||
| Changes in assets & liabilities: |
||||||||
| Accounts receivable |
574 | (829 | ) | |||||
| Contract assets |
225 | (13,439 | ) | |||||
| Prepaid expenses |
(69 | ) | (400 | ) | ||||
| Other current and non-current assets |
322 | (339 | ) | |||||
| Accounts payable |
176 | 44 | ||||||
| Accrued expenses |
(1,184 | ) | 316 | |||||
| Income tax payable |
569 | — | ||||||
| Other liabilities |
103 | 240 | ||||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
12,007 | 17,043 | ||||||
|
|
|
|
|
|||||
| Cash flows from investing activities |
||||||||
| Purchase of property and equipment |
(424 | ) | (57 | ) | ||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(424 | ) | (57 | ) | ||||
|
|
|
|
|
|||||
| Cash flows from financing activities |
||||||||
| Repayments of notes payable |
(4,380 | ) | (1,242 | ) | ||||
| Proceeds from issuance of long-term debt, net of issuance costs |
160,233 | — | ||||||
| Distributions to Open Lending, LLC unit holders |
(135,380 | ) | (20,179 | ) | ||||
| Recapitalization transaction, net of transaction costs |
(13,289 | ) | — | |||||
|
|
|
|
|
|||||
| Net cash provided by (used in) financing activities |
7,184 | (21,421 | ) | |||||
|
|
|
|
|
|||||
| Net change in cash and cash equivalents and restricted cash |
18,767 | (4,435 | ) | |||||
| Cash and cash equivalents and restricted cash at the beginning of the period |
9,897 | 13,136 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents and restricted cash at the end of the period |
$ | 28,664 | $ | 8,701 | ||||
|
|
|
|
|
|||||
| Supplemental disclosure of cash flow information: |
||||||||
| Interest paid |
$ | 4,316 | $ | 160 | ||||
| Income tax paid (refunded), net |
20 | (99 | ) | |||||
| Change in fair value of Open Lending, LLC redeemable convertible preferred units |
(47,537 | ) | 46,224 | |||||
| Conversion of preferred stock to common stock |
257,406 | — | ||||||
OPEN LENDING CORPORATION
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands)
(Unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| GAAP net income (loss) |
$ | (49,805 | ) | $ | 17,484 | $ | (41,633 | ) | $ | 30,388 | ||||||
| Less: Non-GAAP adjustments: |
||||||||||||||||
| Change in fair value of contingent consideration (1) |
48,802 | — | 48,802 | — | ||||||||||||
| Transaction bonuses (2) |
9,112 | — | 9,112 | — | ||||||||||||
| Interest Expense |
3,644 | 82 | 4,408 | 168 | ||||||||||||
| Share-based compensation (3) |
2,189 | 487 | 2,676 | 1,010 | ||||||||||||
| Depreciation and Amortization |
120 | 26 | 242 | 52 | ||||||||||||
| Income Taxes |
1,352 | 21 | 1,364 | (99 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total adjustments |
65,219 | 616 | 66,604 | 1,131 | ||||||||||||
| Adjusted EBITDA |
$ | 15,414 | $ | 18,100 | $ | 24,971 | $ | 31,519 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Notes:
| (1) | Reflects non-cash charges for the change in the estimated fair value of contingent consideration earn-out shares from June 10, 2020 through June 30, 2020. |
| (2) | Reflects transaction bonuses awarded to key employees and directors in connection with the business combination. |
| (3) | Represents non-cash charges associated with the Class B Unit Incentive Plan of Open Lending, LLC. For the three months ended June 30, 2020 represents accelerated vesting of the legacy plan as result of the business combination |
Earnings Supplement Q2 2020 Exhibit 99.2
Specialized Lending Enablement Platform for the Near-Prime Market Powered by Proprietary Data, Advanced Decisioning Analytics, an Innovative Insurance Structure and Scaled Distribution $64.9m 2019A EBITDA ~50% 2019A-2021E Revenue CAGR(1) $1.8bn 2019A Annual Loans Facilitated(2) 15+ Years of Proprietary Data +300 Active Automotive Lenders(4) ~$250bn 2018 Underlying Addressable Market(3) Introduction to Open Lending 2m+ Unique Risk Profiles 50%+ 2019A EBITDA margin Revenue CAGR calculated using midpoint of high and low 2021 revenue estimates Reflects actual loans through December. Source: Experian, New York Federal Reserve. Active automotive lender is defined as an automotive lender that issued at least one insured loan in the previous quarter.
490 770 630 560 700 Credit Score Banks / OEMs Credit Unions Finance Companies Buy-Here Pay-Here Lender Type Massive, Underserved Population ~$250bn 2018 Underserved Auto Loan Opportunity(1) Open Lending Enables Banks, Credit Unions, OEM Captives and Other Financial Institutions to Profitably Lend to Traditionally Underserved Near-Prime Borrowers Open Lending empowers its bank, credit union, and OEM captive customers to profitably lend to consumers with credit scores between 560 and 699. Note: Graph is illustrative.
Driving Value Creation Across the Entire Ecosystem Insurers Consumers Lenders Dealers OEMs More Customers Higher Loan Volumes CECL Relief Lower Risk Customer Satisfaction & Retention Increased ROA Increased Sales Customer Satisfaction More Financing Options Higher Retention Increased Car Sales Optimized Sales Process Better Financing Options Quicker Underwriting More Approvals Higher Loan Amounts Better Rates Appropriate Down Payments Top-Line Growth Diversified Risk Consistent Flow Increased ROE
Compelling Investment Thesis Intact Visionary management team with deep domain expertise, selectively growing already strong team Large financial commitment to transaction even more relevant today Experienced Management Team 5 Expanding and underserved market opportunity with strong secular drivers with <1% share(1) Opportunity to accelerate market share gains as credit unions prove resilience Currently ~$250bn underlying market with current solution; expanding market as consumers enter near prime Substantial Market Opportunity 1 53% 2019A to 2021E Cert CAGR, $125-168m 2021E EBITDA, 69.9% 2019 Adjusted EBITDA(4) margin Base of over 300 active automotive lenders(5) lenders with 100%+ net retention(6) Compelling Financial Profile 6 ~$1,160 revenue per loan on Lenders Protection Program(2) without taking any balance sheet risk(3) Considerable barriers to entry; 15+ years of proprietary data and 5-second underwriting decisions Lack of consumer acquisition and distribution costs increasingly relevant Attractive Business Model 2 New customer growth and penetration expected to outweigh impact of slower economic growth Near-term drivers of attainable growth, guidance does not reflect potential OEM upside Significant Growth Opportunities 3 Lending partners offer low cost solution in a large market, business model with no loss exposure Compelling solution for lenders seeking to mitigate risk during uncertain market conditions Historically recessions have seen a net increase in near prime consumers, increasing the addressable market Resilient Model Through Cycles 4 Based on $1.76bn loans facilitated in 2019, out of underlying TAM of $250bn of annual near-prime auto lending. The Lenders Protection Program (which we commonly refer to as “Lenders Protection”) , prior to impacts of COVID or other temporary adjustments Based on ~$23k average loan amount, consistent with Open Lending enabling loans. Represents illustrative unit economics for credit union, bank and OEM customers based on 2019, prior to impacts of COVID or other temporary adjustments. EBITDA reconciliation of net income to consolidated adjusted EBITDA on page 14 Active automotive lender is defined as an automotive lender that issued at least one insured loan in the previous quarter. Based on net retention over last 4 years, where each year had over 100% net retention
Financial & Business Update
Attractive Fee and Profit Share Revenue Model Monthly Payments Insurance Premium Default Protection Proprietary Score – All-in Rate for Borrower Access to Credit Premium Growth, Uncorrelated Risk Program Fee Admin Fee Profit Share (~$626) (2) Fixed % of the monthly underwriting profit for all lenders Recognized upfront and received from carrier over the term of the loan Program Fee (~$470) (1) Fee based on the initial loan amount Recognized upfront and for majority of loans is paid upfront Administration Fee (~$65) Fixed % fee of monthly earned insurance premium Paid monthly over the life of the loan 1 2 3 1 3 2 Lenders Insurers Consumers Today, Open Lending Generates ~$1,160 in revenue per Loan(1) on Average Comprised of Program Fee, Admin Fee and Insurance Profit Share Profit Share Direct model shown above. For indirect model, dealers interact with consumer. Based on 2019 numbers. Based on ~$23k average loan amount, consistent with Open Lending enabling loans. Represents illustrative unit economics for credit union, bank and OEM customers based on 2019, prior to impacts of COVID or other temporary adjustments.
Financial Highlights Q2 2020 Total Certs 18,684 Revenue ($mm) $22.1 million Adj. EBITDA ($mm) $15.4 million Adj. Operating Cash Flow1 ($mm) $11.1 million (1) Defined as Adj. EBITDA, minus CAPEX, plus or minus change in contract assets
Recent Accomplishments Swift Response to Challenged Economic Environment Open Lending and Partners Strongly Positioned Implemented changes to underwriting model – largely took effect by April 1 Tightened underwriting standards and increased premiums(1) Enhanced focus on Refinance Program to drive additional cert volume Credit union and bank lenders are well capitalized and expected to have ample liquidity Insurers modestly impacted relative to other industries and anticipating profitability through 2020 Low interest rate environment, traditional lenders retrenching, and commuters shifting away from public modes of transportation are driving positive trends Partnered with 17 new refinance lenders in Q2 Added 28 customers in the first six months of 2020; 11 new lender contracts executed in Q2 12 active implementations with “go live” dates in the next 60 days, which is projected to produce approximately 4,000 certified loans annually, once fully implemented New credit union partnerships such as GreenState Credit Union, US Eagle Federal Credit Union and Clark Country Credit Union. Premium increase via model change involving vehicle values that results effectively results in higher premiums Q2 Update Company Highlights Closed the business combination with Nebula Acquisition Corp. on June 10, 2020 LPRO began trading on the Nasdaq Stock Market on June 11, 2020 Named a winner of NAFCU (National Association of Federally-Insured Credit Unions) Services’ 2020 Innovation Awards
Growth Plan Expand Core Business 1 OEM Opportunity 2 CECL Relief 3 Launch into New Channels 4 Broaden Our Offerings 5
Q2 2020 Key Performance Indicators Effective January 1, 2019, the Company adopted ASC 606 which requires us to recognize the full amount of profit share revenue up front. This was not retroactively applied to prior periods and therefore 2018 and 2017 are not comparable.
Q2 2020 Financial Update
Appendix
Reconciliation of Net Income (Loss) to Consolidated Adjusted EBITDA Reflects non-cash charges for the change in the estimated fair value of contingent consideration earn-out shares from June 10 through June 30, 2020. Reflects transaction bonuses awarded to key employees and directors in connection with the business combination. Represents non-cash charges associated with the Class B Unit Incentive Plan of Open Lending, LLC. For the three months ended June 30, 2020 represents accelerated vesting of the legacy plan as result of the business combination.
Share Count Shares In millions Total Shares Outstanding at June 30, 2020 95.3 Contingent Consideration Shares Achieved 23.8 Total Shares Outstanding at August 10, 2020 119.1 Dilutive Effect of Public Warrants (1) (2) 3.4 Total Diluted Shares Outstanding 122.5 Calculated using the Treasury Stock Method which assumes cashless exercise by warrant holders utilizing the closing market price of our common stock on August 10, 2020 of $18.37. There are 9,166,659 warrants outstanding that have an exercise price of $11.50 per whole share. The Company may call the warrants for redemption: in whole and not in part; at a price of $0.01 per warrant; upon not less than 30 days' prior written notice of redemption to each warrant holder; and if, and only if, the reported last sale price of the common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-day trading period ending three business days before we send the notice of redemption to the warrant holders. Please see our effective Form S-1 Registration Statement for complete details.