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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________________
FORM 10-Q
_________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 001-39326
_________________________
OPEN LENDING CORPORATION
(Exact Name of Registrant as Specified in its Charter)
_________________________
Delaware
EIN 82-3008583
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1501 S. MoPac Expressway
Suite 450
Austin, Texas
78746
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (512) 892-0400
901 S. MoPac Expressway, Bldg. 1, Suite 510,
Austin, Texas 78746
(Former Name, Former Address and Former fiscal year, if Changed Since Last Report)
_________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange
on which registered
Common stock, par value $0.01 per shareLPROThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
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.   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of November 9, 2020, the registrant had 128,198,185 shares of common stock, $0.01 par value per share, outstanding.


Summary of the Material and Other Risks Associated with Our Business

Our results of operations and continued growth depend on our ability to retain existing, and attract new, automotive lenders, original equipment manufacturers, their captive finance companies (“OEM Captives") and other financial institutions (collectively “lending institutions”).
A large percentage of revenue for Open Lending is concentrated with Open Lending’s top ten automotive lenders, and the loss of one or more significant automotive lenders could have a negative impact on operating results.
Open Lending’s results depend, to a significant extent, on the active and effective adoption of the Lenders Protection Program ("LPP") by automotive lenders.
Open Lending has partnered with two major insurance carriers that underwrite and insure the loans generated using the LPP.
Open Lending’ financial condition and results of operations may be adversely affected by the impact of the global outbreak of the coronavirus.
Open Lending has experienced rapid growth, which may be difficult to sustain and which may place significant demands on its operational, administrative and financial resources.
If Open Lending experiences negative publicity, it may lose the confidence of automotive lenders and insurance carriers who use or partner with the LPP and Open Lending’s business may suffer.
Privacy concerns or security breaches relating to the LPP could result in economic loss, damage Open Lending’s reputation, deter users from using Open Lending products, and expose Open Lending to legal penalties and liability.
Changes in market interest rates could have an adverse effect on Open Lending’s business.
The loss of the services of Open Lending’s senior management could adversely affect Open Lending’s business.
Open Lending’s projections are subject to significant risks, assumptions, estimates and uncertainties. As a result, Open Lending’s projected revenues, market share, expenses and profitability may differ materially from our expectations. Open Lending is subject to federal and state consumer protection laws.
Open Lending’s industry is highly regulated and is undergoing regulatory transformation, which results in inherent uncertainty. Changing federal, state, and local laws, as well as changing regulatory enforcement policies and priorities, may negatively impact Open Lending’s business.
Open Lending’s management has limited experience in operating a public company.
We will incur significant increased expenses and administrative burdens as a public company, which could have an adverse effect on its business, financial condition and results of operations.
We may from time to time be subject to litigation and other claims.
Our ability to successfully operate the business will be largely depend upon the efforts of certain of our key personnel. The loss of such key personnel could negatively impact our operations and financial results.
Our principal stockholders and management control us and their interests may conflict with yours in the future.
We will be required to make payments under the Tax Receivable Agreement for certain tax benefits we may claim, and the amounts of such payments could be significant.


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OPEN LENDING CORPORATION
FORM 10-Q
TABLE OF CONTENTS
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PART I.    FINANCIAL INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “appears,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our financial performance;
the benefits of the Business Combination;
changes in our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans;
expansion plans and opportunities;
the impact of the relative strength of the overall economy, including its effect on unemployment, consumer spending and consumer demand for automotive products;
the growth in loan volume from OEM Captives relative to that of other automotive lenders, and associated concentration of risks;
the costs of services in absolute dollars and as a percentage of our program fee revenue;
general and administrative expenses in absolute dollars and as a percentage of revenue;
selling and marketing expenses in absolute dollars and as a percentage of program fee revenue;
research and development expenses in absolute dollars;
the impact of projected operating cash flows and available cash on hand on our business operations in the future;
the turnover in automotive lenders, as well as varying activation rates and volatility in usage of our LPP platform by automotive lenders;
the outcome of any known and unknown litigation and regulatory proceedings, including such legal proceeds that may be instituted in connection with the Business Combination and transactions contemplated thereby;
the ability to maintain the listing of our common stock on NASDAQ;
our ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition and our ability to grow and manage growth profitably;
expenses associated with Open Lending’s year-over-year growth as a result of demands on its operational, marketing, compliance and accounting infrastructure;
costs related to the Business Combination;
payments under the Tax Receivable Agreement;
regulatory agreements between Open Lending and state agencies regarding issues including automotive lender conduct and oversight and loan pricing;
changes in applicable laws or regulations; and
the effects of the COVID-19 pandemic on our business.
All forward-looking statements are based on information and estimates available to the Company at the time of this Quarterly Report on Form 10-Q and are not guarantees of future financial performance. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
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The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. You should not rely upon forward-looking statements as predictions of future events.
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OPEN LENDING CORPORATION
Consolidated Balance Sheets
(In thousands, except per share data)
September 30,
2020
December 31,
2019
(Unaudited) 
Assets
Current assets
Cash and cash equivalents$115,153 $7,676 
Restricted cash2,613 2,222 
Accounts receivable3,392 3,767 
Current contract assets27,814 29,782 
Prepaid expenses2,975 479 
Other current assets5,168 205 
Deferred transaction costs 1,081 
Total current assets157,115 45,212 
Property and equipment, net1,315 299 
Operating lease right-of-use assets, net5,853  
Non-current contract assets45,174 33,169 
Deferred tax asset, net85,269  
Other non-current assets181 506 
Total assets$294,907 $79,186 
Liabilities and stockholders’ equity (deficit)
Current liabilities
Accounts payable$2,283 $1,337 
Accrued expenses1,409 2,006 
Income tax payable544  
Current portion of notes payable4,675 2,484 
Other current liabilities4,220 2,366 
Total current liabilities13,131 8,193 
Long-term notes payable, net of unamortized debt issuance costs154,139 829 
Operating lease liabilities, net of current portion5,265  
Other long-term liabilities88,090  
Total liabilities$260,625 $9,022 
Commitment and contingencies
Redeemable convertible preferred Series C units, 0 and 14,278,603 units issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
 304,943 
Stockholders’ equity (deficit)
Preferred stock, $0.01 par value; 10,000,000 shares authorized and 0 shares issued as of September 30, 2020 and December 31, 2019, respectively
  
Common stock, $0.01 par value; 550,000,000 shares authorized and 126,919,572 issued and outstanding as of September 30, 2020; 110,000,000 shares authorized and 37,631,052 issued and outstanding as of December 31, 2019
1,269 376 
Additional paid-in capital476,403 7,626 
Accumulated deficit(443,390)(242,781)
Total stockholders’ equity (deficit)34,282 (234,779)
Total liabilities and stockholders’ equity (deficit)$294,907 $79,186 

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OPEN LENDING CORPORATION
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Revenue
Program fees
$10,087 $8,950 $31,592 $26,407 
Profit share
18,544 12,310 34,482 38,089 
Claims administration service fees
1,131 844 3,185 2,275 
Total revenue29,762 22,104 69,259 66,771 
Cost of services
2,496 1,923 6,818 5,517 
Gross profit
27,266 20,181 62,441 61,254 
Operating expenses
General and administrative
5,015 3,263 23,233 9,670 
Selling and marketing
2,118 1,810 5,491 5,455 
Research and development
579 291 1,286 869 
Operating income
19,554 14,817 32,431 45,260 
Change in fair value of contingent consideration
(83,130) (131,932) 
Interest expense
(3,572)(70)(7,980)(238)
Interest income
36 7 97 15 
Other income
 3 3 9 
Income (loss) before income taxes(67,112)14,757 (107,381)45,046 
Provision (benefit) for income taxes
4,021 41 5,385 (58)
Net income (loss) and comprehensive income (loss)
$(71,133)$14,716 $(112,766)$45,104 
Net income (loss) and comprehensive income (loss) per common share
Basic and diluted net loss per share$(0.62)$(1.25)$(1.56)$(1.78)
Weighted average basic and diluted shares of common stock outstanding115,189,532 37,631,052 67,828,046 37,631,052 

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OPEN LENDING CORPORATION
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(In thousands, except share and unit data)
(Unaudited)


Redeemable
Convertible Series C
Preferred
CommonSeries A and B
Preferred
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
UnitsAmountUnitsAmountUnitsAmountSharesAmountAmountAmountAmount
Balance as of June 30, 2020 $  $  $ 91,849,909 $918 $(92,912)$(372,257)$(464,251)
Stock warrant exercise— — — — — — 7,882,163 79 90,566 — 90,645 
Issuance of earn out shares— — — — — — 23,750,000 238 419,606 — 419,844 
Release of lock up shares— — — — — — 3,437,500 34 59,143 — 59,177 
Net loss
— — — — — — — — — (71,133)(71,133)
Balance as of September 30, 2020 $  $  $ 126,919,572 $1,269 $476,403 $(443,390)$34,282 
Redeemable
Convertible Series C
Preferred
CommonSeries A and B
Preferred
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
UnitsAmountUnitsAmountUnitsAmountSharesAmountAmountAmountAmount
Balance as of June 30, 2019, as originally reported21,906,852 $187,742 23,885,352 $6,550 29,058,266 $478  $ $ $(135,507)$(128,479)
Retroactive application of the recapitalization(7,628,249)— (23,885,352)(6,550)(29,058,266)(478)37,631,052 376 6,652 — — 
Balance as of June 30, 201914,278,603 187,742     37,631,052 376 6,652 (135,507)(128,479)
Fair value adjustment of redemption option in Open Lending, LLC convertible preferred stock— 58,601 — — — — — — — (58,601)(58,601)
Vesting of Open Lending, LLC share-based compensation plan— — — — — — — — 487 — 487 
Distribution to Open Lending, LLC unitholders— — — — — — — — — (10,195)(10,195)
Net income— — — — — — — — — 14,716 14,716 
Balance as of September 30, 201914,278,603 $246,343  $  $ 37,631,052 $376 $7,139 $(189,587)$(182,072)



















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OPEN LENDING CORPORATION
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(In thousands, except share and unit data)
(Unaudited)
Redeemable
Convertible Series C
Preferred
CommonSeries A and B
Preferred
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
UnitsAmountUnitsAmountUnitsAmountSharesAmountAmountAmountAmount
Balance as of December 31, 2019, as originally reported21,906,852 $304,943 25,381,873 $7,524 29,058,266 $478  $ $ $(242,781)$(234,779)
Retroactive application of the recapitalization(7,628,249)— (25,381,873)(7,524)(29,058,266)(478)37,631,052 376 7,626 — — 
Balance as of December 31, 2019, as adjusted14,278,603 304,943     37,631,052 376 7,626 (242,781)(234,779)
Fair value adjustment of redemption option in Open Lending, LLC convertible preferred stock— (47,537)— — — — — — — 47,537 47,537 
Distribution to Open Lending, LLC unitholders— — — — — — — — — (135,380)(135,380)
Recapitalization transaction, net of transaction costs(14,278,603)(257,406)— — — — 54,218,857 542 242,001 — 242,543 
Deferred tax asset— — — — — — — — 1,874 — 1,874 
Estimated fair value of contingent consideration at June 10, 2020— — — — — — — — (347,089)— (347,089)
Vesting of Open Lending, LLC share-based compensation plan— — — — — — — — 2,676 — 2,676 
Stock warrant exercise— — — — — — 7,882,163 79 90,566 — 90,645 
Issuance of earn out shares— — — — — — 23,750,000 238 419,606 — 419,844 
Release of lock up shares— — — — — — 3,437,500 34 59,143 — 59,177 
Net loss— — — — — — — — — (112,766)(112,766)
Balance as of September 30, 2020 $  $  $ 126,919,572 $1,269 $476,403 $(443,390)$34,282 
Redeemable
Convertible Series C
Preferred
CommonSeries A and B
Preferred
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
UnitsAmountUnitsAmountUnitsAmountSharesAmountAmountAmountAmount
Balance as of December 31, 2018, as originally reported21,906,852 $141,518 23,885,352 $5,540 29,058,266 $478  $ $ $(139,810)$(133,792)
Retroactive application of the recapitalization(7,628,249)— (23,885,352)(5,540)(29,058,266)(478)37,631,052 376 5,642 — — 
Balance as of December 31, 2018, as adjusted14,278,603 141,518     37,631,052 376 5,642 (139,810)(133,792)
ASC 606 Transition Adjustment
— — — — — — — — — 32,768 32,768 
Fair value adjustment of redemption option in Open Lending, LLC convertible preferred stock
— 104,825 — — — — — — — (104,825)(104,825)
Vesting of Open Lending, LLC share-based compensation plan
— — — — — — — — 1,497 — 1,497 
Distribution to Open Lending, LLC unitholders
— — — — — — — — — (22,824)(22,824)
Net income
— — — — — — — — — 45,104 45,104 
Balance as of September 30, 201914,278,603 $246,343  $  $ 37,631,052 $376 $7,139 $(189,587)$(182,072)
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OPEN LENDING CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
For the Nine Months Ended September 30,
20202019
Cash flows from operating activities
Net income (loss)$(112,766)$45,104 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Share-based compensation2,676 1,497 
Depreciation and amortization1,112 78 
Change in fair value of contingent consideration131,932  
Deferred income taxes4,683  
Changes in assets & liabilities:
Accounts receivable375 (828)
Contract assets(10,037)(16,871)
Operating lease right-of-use assets(523) 
Prepaid expenses(1,415)(293)
Other current and non-current assets
(2,002)(388)
Accounts payable946 (285)
Accrued expenses(597)829 
Income tax payable544  
Operating lease liabilities(280) 
Other liabilities1,727 295 
Net cash provided by operating activities16,375 29,138 
Cash flows from investing activities
Purchase of property and equipment(1,097)(66)
Net cash used in investing activities(1,097)(66)
Cash flows from financing activities
Repayments of notes payable(5,443)(1,863)
Proceeds from issuance of long-term debt, net of issuance costs160,233  
Distributions to Open Lending, LLC unitholders(135,380)(30,361)
Proceeds from stock warrant exercises88,042  
Recapitalization transaction, net of transaction costs(14,862) 
Net cash provided by (used in) financing activities92,590 (32,224)
Net change in cash and cash equivalents and restricted cash107,868 (3,152)
Cash and cash equivalents and restricted cash at the beginning of the period9,898 13,136 
Cash and cash equivalents and restricted cash at the end of the period$117,766 $9,984 
Supplemental disclosure of cash flow information:
Interest paid$7,209 $238 
Income tax paid (refunded), net158 (58)
Right-of-use assets obtained in exchange for lease obligations5,375 — 
Change in fair value of Open Lending, LLC redeemable convertible preferred units(47,537)104,825 
Conversion of preferred stock to common stock257,406  

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OPEN LENDING CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

1.    Description of Business, Background and Nature of Operations
Open Lending Corporation, headquartered in Austin, Texas, provides loan analytics, risk-based loan pricing, risk modeling, and automated decision technology for automotive lenders throughout the United States of America which allows each lending institution to book incremental non-prime automotive loans out of their existing business flow. The Company also operates as a third-party administrator that adjudicates insurance claims and refunds on those automotive loans.
Nebula Acquisition Corporation (“Nebula”), our predecessor, was originally incorporated in Delaware on October 2, 2017 as a special purpose acquisition company for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On June 10, 2020 (the “Closing Date”), Nebula consummated a business combination (the “Business Combination”) pursuant to that certain Business Combination Agreement, dated as of January 5, 2020 (as amended by that certain Amendment No. 1 and Waiver, dated as of March 18, 2020, that certain Amendment No. 2 and Consent, dated as of March 26, 2020, that certain Amendment No. 3, dated as of May 13, 2020, and that certain amendment No. 4, dated as of June 9, 2020, the “Business Combination Agreement”) by and among Nebula, Open Lending, LLC, a Texas limited liability company, BRP Hold 11, Inc., a Delaware corporation (“Blocker”), the Blocker’s sole stockholder, Nebula Parent Corp., a Delaware Corporation (“ParentCo”), NBLA Merger Sub LLC, a Texas limited liability company, NBLA Merger Sub Corp., a Delaware corporation, and Shareholder Representative Services LLC, a Colorado limited liability company, as the Securityholder Representative.
Immediately upon the completion of the Business Combination and the other transactions contemplated by the Business Combination Agreement (the “Transactions”, and such completion, the “Closing”), Open Lending, LLC became a wholly-owned subsidiary of ParentCo, and, ParentCo changed its name to Open Lending Corporation. The Company is now listed on NASDAQ under the symbol “LPRO”.
Unless the context otherwise requires, “we,” “us,” “our,” “Open Lending,” and the “Company” refers to Open Lending Corporation, the combined company and its subsidiaries following the Business Combination. “Open Lending, LLC” and “Nebula” refers to Open Lending, LLC and Nebula Acquisition Corporation prior to the Closing Date. Refer to Note 3 for further discussion on the Business Combination.
The Company has evaluated how it is organized and managed and has identified only one operating segment. All of the Company’s operations and assets are in the United States, and all of its revenues are attributable to United States customers.
2.    Summary of Significant Accounting and Reporting Policies and Recent Developments
The following is a summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements.
a)Unaudited interim financial statements
The accompanying consolidated balance sheet as of September 30, 2020, consolidated statements of operations and comprehensive income (loss) and consolidated statements of stockholders’ equity (deficit) for the three and nine months ended September 30, 2020 and 2019, respectively and consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019, respectively, are unaudited.
These financial statements have been prepared in accordance with the U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. However, they do not include all of the financial information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, the unaudited consolidated financial statements include all adjustments necessary for the fair presentation of the Company’s balance sheet as of September 30, 2020, and its results of operations, including its comprehensive income (loss), stockholders’ equity (deficit) for three and nine months ended September 30, 2020 and 2019, respectively, and its cash flows for the nine months ended September 30, 2020 and 2019, respectively. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending December 31, 2020. These unaudited interim consolidated financial statements should be read in
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OPEN LENDING CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
conjunction with the consolidated financial statements and related notes included in the Company’s definitive proxy statement filed with the Securities and Exchange Commission (the “SEC”) on May 22, 2020.
Certain prior year amounts, such as deferred transaction costs, have been reclassified to conform to the September 30, 2020 balance sheet presentation.
b)Basis of presentation
The Business Combination is accounted for as a reverse recapitalization as Open Lending, LLC was determined to be the accounting acquirer under Financial Accounting Standards Board’s Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). The determination is primarily based on the evaluation of the following facts and circumstances:
the pre-combination unitholders of Open Lending, LLC hold the majority of voting rights in the Company;
the pre-combination unitholders of Open Lending, LLC have the right to appoint the majority of the directors of the Company;
senior management of Open Lending, LLC became the senior management of the Company; and
operations of Open Lending, LLC comprise the ongoing operations of the Company.
In connection with the Business Combination, all outstanding units of Open Lending, LLC were converted into common stock of the Company, par value $0.01 per share, representing a recapitalization, and the net assets of Nebula were acquired at historical cost, with no goodwill or intangible assets recorded. Open Lending, LLC was deemed to be the predecessor of the Company, and the consolidated assets and liabilities and results of operations prior to the Closing (for the year ended December 31, 2019 and the quarter ended March 31, 2020 and 2019) are those of Open Lending, LLC. The shares and corresponding capital amounts and net income (loss) per share available to common stockholders, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination Agreement. The number of Series C preferred units in mezzanine equity was also retroactively restated in shares reflecting the exchange ratio, and the carrying amount of the Series C Preferred Units is based on the fair value of its redemption amount on each reporting date. All Series C Preferred Units were converted to the Company’s common stock on the closing date of the Business Combination.
c)Principles of consolidation
The accompanying financial statements include the accounts of the Company and all its subsidiaries that are directly or indirectly owned or controlled by the Company. Intercompany transactions and balances have been eliminated upon consolidation.
d)Coronavirus outbreak
The outbreak of the novel coronavirus (“COVID-19”) that was declared a pandemic by the World Health Organization on March 11, 2020 and declared a National Emergency by the President of the United States on March 13, 2020, has led to adverse impacts on the U.S. and global economies and created uncertainty regarding potential impacts on our operating results, financial condition and cash flows. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on certain developments, including the duration and continued spread of the disease, the impact on our revenues which are generated with automobile lenders and insurance company partners and driven by consumer demand for automobiles and automotive loans, extended closures of businesses, rising unemployment and the overall impact on our customer behavior, all of which are uncertain and cannot be predicted. We are diligently working to ensure that we can continue to operate with minimal disruption, mitigate the impact of the pandemic on our employees’ health and safety, and address potential business interruptions on ourselves and our customers. We believe that the COVID-19 pandemic, the mitigation efforts and the resulting economic impact have had, and may continue to have, an overall adverse effect on our business, results of operations and financial condition. Although we have experienced increased demand for our service offerings, we could have a reduction or a slowdown of growth in loan applications and certified loans and potential increased defaults in future periods, which will impact our revenues and subsequent recovery as the automotive finance industry and overall economy recover. We continue to
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OPEN LENDING CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
closely monitor the current macro environment, particularly the impact of the recent COVID-19 pandemic on monetary and fiscal policies.
e)Emerging growth company
The Company is an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act (“JOBS Act”). As such, the Company is eligible for and intends to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as it continues to be an emerging growth company, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements.
The Company will remain an emerging growth company until the earliest of (i) the Company is deemed to be a large accelerated filer, which occurs, among other things, on the last day of the fiscal year in which the market value of the shares of its common stock that are held by non-affiliates exceeds $700.0 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which it has total annual gross revenue of $1.07 billion or more during such fiscal year, (iii) the date on which it has issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the first sale of its common stock in its initial public offering.
f)Concentration of credit risk
Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, restricted cash and accounts receivable to the extent of the amounts recorded on the balance sheets.

Cash and cash equivalents are deposited in commercial analysis and savings accounts at two financial institutions, both with high credit standing. Restricted cash relates to funds held by the Company on behalf of the insurance carriers, delegated for the use of insurance claim payments. Restricted cash are deposited in commercial analysis accounts at one financial institution. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurance limits of $250,000 per institution. The Company has not experienced any losses on its deposits of cash and cash equivalents and management believes the Company is not exposed to significant risks on such accounts.

The Company’s accounts receivables are derived from revenue earned from customers. The Company performs credit evaluations of its customers’ financial condition. As of September 30, 2020 and December 31, 2019, there was no allowance for doubtful accounts. At September 30, 2020, the Company had no customers accounting for 10% or more of the Company’s accounts receivable. At December 31, 2019, the Company had one customer that represented 22% of the Company’s accounts receivable.
g)Use of estimates and judgements
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates, and those differences may be material. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively.
The most significant items subject to such estimates and assumptions include, but are not limited to, the recognition of the valuations of share-based compensation arrangements, valuation of contingent consideration, valuation of interest rate swaps, the useful lives of property and equipment, assessing the realizability of deferred tax assets, credit losses, profit share revenue recognition, and assumptions used in the recognition of contract asset. These estimates, although based on actual historical trend and modeling, may potentially show significant variances over time.
In connection with profit share revenue recognition and the estimation of contract asset under Accounting Standards Update (“ASU”) 2014-9, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), we use forecasts of loan-level earned premium and insurance claim payments. These forecasts are driven by the projection of loan defaults,
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OPEN LENDING CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
prepayments and default severity rates. These assumptions are based on our observations of the historical behavior for loans with similar risk characteristics. The assumptions also take consideration of the forecast adjustments under various macroeconomic conditions, including the potential impact from the COVID-19 pandemic, and the current mix of the underlying portfolio of our insurance partners. As the Company closely monitors the development of the pandemic and its ongoing impact on Open Lending's business, management has accordingly adjusted these assumptions during the first nine months of 2020 as a result of changes in facts and circumstances and general market conditions derived from the COVID-19 pandemic.
h)Income taxes
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax laws and rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured as the largest amount that is greater than 50% likely of being realized.
The Company records potential interest and penalties related to an underpayment of income taxes as interest expense and penalties included within operating expenses in the consolidated statements of operations and comprehensive income.
i)Recently adopted accounting pronouncements
On January 1, 2020, we adopted ASU 2016-2, Leases (“Topic 842”) using the alternative modified retrospective transition method and elected practical expedients which allowed us to account for the lease and non-lease components as a single component. In addition, we elected not to reassess whether any expired or existing contracts contain leases, the corresponding lease classification and initial direct costs. The practical expedients were applied across our lease portfolios.
We recognized operating lease right-of-use (“ROU”) asset and operating lease liabilities for operating leases with initial terms greater than 12 months. ROU assets represent our right to use an asset for the lease term, while lease liabilities represent our obligation to make lease payments. Operating lease ROU assets and liabilities are recognized based on the present value of lease payments over the lease term at the lease commencement date. Refer to Note 4 Leases for the impact of Topic 842 on our consolidated financial statements.
j)Recently issued accounting pronouncements not yet adopted
In December 2019, the FASB released ASU 2019-12, which affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company does not expect adoption of the new standard to have a material impact on its consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement of credit losses on financial instruments. The new guidance replaces the incurred loss impairment methodology in the current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. This ASU will be effective for the Company commencing after December 15, 2022. The Company is in the process of assessing the impact of this ASU on our consolidated financial statements and disclosures.
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OPEN LENDING CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Although there are several other new accounting pronouncements issued or proposed by the FASB, which we have adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its consolidated financial position or results of operations.
3.    Business Combination
On June 10, 2020, Nebula consummated a business combination with Open Lending, LLC pursuant to the Business Combination Agreement. Pursuant to ASC 805, for financial accounting and reporting purposes, Open Lending, LLC was deemed the accounting acquirer and Nebula was treated as the accounting acquiree, and the Business Combination was accounted for as a reverse recapitalization. Accordingly, the Business Combination was treated as the equivalent of Open Lending, LLC issuing equity for the net assets of Nebula, accompanied by a recapitalization. Under this method of accounting, the consolidated financial statements of Open Lending, LLC are the historical financial statements of Open Lending Corporation. The net assets of Nebula were stated at historical costs, with no goodwill or other intangible assets recorded in accordance with U.S. GAAP, and are consolidated with Open Lending, LLC’s financial statements on the Closing Date. The shares and net income (loss) per share available to holders of the Company’s common stock, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination Agreement.
As a result of the Business Combination, Open Lending, LLC’s unitholders received aggregate consideration of approximately $1.0 billion, which consists of (i) $328.8 million in cash at the closing of the Business Combination, net of transaction expenses, (ii) $135.0 million in cash distribution from debt issued in March 2020, and (iii) 51,909,655 shares of common stock valued at $10.00 per share, totaling $519.1 million. In addition, Open Lending, LLC’s unitholders are entitled to receive additional contingent consideration of up to an aggregate of 22,500,000 shares if the price of the Company’s common stock trading on the NASDAQ meets certain thresholds following the Business Combination. All contingent consideration shares were issued or released during the three months ended September 30, 2020. See Note 7 Contingent Consideration for additional information.
In connection with the Business Combination, the Company incurred direct and incremental costs of approximately $55.5 million related to the equity issuance, consisting primarily of investment banking, legal, accounting and other professional fees, which were recorded to additional paid-in capital as a reduction of proceeds. In addition, the Company incurred $9.1 million in transaction bonuses paid to key employees and directors and $2.2 million in non-cash share-based compensation expense due to the accelerated vesting of Open Lending, LLC’s legacy share-based compensation plan. The transaction bonuses and share-based compensation are included in general and administrative expense on our consolidated statement of operations and comprehensive income (loss) for nine months ended September 30, 2020. See Note 9 Share-Based Compensation for additional information.
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OPEN LENDING CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)


4. Leases

The Company determines if an arrangement is a lease, or contains a lease, at the inception of the arrangement and evaluates whether the lease is an operating lease or a finance lease at the commencement date. The Company recognizes ROU assets and lease liabilities for operating and finance leases with initial terms greater than 12 months. ROU assets represent our right to use an asset for the lease term, while lease liabilities represent our obligation to make lease payments. The ROU assets for operating and finance leases and liabilities are recognized based on the present value of lease payments over the lease term at the lease commencement date. Since the interest rate implicit in the Company's leases is not readily determinable, we use our incremental borrowing rate, which is estimated as the interest rate paid to borrow on a collateralized basis over a similar term, to determine the present value of our lease payments.

Operating lease ROU assets are recognized net of any lease prepayments and incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term.

Open Lending executed a noncancellable operating lease agreement with G&I VII Barton Skyway, LP, a Delaware limited partnership (“Landlord”) to lease its current office space located at 1501 South MoPac Expressway, Suite 450, Austin, Texas 78746 for a period of 100 months starting on October 1, 2020. The Company moved into the new office space on September 1, 2020, which is considered as the lease commencement date under ASC 842. The Company does not have a lease payment due until four months after the stated commencement date per the agreement. The lease provides us with an extension option for a period of 60 months beyond the end of the initial term, subject to specific conditions outlined in the agreement. Prior to its move-in to the new office, the Company had an operating lease agreement for its office space at 901 S. MoPac Expressway, Bldg. 1, Suite 510, Austin, Texas 78746, which ended on September 30, 2020.

The Company recorded $0.2 million and $0.6 million of operating lease expense for the three and nine months ended September 30, 2020 and $0.2 million and $0.5 million of operating lease expense during the three and nine months ended September 30, 2019.

Additional information related to the operating leases follows:
Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
(in thousands)
Cash paid for operating leases included in operating cash flows$628 $803 
Operating lease ROU assets obtained in exchange for new lease liabilities5,375 5,375 
Total$6,003 $6,178 
Weighted-average remaining lease term – operating lease (in years) 8.428.42
Weighted-average discount rate – operating lease7.72 %7.72 %














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OPEN LENDING CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)






The balance of our operating lease ROU assets and liabilities as of September 30, 2020 is summarized below. The current and non-current lease liabilities are reflected in other current liabilities and operating lease liabilities, net of current portion, respectively, on our     consolidated balance sheets:


At September 30, 2020
(in thousands)
Operating lease right-of-use asset$5,898 
Accumulated amortization$(45)
Net operating lease right-of-use assets$5,853 
Lease liability, current$144 
Lease liability, non-current$5,265 
Total operating lease liability$5,409 

The maturities of lease liabilities are as follows:

At September 30, 2020
(in thousands)
2020 (Remainder)$ 
2021774 
2022869 
2023894 
2024920 
Thereafter4,018 
Total undiscounted liabilities7,475 
Less: Interest2,066 
Present value of lease liabilities$5,409 




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OPEN LENDING CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
5.    Notes Payable
The Company is the borrower under that certain Credit Agreement, dated as of March 11, 2020, among Open Lending, LLC, UBS AG, Stamford Branch, as administrative agent, the lenders from time to time party thereto and the other parties thereto, as amended, the Credit Agreement (the “Credit Agreement”). Pursuant to the Credit Agreement, the lenders thereto funded a term loan (“Term Loan”) in a principal amount of $170.0 million, which was used primarily to fund a non-liquidation distribution to its unitholders and provide cash reserves. The current maturity date for the Credit Agreement is March 2027. The term loan bears interest at a rate of LIBOR plus 6.50% (subject to a LIBOR floor of 1%) or the base rate plus 5.50%. For the three months ended September 30, 2020, the effective interest rate was 7.50%. The Credit Agreement contains a maximum total net leverage ratio financial covenant that is tested quarterly and is calculated based on the ratio of the Company’s Adjusted EBITDA (as defined in the Credit Agreement) to funded indebtedness. The maximum total net leverage ratio begins at 4.75 to 1.0 and then gradually decreases from year-to-year down to 2.5 to 1.0 on or after June 30, 2026.
The Company’s outstanding Notes Payable consists of the following:
September 30,
2020
December 31,
2019
(in thousands)
Notes payable$ $3,334 
Term loan due 2027167,875  
Less: debt issuance costs(9,061)(21)
Less: current portion of notes payable(4,675)(2,484)
Long-term notes payable, net of debt issuance costs$154,139 $829 
As of September 30, 2020, the Company was in compliance with the debt covenants contained in the Credit Agreement.
6.    Stockholders’ Equity (Deficit)
On June 11, 2020, Open Lending Corporation’s common stock began trading on the NASDAQ under the symbol “LPRO”. Pursuant to the terms of the Amended and Restated Certificate of Incorporation, the Company is authorized and has available for issuance the following shares and classes of capital stock, each with a par value of $0.01 per share: (i) 550,000,000 shares of common stock; (ii) 10,000,000 shares of preferred stock. Immediately following the Business Combination, there were 91,849,909 shares of common stock with a par value of $0.01, and 9,166,659 warrants outstanding. As discussed in Note 3 Business Combination, the Company has retroactively adjusted the shares issued and outstanding prior to June 10, 2020 to give effect to the exchange ratio established in the Business Combination Agreement to determine the number of shares of common stock into which they were converted.
In connection to the Business Combination, on July 1, 2020, the Company filed a Registration Statement on Form S-1 to register 52,916,659 shares of common stock for the issuance by the Company of (i) up to an aggregate of 23,750,000 shares of our common stock that may be issued as earn-out consideration upon certain triggering events and (ii) 9,166,659 shares of our common stock that may be issued upon exercise of warrants to purchase common stock at an exercise price of $11.50 per share of common stock, herein referenced as public warrants.
Common stock
In conjunction with the Business Combination, Nebula obtained commitments from certain investors (collectively, the “PIPE Investors”) to purchase shares of Nebula Class A common stock, which were converted into 20,000,000 Private Investment in Public Entity (“PIPE”) shares for a purchase price of $10.00 per share. Of the 20,000,000 PIPE shares, 11,500,000 shares are held by other institutional investors and 8,500,000 shares are held by Nebula Holdings, LLC and its affiliates. On the Closing Date, the Company had 91,849,909 shares of common stock outstanding, which excluded 3,437,500 shares issued and outstanding that were subject to certain lock-up and forfeiture arrangements pursuant to the Founder Support Agreement, dated as of January 5, 2020 (as amended by that certain Amendment No.1, dated March 18, 2020, and that certain Amendment No.2, dated May 13, 2020), by and among Nebula, ParentCo, Open Lending, LLC, Nebula Holdings, LLC, Adam H. Clammer, James H. Greene, Jr ., Rufina Adams, David Kerko, Frank Kern, James C. Hale and Ronald Lamb.
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OPEN LENDING CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
During the three months ended September 30, 2020, the Company issued a total of 31,632,163 shares of common stock related to contingent consideration and exercised warrants, and released 3,437,500 shares of common stock from lock-up restrictions as further detailed below. The following summarizes the Company’s common stock outstanding on the Closing Date of the Business Combination as compared to September 30, 2020:
At the Closing DateAt September 30, 2020
Shares%Shares%
Open Lending, LLC unitholders51,909,65556%74,409,65559%
Public stockholders16,502,75418%24,384,91719%
Nebula Holdings, LLC and its affiliates11,937,50013%16,625,00013%
PIPE Investors11,500,00013%11,500,0009%
Total91,849,909100%126,919,572100%
Preferred Stock
As of December 31, 2019, Open Lending, LLC had 29,058,266 shares of no par value Series A and Series B preferred units outstanding and 21,906,852 shares of redeemable convertible Series C preferred units, all of which were convertible on a 1:1 basis with Open Lending, LLC common units. Upon the Closing, the preferred units outstanding were converted into common stock of the Company at the exchange rate established in the Business Combination Agreement, par value $0.01 per share.
Public Warrants
Upon the Closing, there were 9,166,659 outstanding public warrants to purchase shares of the Company’s common stock that were issued by Nebula with other consideration prior to the Business Combination. The warrants were set to expire on June 10, 2025, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.

Each whole warrant entitled the holder to purchase one whole share of the Company’s common stock at a price of $11.50 per share, subject to adjustments. The warrants were exercisable 30 days after the completion of the Business Combination. Once the public warrants became exercisable, the Company had the right to redeem the outstanding warrants in whole and not in part at a price of $0.01 per warrant (the "Redemption Price") upon a minimum of 30 days’ prior written notice of redemption, if and only if the last sale price of the Company’s common stock matched or exceeded $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sent the notice of redemption to the warrant holders ("Redemption Right").

On September 11, 2020, the Company provided notice of redemption that all public warrants may be exercised by the holders thereof until 5:00 p.m. New York City time on October 13, 2020 (the "Redemption Date"). Any public warrants that remained unexercised following 5:00 p.m. New York City time on October 13, 2020 would no longer be exercisable and would be redeemed by the Company at the Redemption Price.

In the three months ended September 30, 2020, 7,882,163 public warrants were exercised from which the Company received $88.0 million in cash proceeds and recorded $2.6 million in other current assets related to funds received in October 2020. Subsequent to September 30, 2020 and prior to the Redemption Date, an additional 1,278,613 public warrants were exercised, from which the Company received an additional $14.7 million in cash proceeds. See Note 15 Subsequent Events for additional information.

Dividend
Any decision to declare and pay dividends in the future will be made at the sole discretion of Open Lending Corporation’s Board of Directors and will depend on, among other things, results of operations, cash requirements, financial condition, contractual restrictions and other factors that Open Lending Corporation’s Board of Directors may deem relevant. In addition, the Company’s ability to pay divi