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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, 2022
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/62adb3f117b78a9ef24378f6d6e34bb7-lpro-20220930_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 filer☒Accelerated filer☐
Non-accelerated filer☐Smaller 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 2, 2022, the registrant had 126,300,303 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. Financial Statements
OPEN LENDING CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except share data)
September 30, 2022December 31, 2021
 
Assets
Current assets
Cash and cash equivalents$201,807 $116,454 
Restricted cash3,349 3,055 
Accounts receivable, net6,654 6,525 
Current contract assets, net65,555 70,542 
Income tax receivable2,329 1,345 
Other current assets3,515 4,873 
Total current assets283,209 202,794 
Property and equipment, net2,789 2,663 
Operating lease right-of-use assets, net4,758 5,189 
Non-current contract assets, net34,385 42,414 
Deferred tax asset, net73,363 65,503 
Other non-current assets459 262 
Total assets$398,963 $318,825 
Liabilities and stockholders’ equity
Current liabilities
Accounts payable$183 $1,285 
Accrued expenses8,838 3,984 
Current portion of debt3,750 3,125 
Third-party claims administration liability3,358 3,050 
Other current liabilities851 621 
Total current liabilities16,980 12,065 
Long-term debt, net of deferred financing costs144,478 143,135 
Non-current operating lease liabilities4,231 4,643 
Total liabilities$165,689 $159,843 
Commitments 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 126,230,762 shares outstanding as of September 30, 2022 and 128,198,185 shares issued and 126,212,876 shares outstanding as of December 31, 2021
1,282 1,282 
Additional paid-in capital499,843 496,983 
Accumulated deficit(211,630)(282,439)
Treasury stock at cost, 1,967,423 shares as of September 30, 2022 and 1,985,309 shares as of December 31, 2021
(56,221)(56,844)
Total stockholders’ equity$233,274 $158,982 
Total liabilities and stockholders’ equity$398,963 $318,825 
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
(Unaudited, in thousands, except share data)

Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Revenue
Profit share$26,523 $35,447 $83,990 $102,019 
Program fees21,845 21,638 62,302 57,146 
Claims administration and other service fees2,293 1,807 6,481 4,860 
Total revenue50,661 58,892 152,773 164,025 
Cost of services5,199 6,380 15,072 13,882 
Gross profit45,462 52,512 137,701 150,143 
Operating expenses
General and administrative9,335 7,197 24,785 23,790 
Selling and marketing5,981 3,308 13,708 8,659 
Research and development2,355 1,268 6,366 2,632 
Total operating expenses17,671 11,773 44,859 35,081 
Operating income27,791 40,739 92,842 115,062 
Interest expense(1,608)(959)(3,535)(5,370)
Interest income321 35 368 177 
Gain on extinguishment of tax receivable agreement— — — 55,422 
Loss on extinguishment of debt— — — (8,778)
Other income (expense)(239)3 (239)(130)
Income before income taxes26,265 39,818 89,436 156,383 
Income tax expense1,736 10,404 18,627 38,141 
Net income$24,529 $29,414 $70,809 $118,242 
Net income per common share
Basic$0.19 $0.23 $0.56 $0.94 
Diluted$0.19 $0.23 $0.56 $0.94 
Weighted average common shares outstanding
Basic126,228,723 126,190,351 126,222,084 126,405,822 
Diluted126,228,723 126,247,499 126,222,415 126,451,119 
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, 2021128,198,185 $1,282 $496,983 $(282,439)(1,985,309)$(56,844)$158,982 
Share-based compensation— — 1,281 — — — 1,281 
Restricted stock units issued, net of shares withheld for taxes— — (207)— 5,079 168 (39)
Net income— — — 23,154 — — 23,154 
Balance as of March 31, 2022128,198,185 $1,282 $498,057 $(259,285)(1,980,230)$(56,676)$183,378 
Share-based compensation— — 988 — — — 988 
Restricted stock units issued, net of shares withheld for taxes— — (300)— 7,595 276 (24)
Net income— — — 23,126 — — 23,126 
Balance as of June 30, 2022128,198,185 $1,282 $498,745 $(236,159)(1,972,635)$(56,400)$207,468 
Share-based compensation— — 1,295 — — — 1,295 
Restricted stock units issued, net of shares withheld for taxes— — (197)— 5,212 179 (18)
Net income— — — 24,529 — — 24,529 
Balance as of September 30, 2022128,198,185 $1,282 $499,843 $(211,630)(1,967,423)$(56,221)$233,274 
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 
Shares repurchased— — — — (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 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Table of Contents
OPEN LENDING CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)

Nine Months Ended September 30,
20222021
Cash flows from operating activities
Net income$70,809 $118,242 
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation3,564 2,726 
Depreciation and amortization680 322 
Amortization of debt issuance costs265 507 
Non-cash operating lease cost431 405 
Gain on extinguishment of tax receivable agreement— (55,422)
Loss on extinguishment of debt— 8,778 
Deferred income taxes(7,860)19,176 
Changes in assets and liabilities:
Accounts receivable, net(129)(2,522)
Contract assets, net13,016 (24,920)
Other current and non-current assets1,331 (298)
Accounts payable(1,101)(2,012)
Accrued expenses4,849 4,328 
Income tax receivable(984)(533)
Operating lease liabilities(363)(558)
Third-party claims administration liability308 306 
Other current and non-current liabilities181 (102)
Net cash provided by operating activities84,997 68,423 
Cash flows from investing activities
Purchase of property and equipment$(637)$(1,785)
Net cash used in investing activities(637)(1,785)
Cash flows from financing activities
Proceeds from term loans$150,000 $125,000 
Proceeds from revolving credit facility— 50,000 
Payments on term loans(122,656)(168,409)
Payments on revolving credit facility(25,000)(25,000)
Payment of deferred financing costs(976)(1,669)
Shares withheld for taxes related to restricted stock units(81)— 
Settlement of tax receivable agreement— (36,948)
Shares repurchased— (20,000)
Net cash provided by (used in) financing activities1,287 (77,026)
Net change in cash and cash equivalents and restricted cash85,647 (10,388)
Cash and cash equivalents and restricted cash at the beginning of the period119,509 104,148 
Cash and cash equivalents and restricted cash at the end of the period$205,156 $93,760 
Supplemental disclosure of cash flow information:
Interest paid$2,859 $4,545 
Income tax paid, net$27,471 $19,397 
Non-cash investing and financing:
Property and equipment accrued but not paid$5 $— 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Table of Contents
OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1—Description of Business, Background and Nature of Operations
Open Lending Corporation (individually or together with its subsidiaries, as the context requires, the “Company”), headquartered in Austin, Texas, provides loan analytics, risk-based loan pricing, risk modeling and automated decision technology for automotive lenders throughout the United States (“U.S.”), 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 premium adjustments on its automotive loans.
Nebula Acquisition Corporation (“Nebula” or “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 pursuant to that certain Business Combination Agreement by and among Nebula, Open Lending, LLC, BRP Hold 11, Inc. (the “Blocker”), the Blocker’s sole stockholder, Nebula Parent Corp., NBLA Merger Sub LLC, NBLA Merger Sub Corp., and Shareholder Representative Services LLC, as the security holder representative (the “Business Combination”).
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 as defined above, refers to each legal entity 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 U.S., and all of its revenues are attributable to U.S. customers.
Note 2—Summary of Significant Accounting and Reporting Policies
The accompanying unaudited 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 prior year amounts have been reclassified to conform to the Company’s current presentation. Such reclassifications had no effect on the Company’s previously reported net income, earnings per share, cash flows or accumulated deficit.
Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted from these unaudited condensed consolidated financial statements, as permitted by the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). The Company believes the disclosures made in these unaudited condensed consolidated financial statements are adequate to make the information herein not misleading. The Company recommends that these unaudited condensed consolidated financial statements be read in conjunction with its audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (“Annual Report”).
The interim data contained within these unaudited condensed consolidated financial statements includes all adjustments that are of a normal recurring nature, 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, 2022 are not necessarily indicative of the Company’s operating results for the entire fiscal year ending December 31, 2022.
Concentrations of revenue and credit risks
The Company’s two largest insurance carrier partners accounted for 36% and 12% of the Company’s total revenue during the three months ended September 30, 2022 and its three largest insurance carrier partners accounted for 37%, 11% and 11% of total revenue during the nine months ended September 30, 2022. The Company’s two largest insurance carriers accounted for 38% and 24% of the Company’s total revenue during the three months ended September 30, 2021 and accounted for 41% and 24% for the nine months ended September 30, 2021. In the event that one or more of the Company’s significant insurance carriers terminates their relationship with the Company, it could have a material and adverse effect on the Company’s business and, in turn, its revenue. Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, restricted cash, accounts receivable and contract assets, net to the extent of the amounts recorded on the balance sheets.
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Cash and cash equivalents consist of commercial analysis accounts and money market funds. The Company considers securities that are highly liquid, readily convertible into cash and have original maturities of less than three months when purchased to be cash equivalents. 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. 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.
As of September 30, 2022, the Company had no customers that individually accounted for 10% of the Company’s net accounts receivable. As of December 31, 2021, the Company had two customers that each represented 10% of the Company’s net accounts receivable.
The Company has no material accounts receivable or contract assets, net balances that are past due and has not written off any material balance in its portfolio for the periods presented. The allowance for expected credit losses on accounts receivable and contract assets receivable was less than $0.1 million as of September 30, 2022 and December 31, 2021.
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 valuation 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), 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, and the underlying assumptions are based on the Company’s observations of the historical behavior for loans with similar risk characteristics. These assumptions also take into consideration the forecast adjustments under various macroeconomic conditions, including the current mix of the underlying portfolio of the Company’s insurance partners. As a result of the changes in facts and circumstances and general market conditions for the three and nine months ended September 30, 2022, management has accordingly adjusted these assumptions.
Recently issued but not yet adopted accounting pronouncements
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 the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to 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 Accounting Standards Codification (“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 has not experienced any unintended outcomes or consequences of reference rate reform that would necessitate the adoption of this guidance. The Company has considered this guidance in relation to its Credit Agreement, and determined that it is not applicable (refer to Credit Agreement discussion within Note 4 – Debt).
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3—Contract Assets
Changes in the Company’s contract assets primarily result from the timing difference between the satisfaction of its performance obligation and the customer’s payment. The Company fulfills its obligation under a contract with a customer by transferring services in exchange for consideration from the customer. The Company recognizes contract assets when it transfers services to a customer, recognizes profit share revenue, program fee revenue and claims administration services revenue (“TPA fees”) for amounts not yet billed and the right to consideration is conditional on something other than the passage of time. Accounts receivable are recorded when the customer has been billed or the right to consideration is unconditional.
For performance obligations satisfied in previous periods, the Company evaluates and updates its profit share revenue forecast on a quarterly basis and adjusts contract assets accordingly. During the three and nine months ended September 30, 2022, contract asset adjustments attributable to profit share revenue forecast were $1.7 million and $7.1 million, respectively, as compared to contract asset adjustments of $7.5 million and $24.4 million, during the three and nine months ended September 30, 2021, respectively.
Contract assets balances for the periods indicated below are as follows:
 Contract Assets
Profit
Share		TPA FeesProgram
Fees		Total
(in thousands)
Ending balance as of June 30, 2022$98,672 $1,437 $6,639 $106,748 
Increase due to new business generation24,853 2,293 21,845 48,991 
Change in estimates of revenue from performance obligations satisfied in previous periods1,670 — — 1,670 
Receivables transferred from contract assets upon billing the lending institutions— — (20,830)(20,830)
Payments received from insurance carriers(34,446)(2,200)— (36,646)
Provision for expected credit losses8 — (1)7 
Ending balance as of September 30, 2022$90,757 $1,530 $7,653 $99,940 
 
 Contract Assets
Profit
Share		TPA FeesProgram
Fees		Total
(in thousands)
Ending balance as of December 31, 2021$105,486 $1,316 $6,154 $112,956 
Increase due to new business generation76,855 6,478 62,302 145,635 
Change in estimates of revenue from performance obligations satisfied in previous periods7,135 — — 7,135 
Receivables transferred from contract assets upon billing the lending institutions— — (60,808)(60,808)
Payments received from insurance carriers(98,773)(6,265)— (105,038)
Provision for expected credit losses54 1 5 60 
Ending balance as of September 30, 2022$90,757 $1,530 $7,653 $99,940 

As of September 30, 2022 and December 31, 2021, the portion of the contract assets’ balance estimated to be received within one year consisted of $65.6 million and $70.5 million, respectively, and the portion estimated to be received beyond one year consisted of $34.4 million and $42.4 million, respectively.
Contract Costs
The fulfillment costs associated with the Company’s contracts with customers do not meet the criteria for capitalization and therefore are expensed as incurred.
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4—Debt
Debt balances for the periods indicated below were as follows:
September 30, 2022December 31, 2021
(in thousands)
March 2021 Revolving Credit Facility$— $25,000 
New Term Loan due 2027150,000 — 
Term Loan due 2026— 122,656 
  Less: Unamortized deferred financing costs(1,772)(1,396)
Total debt148,228 146,260 
  Less: Current portion of debt(3,750)(3,125)
Total long-term debt, net of deferred financing costs$144,478 $143,135 
Prior Credit Agreement—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 “Prior Credit Agreement”). Pursuant to the Prior 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%) and maturing in March 2027.
In March 2021, the Company retired the Term Loan due 2027 by paying off its outstanding principal and interest using proceeds from the issuance of the Term Loan due 2026 and the March 2021 Revolving Credit Facility (both as defined below). The transaction was deemed 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 within loss on extinguishment of debt in the condensed consolidated statements of operations during the nine months ended September 30, 2021. The loss on debt extinguishment was determined 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.
Credit Agreement—Term Loan due 2026, New Term Loan due 2027, and Revolving Credit Facility
On March 19, 2021, the Company entered into a credit agreement with Wells Fargo Bank, N.A. (“Wells Fargo”) as the administrative agent, 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 “March 2021 Revolving Credit Facility”), collectively, the “March 2021 Credit Agreement”.
On September 9, 2022, the Company entered into a first amendment to the March 2021 Credit Agreement with Wells Fargo, as the administrative agent, and the financial institutions party thereto, as the lenders (the “First Amendment” and, together with the March 2021 Credit Agreement, the “Credit Agreement”). The First Amendment provided the Company senior secured credit facilities in an aggregate principal amount of $300.0 million by (i) establishing a new senior secured term loan facility in an aggregate principal amount of $150.0 million (the “New Term Loan due 2027”) and (ii) increasing the aggregate principal amount of commitments under the March 2021 Revolving Credit Facility to $150.0 million (the “New Revolving Credit Facility”), both maturing on September 9, 2027. In addition, the First Amendment, among other things, (i) replaced LIBOR with the Secured Overnight Financing Rate (“SOFR”) as the interest rate benchmark, (ii) decreased the unused fees and the interest rate margins applicable to the New Revolving Credit Facility, (iii) results in lower interest rate margins applicable to the New Term Loan due 2027 compared to those applicable to the Term Loan due 2026 that have been repaid, (iv) provides financial covenant flexibility by extending the date at which the net leverage ratio covenant steps-down from 3.5 to 1.0 to 3.0 to 1.0 to September 30, 2024, and (v) extends the date at which the required term loan amortization payments increase from 2.5% per annum to 5.0% per annum from June 30, 2023 to December 31, 2024.
The Company used proceeds from the New Term Loan due 2027 to pay off all outstanding amounts under the March 2021 Credit Agreement and pay transaction costs related to the First Amendment. The remaining proceeds will be used for working capital and other general corporate purposes.
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The obligations of the Company under the New Term Loan due 2027 and the New 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 New Term Loan due 2027 and the New Revolving Credit Facility are, at the option of the Company, either at an Alternate Base rate (“ABR”) plus a spread ranging from 0.625% to 1.375%, or term SOFR plus 0.10% (“Adjusted SOFR”) plus a spread ranging from 1.625% to 2.375%. With respect to the ABR loans, interest will be payable at the end of each calendar quarter. With respect to the Adjusted SOFR loans, interest will be payable at the end of the selected interest period (at least quarterly). Additionally, there is a commitment fee payable at the end of each quarter at a rate per annum ranging from 0.150% to 0.225% based on the average daily unused portion of the New Revolving Credit Facility and other customary letter of credit fees. Pursuant to the Credit Agreement, the interest rate spreads and commitment fees increase or decrease in increments as the Company’s Funded Secured Debt/EBITDA ratio increases or decreases.
As of September 30, 2022, the New Term Loan due 2027 and the New Revolving Credit Facility were both subject to an Adjusted SOFR rate of 2.78% plus a spread of 1.63% per annum. Commitment fees were accrued at 0.15% under the New Revolving Credit Facility’s unused commitment balance of $150.0 million as of September 30, 2022.
As of September 30, 2022, the effective interest rate on the Company’s outstanding borrowings was 4.82%.
In connection with the March 2021 Credit Agreement, the Company incurred aggregate deferred financing costs of $1.7 million, of which (i) $1.2 million was allocated to the Term Loan due 2026 and capitalized as a contra-liability against the principal balance of the loan, and (ii) $0.5 million was allocated to the March 2021 Revolving Credit Facility and is included within other non-current assets on the condensed consolidated balance sheets. These deferred financing costs are amortized as interest expense using the effective interest method over the term of the Credit Agreement, as amended. Unamortized deferred financing costs related to the Term Loan due 2026 and the March 2021 Revolving Credit Facility were $0.8 million and $0.3 million, respectively, as of September 30, 2022.
In connection with the Credit Agreement, the Company also incurred deferred financing costs of $1.0 million attributable to the New Term Loan due 2027, which were capitalized as a contra-liability against the principal balance of the loans and are amortized as interest expense using the effective interest method over the term of the loan. Related unamortized deferred financing costs were $1.0 million as of September 30, 2022.
The Credit Agreement contains a maximum total net leverage ratio financial covenant and a minimum fixed charge coverage ratio financial covenant, which are tested quarterly. The maximum total net leverage ratio is 3.5 to 1.0 for any fiscal quarter ending on or prior to June 30, 2024 and then decreases to 3.0 to 1.0 for any fiscal quarter ending after June 30, 2024. The minimum fixed charge coverage ratio is 1.25 to 1.0. As of September 30, 2022, the Company was in compliance with all required covenants under the Credit Agreement.
Note 5—Net Income per Share
Basic net income per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed based on the weighted average number of common shares outstanding plus the effect of potentially dilutive common shares outstanding during the period using the applicable methods. The potentially dilutive common shares during the three and nine months ended September 30, 2022 and 2021 were time-based restricted stock units and did not include unvested stock options and performance-based restricted stock units containing unmet performance conditions. The potentially dilutive common shares are included in the calculation of diluted net income per share only when their effect is dilutive.

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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table sets forth the computation of basic and diluted net income per share attributable to common stockholders for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
(in thousands, except shares and per share data)
Basic net income per share:
Numerator
Net income attributable to common stockholders$24,529 $29,414 $70,809 $118,242 
Denominator
Basic weighted average common shares126,228,723 126,190,351 126,222,084 126,405,822 
Basic net income per share attributable to common stockholders$0.19 $0.23 $0.56 $0.94 
Diluted net income per share:
Numerator
Net income attributable to common stockholders$24,529 $29,414 $70,809 $118,242 
Denominator
Basic weighted average common shares126,228,723 126,190,351 126,222,084 126,405,822 
Dilutive effect of outstanding time-based restricted stock units— 57,148 331 45,297 
Diluted weighted average common shares126,228,723 126,247,499 126,222,415 126,451,119 
Diluted net income per share attributable to common stockholders$0.19 $0.23 $0.56 $0.94 
The following potentially dilutive outstanding securities as of September 30, 2022 and 2021 were excluded from the computation of diluted net income per share because their effect would have been anti-dilutive for the periods presented, or issuance of such shares is contingent upon the satisfaction of certain conditions that were not satisfied by the end of the periods:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Unvested time-based restricted stock units562,071 — 562,071 — 
Unvested performance-based restricted stock units234,077 99,289 234,077 99,289 
Unvested and not exercised stock options182,233 195,896 182,233 195,896 
Total978,381 295,185 978,381 295,185 
Note 6—Fair Value of Financial Instruments
Fair value is the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants. In determining fair value measurement, the Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. The three levels of inputs used to establish fair value are the following:
•Level 1 — Quoted prices in active markets for identical assets or liabilities;
•Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In situations where there is limited, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount rates, available observable and unobservable inputs.
Fair Value Hierarchy
The following table presents the placement in the fair value hierarchy of the Company’s debt, net of deferred financing costs as of September 30, 2022 and December 31, 2021:
 Carrying value
Fair value measurement as of September 30, 2022
Level 1Level 2Level 3
(in thousands)
Liabilities:
Debt at fair value$148,228 $— $148,228 $— 
Total$148,228 $— $148,228 $— 
 
 
 Carrying value
Fair value measurement as of December 31, 2021
Level 1Level 2Level 3
(in thousands)
Liabilities:
Debt at fair value$146,260 $— $146,260 $— 
Total$146,260 $— $146,260 $— 
 
The carrying amount of the Company’s debt approximates its fair value due to its variable interest rate that is tied to the current Adjusted SOFR plus an applicable spread. The Company’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of any level for the periods ended September 30, 2022 and December 31, 2021.
The Company has no long-lived assets that are measured at fair value on a recurring basis. 
Note 7—Income Taxes

During the three and nine months ended September 30, 2022, the Company recognized income tax expense of $1.7 million and $18.6 million, respectively, as compared to income tax expense of $10.4 million and $38.1 million, respectively, during the three and nine months ended September 30, 2021. The effective tax rate for the three and nine months ended September 30, 2022 was 6.6% and 20.8%, respectively, as compared to 26.1% and 24.4%, respectively during the three and nine months ended September 30, 2021. The Company’s income tax expense for the three and nine months ended September 30, 2022 and September 30, 2021 differs from amounts computed by applying the U.S. federal statutory tax rate of 21% primarily due to state income taxes, the officer’s compensation limitation under Section 162m, and a discrete tax benefit associated with the enactment of state tax legislation during the third quarter with a retroactive effective date of January 1, 2022. The Company recorded a discrete tax benefit of $5.1 million from the change in tax law, which includes a tax benefit associated with the remeasurement of the Company’s deferred tax assets offset by a higher current state income tax expense applied to taxable income through the date of enactment.
As of September 30, 2022, the Company has assessed whether it is more likely than not that its deferred tax assets will be realized. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions. The Company considers, among other things, the reversal of its deferred tax liabilities, the overall business environment, its historical earnings and losses, current industry trends and its outlook for future years. The Company believes it is more-likely-than-not that all deferred tax assets will be realized and has not recorded a valuation allowance as of September 30, 2022.
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OPEN LENDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company has also evaluated the aggregate exposure for uncertain tax positions for all open tax years and concluded that the Company and its Predecessor have no material uncertain tax positions as of September 30, 2022 or for any open tax years. When applicable, tax penalties and interest are recognized within general and administrative expenses in the unaudited condensed consolidated statements of operations. The Company recorded no penalties or interest related to uncertain tax positions as of September 30, 2022 or for any open tax years.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of Open Lending Corporation’s unaudited condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the heading “Risk Factors” set forth elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report. Actual results may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is intended to mean the business and operations of Open Lending Corporation and its consolidated subsidiaries.
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CAUTIONARY 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;
•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 our top ten automotive lenders relative to that of other automotive lenders and associated concentration of risks;
•the costs of services in absolute dollars and as a percentage of 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 revenue;
•research and development expenses in absolute dollars and as a percentage of revenue;
•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 Lenders Protection Platform (“LPP”) by automotive lenders;
•the outcome of any known and unknown litigation and regulatory proceedings, including such legal proceedings that may be instituted in connection with the Business Combination (as defined in Note 1 – Description of Business, Background and Nature of Operations) and transactions contemplated thereby;
•the ability to maintain the listing of our common stock on the Nasdaq Stock Market LLC;
•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 our growth as a result of demands on our operational, marketing, compliance and accounting infrastructure;
•regulatory agreements between us and state agencies regarding issues including automotive lender conduct and oversight and loan pricing;
•changes in applicable laws or regulations;
•applicable taxes, inflation, supply chain disruptions, including global hostilities and responses thereto, interest rates and the regulatory environment; and
•the effects of the ongoing COVID-19 pandemic on our business.
All forward-looking statements are based on information and estimates available to us 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.
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 and our
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Annual Report. 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.
Business Overview
We are a leading provider of lending enablement and risk analytics to credit unions, regional banks and the captive finance companies of automakers. Our clients, collectively referred to herein as automotive lenders, make automotive consumer loans to underserved near-prime and non-prime borrowers by harnessing our risk-based pricing models, powered by our proprietary data and real-time underwriting of automotive loan default insurance coverage from insurers. Since our inception in 2000, we have facilitated approximately $17.2 billion in automotive loans, accumulating over 20 years of proprietary data and developing over two million unique risk profiles.
We specialize in risk-based pricing and modeling and provide automated decision-technology for automotive lenders throughout the U.S. We believe that we address the financing needs of near-prime and non-prime borrowers, or borrowers with a credit bureau score between 560 and 699, who are underserved in the automotive finance industry. Traditional lenders focus on prime borrowers, where an efficient market has developed with interest rate competition that benefits borrowers. Independent finance companies focus on sub-prime borrowers. Borrowers who utilize the near-prime and non-prime automotive lending market have fewer lenders focused on loans with longer terms or higher advance rates. As a result, many near-prime and non-prime borrowers turn to sub-prime lenders, resulting in higher interest rate loan offerings than such borrower’s credit profile often merits or warrants. We seek to make this market more competitive, resulting in more attractive loan terms.
Our flagship product, LPP, enables automotive lenders to make loans that are largely insured against losses from defaults. We have been developing and advancing the proprietary underwriting models used by LPP for over 20 years. We believe LPP provides significant benefits to our growing ecosystem of automotive lenders, automobile dealers, borrowers and insurers.
A key element of LPP is the ability to facilitate risk-based interest rates that are appropriate for each loan and lender and electronically submitted to our automotive lenders within approximately five seconds after we receive a loan application. Our interest rate pricing is customized to each automotive lender, reflecting the cost of capital, loan servicing costs, loan acquisition costs, expected recovery rates and target return on assets of each automotive lender. Using our risk models, we project monthly loan performance results, including expected losses and prepayments for automotive lenders who use LPP. The product of this process is a risk-based interest rate, inclusive of elements to recover all projected costs, program fees and insurance premiums, given the risk of the loan, to return a targeted return on asset goal.
We believe our market opportunity is significant. The near-prime and non-prime automotive loan origination market is currently estimated at $270 billion annually, and we are currently serving less than 2% of this market, providing a significant growth opportunity. In addition, our market opportunity related to the refinancing of near-prime and non-prime automotive loans is estimated at $40 billion annually.
Executive Overview
We facilitate certified loans and have achieved financial success by increasing our penetration of the near-prime and non-prime automotive loan market, while diversifying our customer base and refining our data analysis capabilities.
We facilitated 42,186 and 130,661 certified loans during the three and nine months ended September 30, 2022, respectively, as compared to 49,332 and 129,058 certified loans during the same periods in 2021, respectively.
Total revenue was $50.7 million and $152.8 million for the three and nine months ended September 30, 2022, respectively, as compared to $58.9 million and $164.0 million, respectively, during the same periods in 2021.
Operating income was $27.8 million and $92.8 million for the three and nine months ended September 30, 2022, respectively, as compared to $40.7 million and $115.1 million, respectively, during the same periods in 2021.
Net income was $24.5 million and $70.8 million for the three and nine months ended September 30, 2022, respectively, as compared to net income of $29.4 million and $118.2 million, respectively, for the same periods in 2021.
Adjusted EBITDA was $29.4 million and $97.2 million for the three and nine months ended September 30, 2022, respectively, as compared to $42.1 million and $118.4 million, respectively, during the same periods in 2021. Information regarding use of Adjusted EBITDA, a non-GAAP measure, and a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP measure, is included below in “Non-GAAP Financial Measures.”
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Highlights
The table below summarizes all loans certified by lenders during the periods indicated.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Certified loans42,186 49,332 130,661 129,058 
Value of insured loans facilitated (in thousands)$1,246,250 $1,267,809 $3,722,270 $3,218,657 
Average loan size per certified loan$29,542 $25,700 $28,488 $24,940 
Number of contracts signed with automotive lenders17165352

Historically, we have defined “active lenders” as lenders who certify at least one loan during the preceding 12 months. As of September 30, 2022 and 2021, we had 430 and 394 active lenders, respectively. The table below represents lender count information for lenders with certified loan activity during the periods indicated.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Lenders certifying loans at the beginning of the period371 348 396 354 
New lenders (1)21 12 52 45 
Net change in lenders (2)5(10)(24)(21)
Lenders certifying loans at the end of the period397350424378
(1) New lenders using LPP to certify loans for the first time during the period.
(2) Net change in the number of lenders previously onboarded and using LPP to certify loans during the period. Certain lenders experience periods of inactivity followed by periods of activity, causing the lender count to fluctuate from period to period.
Key Performance Measures
We review several key performance measures, discussed below, to evaluate business and results, measure performance, identify trends, formulate plans and make strategic decisions. We believe the presentation of such metrics is useful to our investors and counterparties because such metrics are used to measure and model the performance of companies such as ours, with recurring revenue streams.
Certified Loans
We refer to “certified loans” as the number of automotive loans facilitated through LPP during a given period. Additionally, we refer to loans with a one-time upfront program fee payment as “single-pay” loans. For certain loans, the program fee is paid to us over 12 monthly installments and we refer to these loans as “monthly-pay” loans.
Average Program Fee
We define “average program fee” as the total program fee revenue recognized for a period divided by the number of certified loans in that period.
Underwriting Profit
We define “underwriting profit” as the total underwriting profit expected to be received by insurers over the expected life of the insured loans.
Earned Premium
We define “earned premium” as the total insurance premium earned by insurers in a given period. Earned premiums were $76.3 million and $214.5 million, respectively, for the three and nine months ended September 30, 2022 and $58.7 million and $158.9 million for the same periods in 2021, respectively.
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Recent Developments
On September 9, 2022, we amended our Credit Agreement, which provided for senior secured credit facilities in an aggregate principal amount of $300.0 million, consisting of (i) the New Term Loan due 2027 in an aggregate principal amount of $150.0 million, and (ii) the New Revolving Credit Facility in the amount of $150.0 million, both maturing on September 9, 2027. We used proceeds from the New Term Loan due 2027 to pay off all outstanding amounts under the March 2021 Credit Agreement and pay transaction costs related to the amendment. We will use the remaining proceeds for working capital and other general corporate purposes.
Key Factors Affecting Operating Results
Our future operating results and cash flows are dependent upon a number of opportunities, challenges and other factors, including the growth in the number of financial institutions and transaction volume, competition, profit share assumptions and industry trends and general economic conditions.
Key factors affecting our operating results include the following:
Growth in the Number of Active Automotive Lenders
The growth trend in active automotive lenders using LPP is a critical factor directly affecting our revenue and financial results. It influences the number of loans funded on LPP and, therefore, the fees we earn and the cost of the services we provide. Growth in our active automotive lender relationships will depend on our ability to retain existing automotive lenders and add new automotive lenders.
Competition
We face competition to acquire and maintain automotive lenders as customers, as well as competition to facilitate the funding of near-prime and non-prime auto loans. For LPP, which combines lending enablement, risk analytics, near-prime and non-prime auto loan performance data, real-time loan decisioning, risk-based pricing and auto loan default insurance, we do not believe there are any direct competitors. The emergence of direct competitors, providing risk analytics and loss mitigation, which are core elements of our business, could materially impact our ability to acquire and maintain automotive lender customers. The near-prime and non-prime lending market is highly fragmented and competitive. We face competition from a diverse landscape of consumer lenders, including traditional banks and credit unions, as well as alternative technology-enabled lenders. The emergence of other insurers, in competition with our insurers, could materially impact our business.
Profit Share Assumptions
We rely on assumptions to calculate the value of our profit share revenue, which is our share of insurance partners’ underwriting profit. For example, positive change in estimates associated with historical vintages generate an increase in our contract asset, additional revenues and future expected cash flows, while negative change in estimates generate a decrease in our contract asset, a reduction in revenues and future expected cash flows. To the extent these assumptions change, our profit share revenue will be adjusted. Please refer to “Critical Accounting Policies and Estimates” for more information on these assumptions.
Industry Trends and General Economic Conditions
Our results of operations may be impacted by the relative strength of the overall economy and its effect on unemployment, consumer spending and consumer demand for automotive products. As general economic conditions improve or deteriorate, the amount of disposable income consumers have tends to fluctuate, which in turn impacts consumer spending levels and the willingness of consumers to take out loans to finance purchases. Specific economic factors such as inflation, rising interest rate levels, changes in monetary and related policies, market volatility, supply chain disruptions, consumer confidence, the impact of the pandemic and, particularly, the unemployment rate also influence consumer spending and borrowing patterns.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (“IRA”) that includes, among other provisions, changes to the U.S. corporate income tax system, including a 15% minimum tax based on “adjusted financial statement income” exceeding $1 billion and a 1% excise tax on net repurchases of stock after December 31, 2022. We are evaluating the IRA and its requirements, as well as any potential impact on our business.
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Concentration
Our two largest insurance carrier partners accounted for 36% and 12% of our total revenue during the three months ended September 30, 2022, and our three largest insurance carrier partners accounted for 37%, 11% and 11% during the nine months ended September 30, 2022. Our two largest insurance carriers accounted for 38% and 24% of our total revenue during the three months ended September 30, 2021, and accounted for 41% and 24% for the nine months ended September 30, 2021. Termination or disruption of these relationships could materially and adversely impact our revenue.
Components of Results of Operations
Total Revenues
Our revenue is generated through three streams: (i) profit share paid to us by insurance partners, (ii) program fees paid to us by lenders and (iii) claims administration service fees paid to us by insurance partners.
Profit share. Profit share represents our participation in the underwriting profit of third-party insurance partners who provide lenders with credit default insurance on loans the lenders make using LPP. We receive 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.
Program fees. Program fees are paid by automotive lenders for the use of LPP, which provides loan analytics solutions and automated issuance of credit default insurance with third-party insurance providers. These fees are based on a percentage of each certified loan’s original principal balance, and are recognized as revenue upfront upon receipt of the loan by the consumer. The fee percentage rate varies by type of loan. For loans with a one-time upfront payment, there is a sliding scale of rates representing volume discounts to the lender with fees generally capped at $600 per loan. This cap may vary for certain large volume lenders. For monthly pay loans, the fee paid by the lender is a flat 3% of the total amount of the loan and is not capped.
Claims administration service fees. Claims administration service fees are paid to us by third-party insurers for credit default insurance claims adjudication services performed by our subsidiary, Insurance Administrative Services, LLC, on its insured servicing portfolio. The administration fee is equal to 3% of the monthly insurance earned premium for as long as the loan remains outstanding.
Cost of Services and Operating Expenses
Cost of services. Cost of services primarily consists of fees paid to third-party partners for lead-generation efforts, compensation and benefits expenses relating to employees engaged in lenders’ services and claims administration activities, fees paid for actuarial services related to the development of the monthly premium program, fees for integration with loan origination systems of automotive lenders and fees paid to credit bureaus and data service providers for credit applicant data. In the near to intermediate term, we generally expect cost of services to increase as a percentage of our program fee revenue as we continue to expand our third-party partner relationships.
General and administrative expenses. General and administrative expenses are comprised primarily of expenses relating to corporate-level employee compensation and benefits, non-cash share-based compensation, travel, meals and entertainment expenses, data and software expenses and professional and consulting fees. In the near to intermediate term, we expect general and administrative expenses to remain relatively constant.
Selling and marketing expenses. Selling and marketing expenses consist primarily of compensation and benefits of employees engaged in selling and marketing activities. We generally expect selling and marketing expenses to increase, as a percentage of our program fee revenue, in the near to immediate term as we continue to expand our sales and marketing team.
Research and development expenses. Research and development expenses consist primarily of compensation and benefits expenses for employees engaged in ongoing research and development of our software technology platform. We generally expect our research and development costs to increase in absolute dollars as our business continues to grow.
Other Income (Expense)
Interest expense. Interest expense primarily includes interest payments and the amortization of deferred financing costs in connection with the issuance of our debt.
Gain on extinguishment of tax receivable agreement. Gain on extinguishment of tax receivable agreement reflects gain recognized upon the early termination of our tax receivable agreement with our Predecessor in 2021.
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Loss on extinguishment of debt. Loss on extinguishment of debt primarily reflects unamortized deferred financing costs, which were written off in connection with the refinancing of our Term Loan due 2027 on March 19, 2021.
Results of Operations
The following table sets forth our results of operations for the periods indicated and comparisons to the prior year periods:
Three Months Ended September 30,Nine Months Ended September 30,
20222021% Change20222021% Change
($ in thousands)
Revenue
Profit share$26,523 $35,447 (25)%$83,990 $102,019 (18)%
Program fees21,845 21,638 1 %62,302 57,146 9 %
Claims administration and other service fees2,293 1,807 27 %6,481 4,860 33 %
Total revenue50,661 58,892 (14)%152,773 164,025 (7)%
Cost of services5,199 6,380 (19)%15,072 13,882 9 %
Gross profit45,462 52,512 (13)%137,701 150,143 (8)%
Operating expenses
General and administrative9,335 7,197 30 %24,785 23,790 4 %
Selling and marketing5,981 3,308 81 %13,708 8,659 58 %
Research and development2,355 1,268 86 %6,366 2,632 142 %
Total operating expenses17,671 11,773 50 %44,859 35,081 28 %
Operating income27,791 40,739 (32)%92,842 115,062 (19)%
Interest expense(1,608)(959)68 %(3,535)(5,370)(34)%
Interest income321 35 817 %368 177 108 %
Gain on extinguishment of tax receivable agreement— — — %— 55,422 (100)%
Loss on extinguishment of debt— — — %— (8,778)(100)%
Other income (expense)(239)3 (8,067)%(239)(130)84 %
Income before income taxes26,265 39,818 (34)%89,436 156,383 (43)%
Income tax expense1,736 10,404 (83)%18,627 38,141 (51)%
Net income$24,529 $29,414 (17)%$70,809 $118,242 (40)%
Key Performance Measures
The following table sets forth key performance measures for the periods indicated and comparisons to the prior year periods:
Three Months Ended September 30,Nine Months Ended September 30,
20222021% Change2022