Open Lending Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

Key Takeaways

  • In Q1 2023, Open Lending certified 32,408 loans, generated $38.4 M in revenue and $21.2 M in adjusted EBITDA, exceeding the high end of its guidance range.
  • The new auto market showed modest recovery with April SAAR up 13.5% sequentially and 10% year-over-year, while used supply remains low, creating pent-up demand as values moderate and rates decline.
  • Rising auto-loan delinquencies prompted tightened underwriting, including a 5% increase in credit default insurance premiums on top of last year’s 12% hike to offset elevated risk.
  • Underwriting enhancements—84-month term loans (15% of volume) with lower than expected claims and expanded vehicle age eligibility to 11 years—drove stronger unit economics and higher approval rates.
  • For Q2 2023, management expects 29K certified loans, $33 M–$37 M in revenue and $16 M–$20 M in adjusted EBITDA while monitoring near-prime affordability headwinds.
AI Generated. May Contain Errors.
Earnings Conference Call
Open Lending Q1 2023
00:00 / 00:00

There are 11 speakers on the call.

Operator

Afternoon, and welcome to Open Lending's First Quarter 2023 Earnings Conference Call. As a reminder, today's conference call is being recorded. On the call today are Keith Jesik, CEO and Chuck Jell, CFO. Earlier today, the company posted its Q1 2023 earnings release to its Investor Relations website. In the release, you will find reconciliations of non GAAP financial measures to the most comparable GAAP financial measures discussed on this call.

Operator

Before we begin, I'd like to remind you that this call may contain estimated and other forward looking statements that represent the company's view as of today, May 9, 2023. Open Lending disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to today's earnings release and our filings with the SEC for more information concerning factors that could cause actual results to differ from those expressed or implied with such statements. And now I'll pass the call over to Mr. Keith Jesik.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Open Lending's Q1 2020 today's earnings conference call. For the Q1, our results were ahead of our expectations despite the economic and industry dynamics impacting our business. We face continued liquidity constraints at a majority of our credit union customers and the impact of rising interest rates on our business. We continue to experience demand side challenges, specifically affordability as near and non prime consumers are being hit disproportionately by rising interest rates, In addition, the used retail market for the past 2 years as as low as it has been in over a decade.

Speaker 1

However, we are seeing modest signs of improvement in the new auto market since we last spoke in February. Now let me turn to our Q1 highlights. During the quarter, we certified 32,408 loans, generated total revenue of $38,400,000 gross profit of $32,900,000 And adjusted EBITDA of $21,200,000 We exceeded the high end of our Q1 guidance range for all metrics, to certified loans, revenue and adjusted EBITDA. I would like to thank all the team members at Open Lending for their contributions to these positive results. As I mentioned, the pandemic related new automobile supply constraints are slowly improving.

Speaker 1

Specifically, Semiconductor chip shortfalls have been mostly replenished. OEMs are running their plants with improved efficiency. Transportation bottlenecks have eased, fleets have rebuilt their stock and dealers are intelligently growing their new inventory. Taking a closer look at the new auto retail market, at 16,000,000 units, the new light vehicle SARA in April was up 13.5% sequentially as compared to December and up 10% over April 2022. New vehicle inventory continues to expand and in many instances inventory is up nearly 70% year over year.

Speaker 1

Fleet sales also increased and are up 50% year over year and at 21.7 Sales declined 8% in April from March and were down 8% from a year ago. The recovery in used supply has been non linear and has fluctuated month to month. Used supply is currently estimated at an average of 40 days, down from 49 days in January 2023. The used auto retail market continues to show signs of pent up demand due to affordability factors facing near and non prime buyers. Consumers are holding onto their autos longer, but eventually the increased maintenance and repair costs will be outweighed by the benefit of getting into a newer vehicle.

Speaker 1

We have seen this dynamic in prior cycles and note that the average age of a used vehicle on the road is over 12 years old, an all time high. This pent up demand will create opportunity for open lending as used vehicle values moderate and interest rates decline. Like other consumer credit categories, auto loan delinquencies have continued to increase as a result of current economic conditions. Accordingly, we tightened our underwriting and in late March increased our vehicle value discount factor. This action effectively increases to our credit default insurance pricing to reflect and compensate us appropriately for the potential additional risk we are taking.

Speaker 1

With this incremental adjustment, our average credit default insurance premium has increased by an additional 5%. To recall that this incremental premium is in addition to the 12% premium increase in Q2 2022. As always, we will continue to monitor risk and portfolio performance and we have the flexibility and ability to make additional adjustments. Now turning to other program underwriting changes we made in 2022 early 2023 along with brief updates on each. In Q2 2022, we made changes to expand loan limits and extend the term of qualifying vehicles to 84 months.

Speaker 1

As of the Q1 2023, 84 month term loans comprised 15% of our volume and importantly Claims to date are lower than expected since our initial rollout. Their performance has yielded stronger unit economics based on higher credit default insurance premium And better than expected performance due to lower claims than modeled. As you may recall, we put in place to the call, we will discuss the Q2 of 2019. We will discuss the Q2 of 2019. We will discuss the Q2 of 2019 to the program, where loans with higher PTI ratios are charged a higher premium and conversely loans with lower PTI ratios receive a discounted premium.

Speaker 1

Early performance shows this enhancement has better aligned loss ratios across our program and is having a positive impact on volume. Earlier this year, we increased our allowable vehicle age from 9 to 11 years. I would point out that we did not increase the mileage to factor as this is the most significant driver of depreciation of a vehicle. This change provided a small increase to certified loan volume, But most importantly, reduced counter approvals, improved closure rates and provided flexibility to our customers with the all time high average age of used vehicles on the road without taking on much incremental risk. Along with the vehicle age update, we have reinstated our pre pandemic policy for the loan approval expiration window from 30 days to 45 days for our direct and refinance channels.

Speaker 1

This change offers our customers and partners sufficient time needed to complete their respective funding processes. Although we don't have any direct exposure to the recent banking crisis, I wanted to take a moment to address the current banking landscape and specifically experienced by some of the recent regional bank failures have not been seen in credit unions. Furthermore, credit unions continue to lend to high quality consumers, There are members and given that they fundamentally operate more conservatively when it comes to managing their balance sheets with very little leverage, they are not pressured to engage in the type of investment activities seen recently by some of the failed institutions as they are mandated to serve their members, to not maximize returns. The type of loans underwritten by credit unions are more conventional in nature. In addition, it is more common for credit unions to have deliberate strategies when it comes to loan pricing from an asset and liability matching standpoint, Which further strengthens their position through lending cycles as evidenced during the Great Recession.

Speaker 1

In fact, during that time, Credit union deposits actually grew since they were viewed as a safer place by consumers to keep their money. On our last call, I shared our 2023 focus areas that we believe position us effectively for the current environment and market improvement as it comes. These are areas that support and strengthen our long term competitive advantages and include further refining and optimizing our sales channels, enhancing our technology offering and attracting and retaining talent. 1st, on sales, to operations and marketing, we are seeing good progress from the investments we made in 2022. While we added 8 new accounts in Q1 of 2023 as compared to 2018 in Q1 of 2022, we achieved our goal of shifting our results to closing larger volume accounts with a higher targeted share of business to Open Lending.

Speaker 1

The new accounts added during the quarter represent a 100% increase to an average target share to us per financial institution signed up as compared to Q1 of 2022. In addition, we continue to enroll financial institutions who operate loan origination systems for which we already have existing successful technology integration. As a result, we anticipate continued further improvement in streamlined workflow and onboarding processes to reduce the number of days to 1st revenue. Our marketing team has been instrumental in supporting our sales team with a strong lead generation program, including increased media presence In both earned and paid channels, thought leadership based on proprietary research, targeted personalized outreach to institutions, to the call, robust industry event participation to generate leads as well as the production of shareable campaign assets and other enabling sales tool. We believe that we have the right resources in place to continue executing our go to market sales strategy that will position us well as the industry recovers.

Speaker 1

Our account management team remains focused on engagement and collaboration with our existing customer base to both solidify and expand to their use of our program. During these uncertain economic times, our team members continue to work with our clients to reinforce the risk mitigation value our program offers, especially as it relates to the runoff of existing auto loans. One additional area of focus is assisting individual accounts in growing their lending footprint in their respective markets. Today's conference call is being recorded. We have also made strong progress on the technology front.

Speaker 1

In Q1, we completed the major milestone of deploying a new internal platform for claims adjudication. This platform not only brings notable efficiencies to our adjudication process, but also allows us to collect additional data needed for enhanced reporting and analytics. We're in the process of completing a transition to the public cloud, which will allow us to grow in a cost efficient manner, bring enhanced security to our framework and offer access to services and technologies not readily available in our existing on prem environment. To date, we have achieved all major internal milestones for this important initiative. Finally, a significant program design change was introduced in the quarter that will streamline workflows and significantly increase efficiencies for our partners and clients.

Speaker 1

As interest rates stabilize and our refinance channel volume returns, our lender partners will be positioned to support the to larger volumes with Lenders Protection. Lastly, on talent, we remain focused on building a strong people strategy to support and to expedite Open Lending's long term growth objectives by hiring and retaining top talent. We will continue driving company culture centered on creating a diverse and collaborative environment to unlock value and foster growth for individuals, teams and the business. That said, we will be measured and thoughtful as we add team members throughout the remainder of 2023. Having managed scaled businesses in the auto sector through the Great Recession, I continue to be encouraged by the response of our team and in our ability to manage through the current environment.

Speaker 1

I remain confident about our position in 2023 and beyond as we execute on our mission to help both lenders and underserved consumers. I believe our value proposition to the various players in the auto retail ecosystem is as strong as ever. We remain committed to our goal of gaining market share by signing new accounts and expect to be well positioned to meet pent up demand as the industry continues to recover. Now with that, I would like to turn the call over to Chuck to review Q1 in further detail as well as provide our thoughts on the outlook for Q2. Chuck?

Speaker 2

Thanks, Keith. During the Q1 of 2023, we facilitated 32,408 certified loans compared to 43,944 certified loans in the Q1 of 2022. Total revenue for the Q1 of 2023 was $38,400,000 compared to $50,100,000 in the Q1 of 2022. To break down total revenues in the Q1 of 2023, Profit share revenue represented $18,600,000 program fees were $17,300,000 and claims administration fees and other were $2,500,000 It is important to note that while our certified loan volume was down 26% in the Q1 of 2023 as compared to the Q1 of 2022, Our program fee revenue was down only 12% due to mix of business certified, which resulted in higher program fee unit economics. Turning to profit share.

Speaker 2

I want to remind everyone that profit share revenue is comprised of the expected earned premiums, less the expected claims to be paid over the life of the contracts, to less expenses attributable to the program. The net profit share to us is 72% and the monthly receipts from our insurance carriers reduce our contract asset each period. Profit share revenue in the Q1 of 2023 associated with new originations was $17,900,000 or $5.52 per certified loan as compared to $25,700,000 or to the call today's call, we recorded $5.84 per certified loan in the Q1 of 2022. In Q1 2023, we recorded a positive $700,000 change in to the estimated future profit share related to business and historic vintages. The Manheim Used Vehicle Value Index, which tracks the prices car dealers pay wholesale at auction for used cars is one of the industry factors we consider in evaluating our change in estimate each period.

Speaker 2

As you may recall, this index fell nearly 15% in 2022, the largest 1 year decline in the history of the index. However, in Q1 2023, the index increased 6.2% as compared to December. This was an unseasonable increase for the Manheim not seen since 2008. Accordingly, this increase was a positive impact on our contract asset. Another positive factor impacting the contract asset was slower prepay speeds due to the elevated interest rate environment and loans remaining in the portfolio longer than expected.

Speaker 2

Both positive events were offset by higher than anticipated loan default stress to the portfolio as a result of rising auto loan delinquencies and projected claim frequency. In comparison, during the Q1 of 2022, revenue included a positive $2,600,000 change in estimated future revenues On certified loans originated in historical periods. Gross profit was $32,900,000 and gross margin was approximately 86% in the first call for the Q1 of 2023 as compared to $45,300,000 and gross margin of approximately 90% in the Q1 of 2022. Selling, general and administrative expenses were $15,800,000 in the Q1 of 2023 compared to $13,000,000 in the Q1 of 2022 and compared to $17,200,000 in the Q4 of 2022. The increase year over year is primarily due to additional team members to support our focus on our go to market sales strategy and investment in our technology.

Speaker 2

The decrease from Q4 2022 is a result of our measured and controlled approach to to incur an incremental cost in the current environment. Operating income was $17,100,000 in the Q1 of 2023 compared to $32,200,000 in the Q1 of 2022. Net income for the Q1 of 2023 call, was $0.10 in the Q1 of 2023 as compared to $0.18 in the previous year quarter. Adjusted EBITDA for the Q1 of 2023 was to be recorded for the Q1 of 2020, there is a reconciliation of GAAP to non GAAP financial measures call, that can be found at the back of our earnings press release. We exited the quarter with $372,900,000 in total assets, call, of which $210,600,000 was in unrestricted cash, dollars 65,900,000 was in contract assets and to be recorded, we had $167,300,000 in total liabilities, call, Of which $146,600,000 was in outstanding debt.

Speaker 2

We generated $27,500,000 in cash during the quarter before repurchasing 3,100,000 shares of our common stock for approximately $21,300,000 at an average price of $6.87 per share. We have approximately $36,000,000 remaining under our Board approved share repurchase program. Now moving on to our guidance for Q2 2023. While supply may have troughed and began improving, our near and non prime consumers are continuing to feel the impact of high financing costs compared to a year ago and the upward pressure on affordability and overall demand. We are continuing to monitor our data, looking for indications that affordability is beginning to stabilize, but this continues to be a challenge.

Speaker 2

The auto sector has clearly felt the effects of the Federal Reserve's to initiate the financial results, we expect to see an improvement in our business based on our analysis of prior recessionary cycles. Until we have more visibility and certainty into our customers' auto portfolio growth, we feel it continues to be prudent to provide guidance on a quarterly basis. Guidance for the Q2 of 2023 is as follows: Total certified loans to be between $29,031,000 total revenue to be between $33,000,000 $37,000,000 And adjusted EBITDA to be between $16,000,000 $20,000,000 In our guidance, we have taken the following factors into consideration. To the affordability index of our target credit score borrower due to the continued elevated used car values, inflation, elevated interest rates compared to a year ago levels and the financial condition of the near and non prime borrower. We have a strong balance sheet, which has allowed us to thoughtfully invest in our business and repurchase our common stock at attractive prices, while maintaining financial flexibility that will position us very well as demand fundamentals improve.

Speaker 2

We would like to thank everyone for joining us today and we will now take your questions.

Speaker 3

Hi, good afternoon. Thanks for taking my questions. Keith, wanted to start out on Revisiting just the landscape at the core credit union funding sources, I appreciate The color on sort of deposit trends there. But I'm looking at kind of my notes from last quarter and I know at the time You had mentioned particularly with the rise in rates that they obviously have Probably more alternatives in terms of asset classes to invest in now. Can you just provide an update on What you're seeing in terms of kind of the overall origination pool out there, just how another way of saying just how competitive Our auto loans are attractive, are they relative to other asset classes over the last few months?

Speaker 1

Yes, I certainly appreciate the thoughtful question. Credit unions have been wonderfully resilient for Q1 of 2023. They maintain their leadership in loan originations, producing 35% of all new loan originations out there. So they've maintained their 1st place position over banks than captives. So they are continuing to do very, very well.

Speaker 1

As you know, the way the source for them to replenish liquidity is through deposits, through the runoff of existing loans and through securitizations. And I know firsthand through conversations with principals that some of our large customers that they're working diligently on progressing on all three of those fronts. And I just have to say that they've been incredibly resilient. If you look at our numbers for Q1, to back out the refi channel and look at credit unions only, we're actually up 13% quarter on quarter from the same time last year for our core credit union customer base. So the credit unions have been very, very resilient and are doing a wonderful job.

Speaker 3

Got it. That's helpful. And as a follow-up, maybe staying on sort of the same general topic, When you increase effectively increase the premiums on default policies, can you talk about, I guess number 1, I assume the credit union Assumes that added expense, just based on what you're seeing from competitors, How does that impact the competitiveness of your product when you implement another premium increase?

Speaker 1

Yes, for sure. One of the enduring value propositions that we have is that there all of the costs of the program are 1st and foremost success based only. And then secondly, they're all rolled into the contract rate with the consumer. And so none of these costs are borne by the credit union to credit union partners or any of our partners for that matter at all. Now of course, we take into account the competitiveness of the resulting rate and Model N decreases or increases in volume accordingly and have been very pleased with the performance of this most recent initiative.

Speaker 3

Got it. Thank you very much.

Speaker 2

Thank you, Dave.

Speaker 4

The next question comes

Speaker 5

from the line of Bob Napoli with William Blair. Please go ahead.

Speaker 6

Hi, this is Spencer James on for Bob Napoli. Can you

Speaker 2

guys hear me okay? Yes. Hi, Spencer.

Speaker 6

Hi. I was wondering if you could maybe talk through some of the swing factors within the guidance that might lead you to land at to the higher end or the lower end of your 3rd range?

Speaker 2

Yes, yes, sure. This is Chuck, Spencer. As we think about the guidance, obviously, the overall macro environment in auto industry leading indicators that we look at and the elevated used car values, obviously the Mannheim in the prepared comments you saw where it actually unseasonably went up, not seen Since 'eight, the continued consumer sentiment where it's at inflation As well as interest rates and the unprecedented rate environment over the last I just test 10 actions now over the last year, Which is about 500 points in rates. So all of those things, the timing of that And maybe as affordability which we talked supply is improving a bit, but that's on the new front. And if you think about our business being primarily used, Affordability is still the demand impact.

Speaker 2

So as affordability for the near and non prime consumer Improves that will help us get to the high end or to the midpoint or exceed, but or exceed that is just More improvement there around the overall macro, so.

Speaker 6

Okay. Thank you. And would you maybe say, I'm hearing you correctly that the midpoint of guidance assumes some to incremental improvements and affordability, is that fair?

Speaker 2

Yes. I think the midpoint we feel good about the to point of the guide based on current conditions and we were really proud of the efforts of our collective team in this environment in Q1 and as Keith pointed out in the call, we exceeded search revenue and adjusted EBITDA on all fronts and We're going to do everything we can to execute and run the business and do and control what we can.

Speaker 6

Thank you. Appreciate it. I'll get back in the queue.

Speaker 2

You bet. Thank you.

Speaker 4

The next question comes from

Speaker 5

the line of Joseph Vafi with Canaccord. Please go ahead.

Speaker 7

Hey guys, good afternoon. Thanks for taking the questions. Maybe an to date first on insurance carrier partners, given the news last quarter on CNA, how that is going Relative to the existing ones and volumes to each And any other comments on the carriers? And then I have a follow-up.

Speaker 2

Yes. Hey, Joe. This is Chuck. Good to hear to you? Yes.

Speaker 2

As you mentioned, CNA gave us the notice last quarter of notice to not to write new business after this year, I'll tell you it's been very good transition so far with CNA. They're still writing new business. We're transitioning it over time, but they'll write that through the balance of the year. But keep in mind, they'll still be an insurance carrier for to many loans that they've written, they're in the pool since 2017 when they came on. So it's orderly.

Speaker 2

It's a good relationship And we feel really good about that transition. I think the key is with our 3 carriers that we have today, we have plenty of capacity for our 2023 and beyond of our business as we look forward into 2024 and beyond. So we feel really good about the capacity of our 3 carriers collectively.

Speaker 7

Got it. That's helpful. And then just kind of looking at a high level in This used car market, Keith can provide some insight here. It feels like there's kind of a to soft landing, hard landing potential scenarios that could play out. Obviously, if Inventories on the used front improve pretty quickly.

Speaker 7

We may see more cert volume, but If it increased quickly, I'd assume that prices would be coming down too. How are you thinking about the inputs to your model? I think relative to to pricing, used car pricing and how that may affect your underwriting if we were to see, the used car market kind of Recover here with higher inventories rather quickly. And then obviously we got interest rates and a few other moving parts there. So, just any color on that.

Speaker 6

Yes. I mean,

Speaker 1

I think you captured all pretty well in just Just a question and this is Keith speaking. Yes, we're certainly looking at volumes being at lows in the used market And that supply side problem is then also compounded by problems with affordability, which we have enumerated. I I think on the good side of the equation, that affordability is getting slightly better. The Cox Moody Index, which we track pretty regularly, Has been up at all time highs as recently as December. It's ticked down over the last 3 months.

Speaker 1

So that's a little sign of relief to affordability, And especially affordability hits our cohort of consumers especially hard. So we're seeing a little sign of improvement there, albeit Affordability still remains at every elevated levels compared to historical norms.

Speaker 7

Great. Thanks, Keith.

Speaker 2

And Joe, one thing I'd add is on the premium increase that we Discuss the collateral adjustment that we put in, in late March. That's obviously is for the environment where the elevated used car values are higher. We felt it was prudent to similar to what we did in Q2 of 2022 to put an adjustment in to appropriately price our premium for the risk We're taking in this environment. So that's really a move to preserve and protect our unit economics as well as reward the company for the risk we take.

Speaker 7

Sure. Thanks a lot guys.

Speaker 2

Thank you, John. Thank you.

Speaker 5

Next question comes from the line of Vincent Kansick with Stephens. Please go ahead.

Speaker 8

Good afternoon. Thanks for First question, we've been tracking the OEM incentive volumes and it does seem like they've reflected and started to pick back up again. And I was wondering if you're seeing improving discussions or improving volumes with OEMs And if maybe there can be discussions in terms of just new OEMs or maybe some programs with specific vehicles? Thank you.

Speaker 1

Yes. I appreciate the question and this is Keith. We are very pleased with our current OEM captive customers. They're up sequentially quarter on quarter, so Q4 to Q1 of this year, they're up year on year, so this quarter compared to last year. So I think you kind of hit the nail on the head.

Speaker 1

The little bounce that we're seeing in new SAAR driven by a little lift in incentives is flowing through to our customers and pleased to see that and always pleased to partner with them. As it relates to future prospects, I can safely say that we have the largest number of prospects in our pipeline than we've ever had before. That's including OEM captives, very large banks and financing sources. To our value proposition is as strong as it's ever been, certainly checking the boxes of legislative requirements such to CRA, certainly anticipating depreciation of assets. So we're very pleased.

Speaker 1

Of course, these sales cycles are longer in nature than others. And so We want to be very cautiously optimistic, but pleased with the progress we're making on that front.

Speaker 8

Okay, great. Thanks for that. And just following up to talk about what macro assumptions are built into the profit share and if we should be expecting that prospective changes that were highlighted in the slides that to prospective changes and outcomes back down or if that maybe just can be reasonably volatile? Thank you.

Speaker 2

Yes. This is Chuck. Yes, I'll take the question. And I will kind of dovetail back to what we discussed on the year end call. What we've done is in the 32,400 search that we originated in Q1, those are at the $5.52 Profit Share Unit Economics, that's booked to a 62% loss ratio.

Speaker 2

And I just want to point out that that's got a 23% stress to our 50% benchmark or target loss ratio. So we feel like we've got adequate stress built into the new originations that we're putting We've put this vehicle additional vehicle value discount in place. It's going to raise premium that will safeguard future periods originations In these in the current conditions and as we think about kind of the a good number to model as you think about and you and the rest of the sell side Is $550,000,000 is a good number for our profit share where we are today. We'll continue. It's a robust quarterly process.

Speaker 2

To with our risk team, very talented risk team, Keith and I are very involved in the process and there's a lot of input. It's severity of loss, which is tied to the obviously closely to the Manheim, as well as predicting defaults and default frequency As well as prepay speeds. And what we saw in this quarter is on the profit share is the Manheim went up unseasonably and that was a positive impact In our change in estimate, but we are we do stress defaults because the rise in delinquencies as well as defaults that we project into the future. So that's kind of that If you think about that realized in Q1 and then that perspective change, it was a net call it 700,000 CIE change in estimate. But as we think forward, we feel like we've got adequate stress into the future on the current vintages and they're on the books and feel good about where we are.

Speaker 2

But obviously, It's facts and circumstances based and we'll address it each quarter.

Speaker 3

Great. Very helpful.

Speaker 2

Thanks very much. Thank you, Wouter.

Speaker 4

Your next question comes

Speaker 5

from the line of Peter Heckmann with D. A. Davidson. Please go ahead.

Speaker 9

Good afternoon, gentlemen. Thanks for taking the questions. I didn't hear You commented, and I apologize if you had, but on the OEMs combined, it actually looks like up 12% year over year. You got across some of the dynamics behind that and whether that could be sustainable. Do you think, I mean, I know you're not giving guidance for the year, but I guess what are you thinking about for the second what's implied in your Q2 guidance?

Speaker 2

Yes. Hi, Pete. This is Chuck. Yes, we've been pleased last couple of quarters with the sequential growth in our 2 OEMs. If you think about it, you're absolutely right.

Speaker 2

Q1 year over year is about a 12% increase in OEMs. And sequentially from Q4, it's about a 7%. So we were pleased to see that improvement Q4 to Q1. And then in our Q2 guide that we put out, I'd tell you that we think it'd be comparable in that range where we were at in Q1 and It may be slightly better, but we are encouraged with the OEMs and that volume picking back up as incentives have ticked back in a bit. So

Speaker 9

Okay. All right. That's good to hear. And then so with that comment, then it would imply that you don't expect to your refi partners really to kick in, in any material way in the Q2. And I guess, do you have any visibility to that?

Speaker 2

Yes. It's a good question. Refi, our supplemental that got posted to the website when the release went out, you can see Q1 of 2023 refi That 8% of our overall search compared to 1 year ago right at 40%. So clearly 1 year is a big change and we talked about the rate to in the 500 plus points that the Fed has taken action, in our current guide, We don't anticipate in the Q2 guide that refi returns during that time and we will continue to monitor that, but no big change there for Q2, especially There for Q2, especially with the Fed's action this week, 25 bps or late last week, excuse me.

Speaker 9

Right. Okay. That's helpful. And then just if I could sneak just one more in. Again, just trying to infer from kind of to the average revenue per share implied in 2nd quarter guidance, it doesn't appear that you seems like the average program fee would to revert closer to $500,000,000 or at least revert back down from the Q1 high.

Speaker 2

Yes. I'd say on the program fee in that $500,000,000 plus range for the program fee would be a good estimate.

Speaker 9

Okay. I appreciate it.

Speaker 2

You bet. Thanks, Pete.

Speaker 5

We now have a question from the line of John Davis with Raymond James. Please go ahead.

Speaker 10

Hey, good afternoon, guys. Keith, just wanted and I apologize if I missed this earlier, but commentary on just the to financial institutions, liquidity, any kind of pullback from your banks and credit unions on the willingness to to fund these loans giving liquidity challenges that they may or may not have obviously depending on financial institution. But just curious on any kind of change And behavior from your FIs.

Speaker 1

Yes. And this is Keith. I did mention earlier and happy to restate it. Certainly, what we have seen is for our credit union core customer base, ex refi and others, That actual number of certified loans quarter on quarter is up 13%. So despite everything that we talk about with liquidity challenges and these restraints, They are still making loans and they've maintained their number one position in loan origination generation compared to banks and to captives.

Speaker 1

So they are strong and are doing very well and are doing well on our program.

Speaker 10

Okay. That's helpful. And then As we think about the 2Q cert guide, obviously, you guys went public via SPAC COVID and there's been a lot of different things that are going on. The guide implies, I think, flat to slightly down search In 2Q, anything from a seasonality perspective? Or is this just kind of your best guess?

Speaker 10

I don't know if historically to Q2 is down from Q1. Just any context behind the guide? I heard that the refis are not expected to come back in any meaningful way, but any color there would be helpful.

Speaker 2

Yes. John, it's Chuck. The midpoint of the CERT guide is call it 31,000 CERT. So that'd be down slightly to the midpoint Where we exited, which was at the high end of the Q1 guide at $32,400 So March I just point out March is seasonally a high month for the company with the tax refunds, so as we think about trends into the Q2 April, We felt good about April in comparison to our reforecast as well as our guide. And we'll continue to monitor through May June, But feel good about the guide that we put out there, but just want to point out March is seasonally a high month.

Speaker 3

Okay. Appreciate it. Thanks guys.

Speaker 2

Yes. Thanks, John.

Speaker 5

And we have a follow-up question from Bob Napoli line with William Blair, please go ahead.

Speaker 6

Hi, this is Spencer again. I'm taking advantage of the busy night for everyone with a follow-up. Could you maybe just remind us the breakdown in that core credit union and bank channel between credit unions and banks? And just clarify if you happen to see any softness with certain bank customers, albeit that's probably a small piece of that total channel. Yes.

Speaker 2

You just Sancar, you're just looking for the breakdown of the search between credit union and banks Of the call it 26,362 certs that we did for the quarter. It's primarily credit unions, I'd point out.

Speaker 9

Okay, understood.

Speaker 2

I'd say 85% to 85%, 90% of that is credit unions versus banks. We just roll our regional banks up with that in the supplemental.

Speaker 6

Understood. Thank you. So that's 26,000 to 400 numbers what I should be looking at, that's 85 to 90.

Speaker 2

That's right. And that primarily You said

Speaker 6

Yes. Correct. Thank you.

Speaker 2

Okay. You bet. Thank you.

Speaker 5

There are no further questions at this time. I'll now turn the call back to you. Please continue with your presentation and or closing remarks.

Speaker 1

Well, I want to thank everybody for joining us today. We're pleased with the results that we just exhibited for Q1. And again, I want to And a sincere and heartfelt thank you to all of the Open Lending employees that made it possible. Thank you.

Speaker 2

Yes. Have a great day. Thanks for joining us.

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