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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, 2021
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
https://cdn.kscope.io/2a49fd6d42f52b7248cd813abe1fc965-lpro-20210930_g1.jpg
OPEN LENDING CORPORATION
(Exact Name of Registrant as Specified in its Charter)

Delaware
84-5031428
(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

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 10, 2021, the registrant had 126,190,351 shares of common stock, $0.01 par value per share, outstanding.





OPEN LENDING CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Page



Table of Contents
PART I.    FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
OPEN LENDING CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except share data)
September 30, 2021
December 31, 2020
 
Assets
Current assets
Cash and cash equivalents$90,864 $101,513 
Restricted cash2,896 2,635 
Accounts receivable6,874 4,352 
Current contract assets60,739 50,386 
Prepaid expenses3,436 1,873 
Other current assets753 2,018 
Total current assets165,562 162,777 
Property and equipment, net2,664 1,201 
Operating lease right-of-use assets, net5,328 5,733 
Non-current contract assets53,523 38,956 
Deferred tax asset, net66,042 85,218 
Other non-current assets124 124 
Total assets$293,243 $294,009 
Liabilities and stockholders’ equity
Current liabilities
Accounts payable$1,430 $3,442 
Accrued expenses7,361 3,033 
Income tax payable1,107 1,640 
Current portion of debt3,125 4,888 
Other current liabilities4,027 4,005 
Total current liabilities17,050 17,008 
Long-term debt, net of deferred financing costs143,828 152,859 
Non-current operating lease liabilities4,775 5,138 
Tax receivable agreement liability 92,369 
Other non-current liabilities 13 
Total liabilities$165,653 $267,387 
Commitment and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding
  
Common stock, $0.01 par value; 550,000,000 shares authorized, 128,198,185 shares issued and 126,190,351 shares outstanding as of September 30, 2021 and 128,198,185 shares issued and 126,803,096 shares outstanding as of December 31, 2020
1,282 1,282 
Additional paid-in capital493,972 491,246 
Accumulated deficit(310,164)(428,406)
Treasury stock at cost, 2,007,834 shares at September 30, 2021 and 1,395,089 at December 31, 2020, respectively
(57,500)(37,500)
Total stockholders’ equity127,590 26,622 
Total liabilities and stockholders’ equity$293,243 $294,009 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

Table of Contents
OPEN LENDING CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited, in thousands, except share data)

Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue
Program fees$21,638 $10,087 $57,146 $31,592 
Profit share35,447 18,544 102,019 34,482 
Claims administration and other service fees1,807 1,131 4,860 3,185 
Total revenue58,892 29,762 164,025 69,259 
Cost of services
6,380 2,496 13,882 6,818 
Gross profit
52,512 27,266 150,143 62,441 
Operating expenses
General and administrative7,197 5,015 23,790 23,233 
Selling and marketing3,308 2,118 8,659 5,491 
Research and development1,268 579 2,632 1,286 
Operating income
40,739 19,554 115,062 32,431 
Interest expense(959)(3,572)(5,370)(7,980)
Interest income35 36 177 97 
Gain on extinguishment of tax receivable agreement  55,422  
Loss on extinguishment of debt  (8,778) 
Change in fair value of contingent consideration (83,130) (131,932)
Other income (expense)3  (130)3 
Income (loss) before income taxes39,818 (67,112)156,383 (107,381)
Provision for income taxes10,404 4,021 38,141 5,385 
Net income (loss) and comprehensive income (loss)$29,414 $(71,133)$118,242 $(112,766)
Preferred distribution to redeemable convertible Series C preferred units   (40,689)
Accretion to redemption value of redeemable convertible Series C preferred units   47,537 
Net income (loss) attributable to common stockholders$29,414 $(71,133)$118,242 $(105,918)
Net income (loss) and comprehensive income (loss) per common share
Basic$0.23 $(0.62)$0.94 $(1.56)
Diluted$0.23 $(0.62)$0.94 $(1.56)
Weighted average common shares outstanding
Basic126,190,351 115,189,532 126,405,822 67,828,046 
Diluted126,247,499 115,189,532 126,451,119 67,828,046 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4

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


Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Treasury StockTotal
Stockholders’
Equity
SharesAmountAmountAmountSharesAmountAmount
Balance as of December 31, 2020128,198,185 $1,282 $491,246 $(428,406)(1,395,089)$(37,500)$26,622 
Share-based compensation— — 701 — — — 701 
Net income— — — 12,862 — — 12,862 
Balance as of March 31, 2021128,198,185 $1,282 $491,947 $(415,544)(1,395,089)$(37,500)$40,185 
Share-based compensation— — 927 — — — 927 
Share repurchase— — — — (612,745)(20,000)(20,000)
Net income— — — 75,966 — — 75,966 
Balance as of June 30, 2021128,198,185 $1,282 $492,874 $(339,578)(2,007,834)$(57,500)$97,078 
Share-based compensation— — 1,098 — — — 1,098 
Net income— — — 29,414 — — 29,414 
Balance as of September 30, 2021128,198,185 $1,282 $493,972 $(310,164)(2,007,834)$(57,500)$127,590 


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


Redeemable
Convertible Series C
Preferred Units
Common UnitsSeries A and B
Preferred Units
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
 (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— (47,537)— — — — — — — 47,537 47,537 
Share-based compensation— — — — — — — — 487 — 487 
Distribution to Open Lending, LLC unitholders— — — — — — — — — (135,380)(135,380)
Net income— — — — — — — — — 8,172 8,172 
Balance as of March, 31 202014,278,603 $257,406  $  $ 37,631,052 $376 $8,113 $(322,452)$(313,963)
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)
Share-based compensation— — — — — — — — 2,189 — 2,189 
Net loss— — — — — — — — — (49,805)(49,805)
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 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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OPEN LENDING CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)

Nine Months Ended September 30,
20212020
Cash flows from operating activities
Net income (loss)$118,242 $(112,766)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Share-based compensation2,726 2,676 
Depreciation and amortization829 787 
Non-cash operating lease cost405 325 
Gain on extinguishment of tax receivable agreement(55,422) 
Loss on extinguishment of debt8,778  
Change in fair value of contingent consideration 131,932 
Deferred income taxes19,176 4,683 
Changes in assets & liabilities:
Accounts receivable(2,522)375 
Contract assets(24,920)(10,037)
Operating lease right-of-use assets (523)
Prepaid expenses(1,563)(1,415)
Other current and non-current assets1,265 (2,002)
Accounts payable(2,012)946 
Accrued expenses4,328 (597)
Income tax payable/receivable(533)544 
Operating lease liabilities(558)(280)
Other current and non-current liabilities204 1,727 
Net cash provided by operating activities68,423 16,375 
Cash flows from investing activities
Purchase of property and equipment(1,785)(1,097)
Net cash used in investing activities(1,785)(1,097)
Cash flows from financing activities
Proceeds from term loans125,000 170,000 
Proceeds from revolving facility50,000  
Payments on term loans(168,409)(5,443)
Payments on revolving facility(25,000) 
Payment of deferred financing costs(1,669)(9,767)
Share repurchase(20,000) 
Settlement of tax receivable agreement(36,948) 
Distributions to Open Lending, LLC unitholders (135,380)
Proceeds from stock warrant exercises 88,042 
Recapitalization transaction, net of transaction costs (14,862)
Net cash (used in) provided by financing activities(77,026)92,590 
Net change in cash and cash equivalents and restricted cash(10,388)107,868 
Cash and cash equivalents and restricted cash at the beginning of the period104,148 9,898 
Cash and cash equivalents and restricted cash at the end of the period$93,760 $117,766 
Supplemental disclosure of cash flow information:
Interest paid$4,545 $7,209 
Income tax paid, net19,397 158 
Right-of-use assets obtained in exchange for lease obligations 5,375 
Non-cash investing and financing:
Change in fair value of redeemable convertible Series C preferred units (47,537)
Conversion of preferred stock to common stock 257,406 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 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, which allows each lending institution to book incremental near-prime and 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”), the Company’s 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.
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.
Note 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 condensed consolidated financial statements.
a)Basis of presentation and consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and include the accounts of Open Lending and all its subsidiaries that are directly or indirectly owned or controlled by the Company. All intercompany transactions and balances have been eliminated upon consolidation.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted from these condensed consolidated financial statements, as permitted by Securities and Exchange Commission (“SEC”) rules and regulations. The Company believes the disclosures made in these condensed consolidated financial statements are adequate to make the information herein not misleading. The Company recommends that these condensed consolidated financial statements should be read in conjunction with its audited consolidated financial statements and related notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2020.
The interim data includes all adjustments, consisting only of normal recurring adjustments, that are, in the opinion of the Company’s management, necessary for a fair statement of the results for the interim periods presented. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the Company’s operating results for the entire fiscal year ending December 31, 2021.
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 (“FASB”) Accounting Standards Codification Topic
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
805, Business Combinations (“ASC 805”). The determination was primarily based on the evaluation of the following facts and circumstances:
the pre-combination unitholders of Open Lending, LLC held the majority of voting rights in the Company;
the pre-combination unitholders of Open Lending, LLC had 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 are those of Open Lending, LLC. The shares and corresponding capital amounts and net income 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.
b)COVID-19
The COVID-19 pandemic continues to create uncertainty regarding the U.S. and global economies and the Company’s operating results, financial condition and cash flows. The extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance depends on certain developments, including the duration and continued spread of variants of COVID-19; the impact on the Company’s 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, the effectiveness of the vaccine distribution program and the vaccines themselves; supply chain disruptions caused by the COVID-19 pandemic; unemployment levels and the overall impact on the Company’s customer behavior, all of which are uncertain and cannot be predicted. The Company is diligently working to ensure that it can continue to operate with minimal disruption, mitigate the impact of the pandemic on its employees’ health and safety, and address potential business interruptions on itself and its customers. The Company believes 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 its business, results of operations and financial condition. The Company saw a reduction in loan applications and certified loans throughout the majority of 2020. As consumers and lenders have adjusted to the pandemic, application and certification levels have increased in 2021. Lenders’ forbearance programs, government stimulus packages, extended unemployment benefits and other government assistance have resulted in a reduction in expected defaults since the onset of the pandemic. As these programs end, defaults may increase. The potential increase in defaults may impact revenues and subsequent recovery as the automotive finance industry and overall economy recover. The Company continues to closely monitor the current macro environment, particularly monetary and fiscal policies.
c)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,” as defined in the Securities Exchange Act of 1934, as amended, (ii) the last day of the fiscal year in
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 the Company’s common stock in the Company’s initial public offering. The Company expects to be deemed a large accelerated filer for filings due after January 1, 2022.
d)Concentrations of revenue and credit risks
The Company’s business relationships with its three insurance partners generated approximately 63% and 65% of the Company’s total revenue for each of the three and nine months ended September 30, 2021, respectively, with the top insurance partner accounting for approximately 63% of the total profit share revenue. In the event that one or more of the Company’s insurance partners or other significant customers terminate their relationships with the Company, or elect to utilize an alternative source to price its auto loans, the number of loans originated through the Lender’s Protection Platform (“LPP”) would decline, which would materially and adversely affect its business and, in turn, its revenue.
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 is 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, 2021 and December 31, 2020, there was no allowance for doubtful accounts. At September 30, 2021, the Company had one customer that represented 13% of the Company’s accounts receivable. At December 31, 2020, the Company had one customer that represented 19% of the Company’s accounts receivable.
e)Use of estimates and judgments
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed 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, profit share revenue recognition and the corresponding impact on contract assets, the recognition of the valuations of share-based compensation arrangements, and assessing the realizability of deferred tax assets. 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 assets under Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), the Company uses forecasts of loan-level earned premium and insurance claim payments. These forecasts are driven by the projection of loan defaults, prepayments and default severity rates. These assumptions are based on the Company’s observations of the historical behavior for loans with similar risk characteristics. The assumptions also take into consideration 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 the Company’s insurance partners. As the Company closely monitors the development of the pandemic and its ongoing impact on its business, management has accordingly adjusted these assumptions during the three and nine months ended September 30, 2021 as a result of changes in facts and circumstances and general market conditions derived from the COVID-19 pandemic.
f)Property and equipment
The Company's property and equipment balance primarily consists of furniture, fixtures and equipment used in the normal course of business, as well as leasehold improvements and computer software developed for internal use.
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
g)Recently adopted new accounting standards
On January, 1, 2021, the Company adopted 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 impact of the adoption of this standard was immaterial to the condensed consolidated financial statements.
On January 1, 2021, the Company adopted ASU 2018-15, Intangibles—Goodwill and Other—Internal—Use Software, Subtopic, 350-40, which provides guidance on a customer’s accounting for implementation costs incurred in a cloud-computing arrangement when hosted by a vendor. The guidance provides that, in a hosting arrangement that is a service contract, certain implementation costs should be capitalized and amortized over the term of the arrangement. The Company adopted this guidance using the prospective method. The impact of the adoption of this standard was immaterial to the condensed consolidated financial statements.
h)Recently issued accounting pronouncements not yet adopted
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. The Company expects to be deemed a large accelerated filer and no longer an emerging growth company effective December 31, 2021. Accordingly, the Company is in the process of assessing the impact of this ASU on its condensed consolidated financial statements and disclosures effective January 1, 2021.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform within Topic 848, which provides optional expedients and exceptions to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 for which an entity has elected certain optional expedients and are retained through the end of the hedging relationship. The amendments in this update also include a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. If elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions within the relevant ASC Topic or Industry Subtopic that contains the guidance that otherwise would be required to be applied. The amendments in this update were effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is evaluating the effect of ASU 2020-04 on the Company’s condensed consolidated financial statements.
Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has 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 the Company’s condensed consolidated financial position or results of operations.
Note 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 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 consisted of (i) $328.8 million in cash at the Closing, net of transaction expenses, (ii) $135.0 million in cash
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 received additional contingent consideration of 22,500,000 shares based on meeting certain thresholds following the Business Combination. All contingent consideration shares were issued or released during the third quarter of 2020.
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 in the second quarter of 2020. The transaction bonuses and share-based compensation were included in general and administrative expense on the Company’s consolidated statements of operations and comprehensive income (loss) during the second quarter of 2020. See Note 7—Share-Based Compensation for additional information.
Note 4—Debt
The following table provides a summary of the Company’s debt as of the dates indicated:
September 30, 2021December 31, 2020
(in thousands)
Revolving Facility, matures in 2026$25,000 $ 
Term Loan due 2026123,438  
Term Loan due 2027 166,813 
Less: unamortized deferred financing costs(1,485)(9,066)
Total debt146,953 157,747 
Less: current portion of debt(3,125)(4,888)
Total long-term debt, net of deferred financing costs$143,828 $152,859 
Term Loan due 2027
On March 11, 2020, the Company entered into a credit agreement with UBS A.G. as the administrative agent and the lenders from time to time party thereto (the “Credit Agreement”). Pursuant to the Credit Agreement, the lenders thereto funded a term loan (the “Term Loan due 2027”) in a principal amount of $170.0 million bearing an interest rate per annum of LIBOR plus 6.5% (subject to a LIBOR floor of 1%), with a maturity date in March 2027. The Term Loan due 2027 was retired by the Company paying off its outstanding principal and interest with proceeds from issuance of the Term Loan due 2026 and the Revolving Facility (both as defined below) in March 2021. The transaction was deemed as a debt extinguishment under ASC Topic 405-20, “Liabilities—Extinguishments of Liabilities,” and, accordingly, the Company recognized a non-cash debt extinguishment loss of $8.8 million, which was recorded under the caption loss on extinguishment of debt in the condensed consolidated statements of operations and comprehensive income during the nine months ended September 30, 2021. The loss on debt extinguishment was calculated as the difference between the carrying amount of the debt and the price paid to retire the debt, which primarily consisted of the write-off of the unamortized deferred financing costs related to the Term Loan due 2027.
New Credit Agreement—Term Loan due 2026 and Revolving Credit Facility
On March 19, 2021, the Company entered into a credit agreement with Wells Fargo Bank, N.A. as the administrative agent (the “New Credit Agreement”), pursuant to which the lenders thereto (i) funded a senior secured term loan in an aggregate principal amount of $125.0 million, maturing in March 2026 (the “Term Loan due 2026”) and (ii) committed to provide a $50.0 million senior secured revolving credit facility, including a $10.0 million letter of credit sub-facility, maturing in March 2026 (the “Revolving Facility”). The obligations of the Company under the Term Loan due 2026 and the Revolving Facility are guaranteed by all of the Company’s U.S. subsidiaries and are secured by substantially all of the assets of the Company and its U.S. subsidiaries, subject to customary exceptions.
Interest under the Term Loan due 2026 and the Revolving Facility are, at the option of the Company, either at an Alternate Base Rate (“ABR”) plus a spread ranging from 0.75% to 1.50%, or LIBOR plus a spread ranging from 1.75% to 2.50%. With respect to the ABR loans, interest will be payable at the end of each calendar quarter. With respect to the LIBOR loans, interest will be
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
payable at the end of the selected interest period. Additionally, there is a commitment fee payable at the end of each quarter at a rate per annum ranging from 0.200% to 0.275% based on the average daily unused portion of the Revolving Facility, and other customary letter of credit fees. Pursuant to the New Credit Agreement, the interest rate spreads and commitment fees increase or decrease in increments as the Company’s Funded Secured Debt/EBITDA ratio increase or decreases.
As of September 30, 2021, both the Term Loan due 2026 and the Revolving Facility are subject to LIBOR of 0.086% plus a spread of 1.75% per annum. In June 2021, the Company made a payment of $25.0 million to the outstanding balance of the Revolving Facility and has an unused commitment balance of $25.0 million under the Revolving Facility at September 30, 2021. Commitment fees were accrued at a weighted average of 0.218% per annum on the unused commitment balance.
In connection with the issuance of the Term Loan due 2026 and the Revolving Facility, the Company incurred total deferred financing costs of $1.7 million, of which $1.2 million was allocated to the Term Loan due 2026 and $0.5 million was allocated to the Revolving Facility. The deferred financing costs were capitalized as a contra-liability against the principal balance of the loans and are amortized as interest expense using the effective interest method. Unamortized deferred financing costs were $1.5 million as of September 30, 2021. As of September 30, 2021, the weighted average effective interest rate on the Company’s outstanding borrowings was 2.13%.
The New Credit Agreement contains a maximum total net leverage ratio financial covenant and a minimum fixed charge coverage ratio financial covenant that are tested quarterly. The maximum total net leverage ratio is 3.5 to 1.0 for periods on or prior to December 31, 2022, and then decreases to 3.0 to 1.0 after December 31, 2022. The minimum fixed charge coverage ratio is 1.25 to 1.0. As of September 30, 2021, the Company was in compliance with all required covenants under the New Credit Agreement.
Note 5—Stockholders’ Equity
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; and (ii) 10,000,000 shares of preferred stock. Immediately following the Business Combination, there were 91,849,909 shares of common stock, which excluded 3,437,500 shares issued and outstanding that were subject to certain lock-up and forfeiture arrangements, with a par value of $0.01 per share, and 9,166,659 warrants outstanding. In addition to the shares issued on the Closing Date, Open Lending, LLC’s unitholders received additional contingent consideration of 22,500,000 shares and certain Nebula’s equity holders received 1,250,000 earn-out shares of common stock as the price of the Company’s common stock trading on the Nasdaq met certain thresholds following the Business Combination. 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 the common stock that may be issued as earn-out consideration upon certain triggering events, and (ii) 9,166,659 shares of 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.
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”).
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
Underwritten Public Offering
On April 6, 2021, the Company completed an underwritten public offering of 9,000,000 shares of the Company’s common stock at a public offering price of $34.00 per share. All shares were sold by existing stockholders, including Nebula Holdings, LLC and its affiliates, Bregal Sagemount, and certain executive officers of the Company. The selling stockholders also granted the underwriters a 30-day option to purchase up to 1,350,000 additional shares of common stock. The Company did not issue any shares and did not receive any of the proceeds of the offering.
Share Repurchase
Pursuant to a Stock Repurchase Agreement, dated as of March 29, 2021, between Open Lending and the selling stockholders named therein, the Company repurchased from the selling stockholders on April 6, 2021 an aggregate number of 612,745 shares of its common stock totaling $20.0 million at the same per share price paid by the underwriters to the selling stockholders in the offering. The $20.0 million stock repurchase was recorded in treasury stock at cost.
Dividend
Any decision to declare and pay dividends in the future will be made at the sole discretion of the Company’s Board of Directors and will depend on, among other things, results of operations, cash requirements, financial condition, contractual restrictions and other factors that the Company’s Board of Directors may deem relevant. In addition, the Company’s ability to pay dividends is limited by covenants in the Company’s existing indebtedness and may be limited by the agreements governing other indebtedness that it or its subsidiaries incur in the future.
Note 6—Revenue
The Company accounts for a contract with a customer when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights and payment terms can be identified, the contract has commercial substance, and it is probable the Company will collect substantially all of the consideration to which it is entitled. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.
Revenue from contracts with lending institutions
Program fees are derived from contracts with automotive lenders. Through the Company’s proprietary LPP, the Company enables automotive lenders to make loans that are insured against certain credit losses from defaults. The Company generates program fee revenue from its proprietary, cloud-based software platform that enables automotive lenders, Original Equipment Manufacturing (“OEM”) captive finance companies and other financial institutions (collectively, “lending institutions”) to approve loans to traditionally underserved non-prime or near-prime borrowers.
The Company receives program fees for providing loan decision-making analytics solutions and automated issuance of credit default insurance with third-party insurance providers. The Company’s performance obligation is complete when a loan is certified through LPP and is issued by the lending institution. Program fee contracts contain a single performance obligation, which consists of a series of distinct services that are substantially the same with the same pattern of transfer to customers.
Program fees are based on a percentage of the initial principal amount of the loans processed by the Company. There are two types of payment arrangements: i) a single-pay program fee is due based on the volume of loans originated by the lending institution in a calendar month; or ii) a monthly-pay program fee is due in equal monthly installments within 12 months of loan origination.
The Company bills the customer for an amount calculated based on the actual number of loans processed in a calendar month, which corresponds directly with the value of service transferred to the customer in that month.
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Revenue from contracts with insurance carriers
As of September 30, 2021, the Company has producer agreements with three insurance carrier partners from which the Company earns profit share revenue and claims administration service fees.
In the profit share arrangement, the Company facilitates placement of credit default insurance policies with lending institutions on behalf of the Company’s insurance partners. Profit share revenue represents the Company’s participation in the underwriting profit of the Company’s third-party insurance partners who provide lenders with credit default insurance on loans the automotive lenders make using the Company’s LPP. The Company receives a percentage of the aggregate monthly insurance underwriting profit. Monthly insurance underwriting profit is calculated as the monthly earned premium less expenses and losses (including reserves for incurred but not reported losses), with losses accrued and carried forward for future profit share calculations. The Company fulfills its performance obligation upon placement of the insurance, at which point the Company is entitled to the profit share of all future net premiums earned by the insurance carrier on the policy.
To determine the profit share revenue, the Company uses forecasts of loan-level earned premium and insurance claim payments. These forecasts are driven by the projection of loan defaults, prepayments and severity rates. These assumptions are based on the Company’s observations of the historical behavior for loans with similar risk characteristics. The assumptions also take consideration of the forecast adjustments under various macroeconomic conditions and the current mix of the underlying portfolio of the Company’s insurance partners. To the extent these assumptions change, the Company’s profit share revenue is adjusted.
In accordance with ASC 606, at the time of the placement of a policy by an insurance company, the Company estimates the variable consideration based on undiscounted expected future profit share to be received from the insurance carriers. The Company applies economic stress factors in the Company’s forecast to constrain its estimation of future profit share revenue to an amount reflecting the Company’s belief that a significant reversal in the cumulative amount of revenue is not probable of occurring when the uncertainty is resolved.
Claims administration service fees are generated from the Company acting as a third-party administrator to process and adjudicate the credit default insurance claims on behalf of the insurance companies. In this arrangement, the performance obligation to provide claims administration services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as the Company satisfies its performance obligations.
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Contract Balances
Contract assets for the periods indicated below were as follows:
 Contract Assets
Profit
Share
TPA FeeProgram
Fee
Total
(in thousands)
Ending balance as of June 30, 2021$104,886 $1,099 $5,948 $111,933 
Increase of contract assets due to new business generation27,932 1,801 21,638 51,371 
Adjustment of contract assets due to estimation of revenue from performance obligations satisfied in previous periods7,515   7,515 
Receivables transferred from contract assets upon billing the lending institutions  (21,197)(21,197)
Payments received from insurance carriers(33,678)(1,682) (35,360)
Ending balance as of September 30, 2021$106,655 $1,218 $6,389 $114,262 
 Contract Assets
Profit
Share
TPA FeeProgram
Fee
Total
(in thousands)
Ending balance as of December 31, 2020$83,177 $822 $5,343 $89,342 
Increase of contract assets due to new business generation77,605 4,854 57,146 139,605 
Adjustment of contract assets due to estimation of revenue from performance obligations satisfied in previous periods24,414   24,414 
Receivables transferred from contract assets upon billing the lending institutions  (56,100)(56,100)
Payments received from insurance carriers(78,541)(4,458) (82,999)
Ending balance as of September 30, 2021$106,655 $1,218 $6,389 $114,262 

As of September 30, 2021 and December 31, 2020, the Company’s contract assets consisted of $60.7 million and $50.4 million, respectively, as the portion estimated to be received within one year, and $53.5 million and $39.0 million, respectively, in the non-current portion to be received beyond one year. During the three months ended September 30, 2021, the Company recorded $27.9 million in anticipated profit share, associated with 49,332 new certified loans, for an average of $566 per new certified loan, as compared to $14.7 million recorded in anticipated profit share, associated with 20,696 new certified loans, for an average of $711 per new certified loan, during the three months ended September 30, 2020. In addition, during the three months ended September 30, 2021, the Company recorded $7.5 million in estimated future profit share on business in historic periods, as compared to an increase of $3.8 million in estimated future profit share on historic vintages, during the three months ended September 30, 2020. In April 2021, the Company removed the vehicle value discount established as part of the Company’s underwriting changes implemented at the onset of COVID-19, which had the effect of increasing credit default insurance premiums and corresponding profit share during the pandemic by approximately 15% per certified loan. As a result of this underwriting change, the Company’s average profit share per certified loan decreased in the second and third quarter of 2021 and is comparable to pre-COVID-19 profit share unit economics. In addition, this change had a positive impact by increasing the Company’s closure rates on certified loans. During the nine months ended September 30, 2021, the profit share component of the Company’s contract assets increased $77.6 million in anticipated profit share associated with 129,058 new certified loans for an average of $601 per loan, and a $24.4 million positive adjustment in the contract asset related to performance obligations satisfied in previous periods as a result of the continued positive portfolio performance due to lower than projected default frequency and severity stress and overall fewer claims for loss. This positive change in estimate of $24.4 million in the first nine months of 2021 resulted in an increase in contract assets, revenue and expected future cash flows from historical vintages. The Company received $33.7 million and $78.5 million, respectively, in profit share payments from the Company’s insurance carriers, during the three and nine months ended September 30, 2021, an increase in collections over the Company’s previous quarters. The increase is primarily the result of an increase in certified loan volumes and the Company’s carriers releasing reserves established due to uncertainty related to the COVID-19 pandemic. More specifically, reserves were established to
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
reflect the potential for higher defaults, increased severity of defaults and accelerated prepayments. These risks have not materialized as the portfolio has performed better than expected.
Contract Costs
The fulfillment costs associated with the Company’s contracts with customers do not meet the criteria for capitalization and are expensed as incurred.
Disaggregation of Revenues
The Company disaggregates revenues by revenue source (i.e., program fee, profit share and claims administration and other service fees), and the level of disaggregation is presented in the condensed consolidated statement of operations and comprehensive income.
Note 7—Share-Based Compensation
Class B Common Unit Incentive Plan (the “Class B Plan”)
Prior to the Business Combination, commencing in 2013, the Board of Managers of Open Lending, LLC approved the Class B Unit Incentive Plan (the “Class B Plan”), which was a form of long-term compensation that provided for the issuance of ownership shares to service providers for purposes of retaining them and enabling such individuals to participate in the long-term growth and financial success of Open Lending, LLC. As a result of the Business Combination, the Board of Managers approved an acceleration of the awards granted in connection with the Class B Plan, to allow accelerated vesting of the units at the consummation of the Business Combination. On the date of the Closing, the Class B common units were converted into shares of Company common stock utilizing the exchange ratio established in the Business Combination Agreement, and the accelerated vesting of 571,983 awards resulted in $2.2 million of non-cash share-based compensation expense recorded to general and administrative expense during the nine months ended September 30, 2020.
2020 Stock Option and Incentive Plan (the “2020 Plan”)
Prior to the Closing on June 9, 2020, Nebula’s stockholders approved the 2020 Plan. The 2020 Plan provides for the grant of stock options, stock appreciation rights, restricted stock units and other stock or cash-based awards. The Company initially reserved 9,693,750 shares, approximately 10% of its common stock outstanding upon the Closing, as the “Initial Limit” for the issuance of awards under the 2020 Plan. The 2020 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2021, by 4% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31, or the “Annual Increase.” This limit is subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. As of September 30, 2021, the shares reserved and available for issuance under the 2020 Plan are 14,207,175, which includes the 4% annual increase in 2021 less restricted stock units and stock options granted under the 2020 Plan.
Share-based compensation expense recorded for each type of award is as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
(in thousands)
Time-Based Restricted Stock Units$638 $ $1,329 $ 
Performance-Based Restricted Stock Units277  830  
Stock Options183  567  
Class B Common Units   2,676 
Total share-based compensation expense$1,098 $ $2,726 $