Open Lending Corp (LPRO) 2020 Q2 法說會逐字稿

Good afternoon, and welcome to Open Lending's Second Quarter 2020 Earnings Conference Call. As a reminder, today's conference call is being recorded. On the call today are John Flynn, President and CEO; and Ross Jessup, CFO and COO. Earlier today, the company distributed its second quarter 2020 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.

Before we begin, I'd like to remind you that this call may contain estimates and other forward-looking statements that represent the company's view as of today, August 11, 2020. 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 information concerning factors that could cause actual results to differ materially from those expressed or implied by such statements. And now, John, I'll pass the call over to you for opening remarks. Please go ahead.

Thank you, operator. Good afternoon, everyone. Thank you for joining us for our first earnings call as a public company to discuss our second quarter 2020 results. We're very encouraged by our results in the quarter, which were ahead of the revised guidance for 2020 that we announced in May. During the second quarter, we certified 18,684 loans, which was 39% ahead of the midpoint of our revised guidance. We also reported revenue of $22.1 million and adjusted EBITDA of $15.4 million. Ross is going to go over the second quarter results in more detail in a few minutes.

But since many of you may not be familiar with the Open Lending story, I wanted to start by briefly reviewing our unique business model and our growth strategies. What Open Lending is, is a unique lending enablement platform for the auto finance market, which is powered by over 15 years of proprietary data. We have advanced decisioning analytics, an innovative insurance structure and a very scaled distribution. At its core, Open Lending helps lenders, specifically credit unions, banks and OEMs increase their near prime auto volumes and their yields while taking no balance sheet risk. Open Lending's technology platform unlocks the value for a whole ecosystem of stakeholders, including dealers, lenders, insurers, OEMs and, ultimately, the consumer.

Traditionally, the near prime consumer, which we define as consumers with FICO scores between 560 and 699 typically cannot obtain loans from prime lenders. As a result, these near prime consumers often get credit from a sub-prime focused lender that comes with higher interest rates and lower approval amounts than what is appropriate for their credit standing. Near prime auto lending market represents a tremendous opportunity of approximately $250 billion worth of loans originated each year. Through our flagship product, Lenders Protection, we provide a broader range of lenders with the ability to serve this massive underserved consumer base. So far, we've only penetrated less than 1% of this market, so there's substantial room for growth.

Open Lending operates as a B2B2C model where we served the lender who, in turn, serves the consumer. Our proprietary cloud-based software platform links customers, individual loans, portfolios and loan origination systems, which we'll refer to as LOS platforms. Our customers are responsible for all the interaction with the consumer during the loan origination and they're responsible for all loan servicing. We currently have over 300 active customers, of which we added 28 in the first 6 months of 2020, and we're integrated with over 20 loan origination systems, which covers the vast majority of the LOS market. This embeds us into the lenders workflow, and it's what enables our 5 second decisioning creating a significant barrier to entry.

On average, we make approximately $1,160 per loan without taking any balance sheet risk. The model allows us to operate with no consumer acquisition cost for distribution costs, resulting in our strong margins and our ability to scale profitably. As I mentioned previously, Open Lending brings together the various players in the auto ecosystem, offering a very compelling value proposition to the lenders through our exclusive insurance carrier partners, dealers and the consumer, which is the ultimate beneficiary in the value chain.

There's a number of competitive advantages to our model: One, our sophisticated technology platform, which allows us to make underwriting decisions in less than 5 seconds. Another one would be our proprietary data, which includes 15 years of proprietary loan data across 2 million different unique risk profiles and provides 99.1% default predictability.

Our exclusive insurance carrier relationships with highly rated insurance partners, our lender relationships and the integration with 20-plus LOSs, and we have an incredibly proven success in a highly regulated industry. I think the vast majority of our growth is attributable to our existing lenders that are already on the platform, which is witnessed by over 115% net retention in 2019. The lenders protection continues to help lenders make more loans, retain members with attractive loan offerings and increased profitability in the near prime auto space.

Just over the past few months, we've announced some larger credit unions that have partnered with us, including GreenState Credit Union, which is Iowa's largest credit union, with $6.7 billion in assets, we've signed U.S. Eagle Federal Credit Union, which is a $1.1 billion institution based in Albuquerque, New Mexico and Clark County Credit Union, which is an $850 million institution based in Nevada.

I also wanted to highlight that a few weeks ago, we were also named the winner of NAFCU Services 2020 Innovation Award. NAFCU is the National Association of Federally Insured Credit Unions. And this innovation award is an annual program that honors the transformational and valuable contributions to the credit union industry. The winners are selected by a panel of top executives and members of the media based on the degree of innovation and impact on credit union success.

While our core business of helping credit unions and banks make more auto loans, continues to grow strongly. We also see numerous other areas for growth. One of those areas is the OEM captive market. We currently serve two different OEM captives, which we expect to continue to ramp and will be a key driver of our growth. The OEM captive market is substantial with a TAM of more than $1 billion in annual revenue.

The OEM captive certifications are strong in the first quarter, demonstrates tremendous growth prior to the COVID-19. We've also seen positive momentum with OEM #1. As in mid-April, we expanded to all their dealerships nationwide. This nationwide expansion has manifested itself in certification growth of nearly 250% from April to July, and we're currently seeing applications from over 80% of their nationwide dealerships.

Continual discussions and analysis are underway to broaden the utilization of Lenders Protection with OEM as well, and we're currently servicing customers with 560 to 619 credit scores but they're also looking to expand that, that credit spectrum north to 679. They're also interested in our technology enhancements for subvention that are underway with OEM #2 and as soon as it's ready, they want to explore this as well. And for those of you that might not be familiar with subvention is where the manufacturer provides cash to the dealers to be able to lower the interest rate and get consumers into a better interest rate loan, we're in the process of figuring out how to build that technology that will incorporate that excess cash, bringing the rate down, without us having to incorporate it into the contract rate.

Another thing is as a result of the market turbulence in COVID, OEM #2 withdrew its capital from near prime lending, which resulted in materially lowering certifications over the past few months. We are anticipating that they will return to the near prime market in the fourth quarter, given that they are also continuing to work with us on the technology such as subvention capabilities. With the addition of subvention, we do believe the future certification opportunity with OEM #2 is going to be larger than previously anticipated. Specifically, the work that technology and the finance teams they're working on with OEM #2 on the subvention, will allow us to help them finance new vehicles through the program, which triples our potential opportunity with that OEM.

We're also working to add multiple OEM opportunities that are in our pipeline, and some of those could launch as early as 2021. Another important feature to Lenders Protection is the future ability to provide banks and OEMs with CECL relief, which CECL stands for Current Expected Credit Losses, the new regulation that the majority of banks and any lending source has to comply with this calendar year. A few of our largest customers have had numerous conversations with the SEC. And what they've been told is that with slight modifications to our insurance program policy, they would be able to receive CECL relief where future claim recoveries could be factored into that CECL calculation. We're actually working with our actuaries and our insurance partners to assess the modifications, and we hope to implement them quickly to unlock this additional value for all of our customers.

In the near term, we also plan to expand our lender and our capital basis as well as launch into new channels. In the longer term, we expect to broaden our offering into adjacent asset classes, such as leases and to establish a broader auto lending platform to make our risk decisioning available to our clients even beyond that near prime sector.

And then lastly, we see substantial opportunity in penetrating new geographies and other consumer asset classes.

Turning back to our recent performance. So the COVID-19 pandemic rapidly did change the world, the economy and specifically the auto dealership industry during the second quarter. As we mentioned previously, we saw positive trends in our certification volumes in the second half of April, and we saw those positive trends continue throughout the remainder of the second quarter. We believe these trends are driven by the low interest rate environment, the demand for used cars and commuters shifting away from public modes of transportation. According to a recent study that we saw from J.D. Power's, wholesale vehicle values have recovered from their lows in mid-April, and the weekly wholesale auction price index is back to pre-COVID levels. So our lending partners, especially credit unions, have been very resilient and continued to utilize our platform.

We also swiftly adjusted our business in response to the challenged economic environment, and we implemented changes to our underwriting model, which largely took effect in April and tightened our underwriting standards and increased our premiums. We also enhanced our focus on our refinance program to drive additional certified loan volume. This opportunity is with near prime consumers. And what it does is allow them to lock in a lower rate, particularly in these times, helping that average consumer save money is extremely important to us. This can be completed 100% virtually and it's a unique value proposition for non-auto lenders. In the second quarter alone, we partnered with 17 new refinance lenders.

While this pandemic has had an impact on our business, our model is resilient through tough economic times, which has proven in our results year-to-date. During the great recession of 2007 to '09, we saw an increase in near prime borrowers and a greater demand for default insurance, which is similar to what we've been seeing over the past few months. As a reminder, our focus is on the used car market and the low-cost of capital lending partners is a key competitive advantage that is more relevant ever than before.

Insurers have been modestly impacted relative to other industries and are currently anticipating profitability through 2020. Most of our credit union and bank lender customers are very well capitalized and expected to have ample liquidity through this time. Unique to this time, we do believe there's significant growth opportunity due to the anticipated pent-up demand and the enhanced focus on private modes of transportation resulting from health concerns. We're hearing that most people don't want to be using Rideshare and public transportation given the health concerns that are out there today.

Low rates and dealer incentives may cause lenders to seek higher-yielding auto loans, while taking steps to mitigate their credit risk. And finally, the macroeconomic instability, combined with FICO 10's rebalancing of credit scores, could potentially enlarge the near prime consumer universe, thereby potentially increasing the size of our TAM.

And then finally, I want to discuss our business combination with Nebula Acquisition Corporation. On June 10, we completed that combination and our common stock began trading on the NASDAQ stock market under the ticker symbol LPRO, which stands for Lend Pro on June 11, 2020. This combination allows Open Lending to execute on its growth plans as well as to explore other substantial adjacent market opportunities that are attainable for the business. I'm really excited to work alongside our outstanding management team, which really helped us grow this company to where it is today as well as our new Board of Directors who bring extensive experience and insights as we continue to execute on Open Lending's growth plan as a public company. With that, I want to turn this over to Ross and take us through the other highlights.

Thanks, John. Good afternoon, everyone. I wanted to spend a few minutes talking about our revenue and pricing model as well as our revenue recognition under U.S. GAAP for our profit share and the difference between cash and GAAP before diving into the details on the second quarter results.

On average, we generate revenue of approximately 5% of the balance of each loan originated. Our revenue is comprised of three streams: Program fees, paid by the automotive lenders for the use of our Lenders Protection Program, which I refer to as LPP. Two, underwrite loans, administration fees paid by our insurers for claims administration services. And profit sharing from insurers providing credit default insurance protection to automotive lenders.

The first two streams provide a fee-based revenue for the loans process through LPP, and the third stream is based off the underwriting profit share over the term of the loan. Nearly 70% of the expected revenue is collected in the first 12 months after loan origination, with the balance comprised of administration fees and underwriting profit share that are realized over the remaining life of the loan.

As it relates to the profit share per ASC 606, we recognize the full profit share upfront in the month alone is certified and generally collect 1/2 of this in cash in year 1 and approximately 70% by the end of year 2. As John mentioned earlier, we generated $1,160 in revenue per loan on average from these three revenue streams.

We adopted ASC 606 in January of 2019 per U.S. GAAP. As I mentioned, our profit sharing is recognized upfront, as we fulfill our performance obligation under the placement of insurance, at which point, we are entitled to the profit share for all future net premiums earned. To determine the profit share revenue, we use forecast of loan level, earned premium and insurance claims. These forecasts are driven by the projection of loan defaults, prepayments and severity rates. To the extent these assumptions change, our profit share revenue is adjusted, respectively, based off of our revised estimates.

Now moving on to our Q2 results. We facilitated 18,684 certified loans and 11 new contracts were executed with lenders during the 3 months ended June 30. In addition, we have 12 active implementations with go-live dates in the next 60 days, which is projected to produce approximately 4,000 certified loans annually, once implemented.

Total revenue for the quarter was $22.1 million, with profit share making up $12.2 million, program fees, $8.8 million and $1.1 million in claims administration fees. Gross profit was $20.2 million for the quarter, a decrease of 12% due to lower levels of loan certified in Q2 of '20 compared to the same quarter of '19 due to the impact of COVID-19 pandemic.

General and administration expenses were $14.6 million in the second quarter compared to $3.3 million in the previous year quarter. The increase is due to $9.1 million in transaction bonuses awarded to key employees and directors in connection with the business combination and $2.2 million of noncash charges in connection with the accelerated vesting of legacy share-based compensation awards as a result of the business combination. Excluding these transactions and related costs, general and administrative expenses would have been flat to the previous year quarter.

In the short term, we do expect to experience an increase in our G&A expenses, as we implement the internal control compliance procedures required of public companies. Operating income for the quarter decreased to $13.6 million as compared to the second quarter 2019, primarily due to the previously mentioned transaction costs. As a result, operating margins decreased from 69% for the second quarter of '19 to 17% for the second quarter of 2020.

Net loss for the second quarter of 2020 was $49.8 million compared to $17.5 million net income in the second quarter of '19. We had approximately $60 million in expenses in the quarter that directly impacted our results that were associated with the business combination. These costs include a $48.8 million noncash charge as a result of the change in the fair value of the contingent consideration earnout shares, which were accounted for as liability awards. As of August 10, the share price performance milestones have been achieved on all three of the contingent consideration awards. So beginning Q4 of 2020 and beyond, net income will not be burdened by any changes to the value of the continued consideration earnout awards. The remaining $11.3 million of the $60 million was transaction bonuses paid to key employees and directors and the accelerated vesting of share-based compensation under the legacy plan that I discussed earlier.

So let me turn to adjusted EBITDA, which excludes these significant charges directly associated with the business combination. A reconciliation from GAAP to non-GAAP financial measures can be found at the back of the press release.

Adjusted EBITDA for the second quarter of 2020 was $15.4 million compared to $18.1 million in the second quarter of 2019. A decrease in adjusted EBITDA quarter-over-quarter is primarily due to the lower level of certified loans as a result of COVID-19 and the over impact of the U.S. economy.

We exited the quarter with $187 million in total assets, of which $26.3 million was unrestricted cash. Also, I wanted to briefly give you an update on our share count. We have a total of approximately 122 million diluted shares outstanding as of August 10. We posted an updated investor presentation to our site, which has a slide that lays out our fully diluted share count.

Now moving on to our guidance for 2020. Based on our second quarter results and performance in July, we remain confident in our previously issued 2020 guidance range. We continue to expect total search to be between $85,000 and $101,000; total revenue to be between $89 million and $108 million; adjusted EBITDA to be between $54 million and $70 million; and adjusted operating cash flow to be between $34 million and $41 million.

Our team is continuously evaluating the macroeconomic climate, and we still feel confident in our previously provided 2021 guidance. As the business continues to rebound from April lows, we look forward to sharing a more meaningful forecast update early next year. With that, I'll turn the call back over to the operator for Q&A. Operator?

(Operator Instructions) Our first question today is coming from Ashish Sabadra from Deutsche Bank.

Congrats on the good quarter. And thanks for providing color on the OEM -- the opportunities. I wanted to focus on the OEM opportunity in particular. So on OEM 1, you mentioned the nationwide rollout and the significant growth that you've seen. As we think about -- as it expands from 80% to 100% and also expands the score, how should we think about the opportunity on the OEM 1 side? And then on the OEM 2 side, can you just give us any color on how do we -- how should we think about the opportunity with OEM 2 as well?

Thanks, Ashish. On OEM #1, we were really pleased that they decided to expand nationwide. And basically, they have about 1,838 dealerships and I think our last look, they've gotten into 80% of them already. Our volume in April compared to July is basically -- July is about 250% of that. And that's within the credit score range of 560 to 619, they just confirmed with us that they plan to expand beginning in September in a pilot for 3 months. Where basically in one of their geographic areas, they're going to expand to a 620 to 679. So that additional application flow will be coming our way and then targeted in December to expand to the rest of the nation with those similar credit peers.

As it relates to volume, we think that if you compare that to where they were in July, we keep looking at 2 to 3x that level with this expansion. So we're very pleased with where they are forecasted. They're devoted to it. Your question about OEM #2 and the rollout is we've been working hand-in-hand with them on the technology to get subvention ready. We have ongoing weekly meetings. We're in the QA phase of that. And so the first part is getting our technology ready. So when they give us the green light, we will be ready for that.

On the second part is, we're working with our insurance carriers and OEM #2 to make sure that our insurance product is compliant with the SEC and the and the GAAP requirements that are necessary from the CECL standpoint, and are very pleased with that progress and believe we'll have some good news to report here shortly in that regards.

As for the expansion, I think all that is targeted later on this year and more to come on that.

That's great. And would you be able to size that opportunity like in terms of certs, annual certs if OEM #2 were to go live? Like what is the opportunity that we're talking about?

I mean I think the annual kind of cert from what OEM #2 would be somewhere in the $100,000 range from -- when subvention is ready as well as expanding back into their non-branded arm.

I think the model will see for $10,000 to $12,000 certs a month.

That's right. That's great. That's great. And then you talked about having conversations with multiple OEMs with them going live as early as 2021. I was just wondering if you could provide any color on the conversations. Or are you doing any kind of data study for any of the OEMs? Just any color on that front?

Great question, yes. We continue to make great progress there. I think they all seem to know what others are doing. So our successes that we're having with OEM #1 and two definitely are kind of leading the charge with the other large OEM here in the country, where, as we speak, receiving their data from compliance, so we can do our study and hopefully deliver those results back but we have -- our team has multiple conversations with 3 or 4 of the other OEMs.

That's great. And maybe one final question for me. Just on the refinance side. You've highlighted 17 new refinance lenders. How do we think about the refinance opportunity going forward?

Well, what we've been finding is we've -- in addition to the lenders we brought to the table. We're now doing business with between 5 and 7 different refinance channel partners. They're the ones providing the applications. At the last time we talked with all of them, they tell us there's upwards of 100,000 apps a month, falling through the cracks that they're not finding homes for. So by us bringing these funders to the table, we believe that there's a significant lift that we're going to be able to help these consumers get out of these high interest rate loans and into something that's a lot more affordable for them. We see that we're taking rates from as high the low 20s to 11.5% interest rates, saving the consumer anywhere from $300 to $400 a month. So we think there's going to be a significant lift. We've seen a number of our job financing sources that we brought on just in the last 2 to 3 months, increased their volume with us by upwards of 200 certifications each month from some of them.

Our next question today is coming from Joseph Vafi from Canaccord.

John and Ross, and congrats on getting to your first earnings call. I hope you're enjoying it so far. But good results. I just wanted to dive in a little bit more on the LPP and predictive accuracy. I know it's -- that's really, I think, the key selling point that predictive accuracy at over 99% on default rates. Has there been any change? Or have you learned anything during this pandemic relative to that predictive capability? Or is it kind of just holding steady in that range?

It has been holding steady. We originally thought when we forecasted our Q2 coming into that, that we would have to make some adjustments to our portfolio coming into the year, where we had increases of defaults on top of what our models were. And what we saw, I think, even through this past month, our claims activity here are still well below where they thought we would be when we revised those estimates. So as we started out, our prediction was -- basically, we were predicting about 1% more claims that actually we've experienced. Well, through July, we've actually predicted about 2.1% more claims, which means that there are fewer claims coming in than we're actually seeing. And -- but we do know that we will reverse here. We predicted that will reverse starting in the third quarter and fourth quarter and then normalize thereafter. And it seems like the trends are just spot on from where our revised 606 guidance was last quarter.

Okay. That's helpful. And then secondly, just trying to frame the opportunity in CECL because it's a separate benefit for the lenders on top of being able to assess risk. And if you look at maybe some of the bigger lenders, maybe an OEM finance arm or something, I guess, the first part of the question is, could you extend the LPP into prime loans, even just for the sake of providing CECL relief? And if you looked at a balance sheet of a larger lender or one of your larger customers, how much theoretically could providing CECL relief, really extend their balance sheet out if it was kind of fully implemented?

It's funny to ask that, Joe, and I appreciate the question because some of our largest lenders are actually reaching out asking us to do just that because of the predictability. So we're actually in the process right now of gathering data from our largest credit union. I was in there last Friday. They want us to make sure that we can build into the technology that would interface with their FICO LOS system, the ability to help them price their prime loans, carving out a piece that would be profit to the insurance company and tell them what they need to set aside as a reserve and build it into the interest rate. We've heard from some of our second and third tiers shops locally here that they think there's upwards of 50,000 apps a month just on the auto side that we can help them price with that type of technology. So it's certainly something that's on our short-term list of priorities after we get the second or the third OEM and the second or third insurance carrier up and running. But we're getting a lot of requests from our clients to do that. So it's certainly on the top of our list of things to do, and I think it could be very profitable for us.

Also, I look at it, Joseph, as an acceleration opportunity, like for those -- when we have this nailed down, and we're in there talking to a new prospect. I mean, it's really just an opportunity cost -- lost for them to wait. I mean if we can have this in our quiver to go in there there's really no reason they shouldn't say yes and allow us to go forward from a sales standpoint.

One thing I'd add to that, Joe, which I didn't mention, too, is we've always touted the fact that we're not just a technology company and the provider of insurance. But one of the key assets we hold here is data. And every one of these large shops are willing to give us all of their performance data to be able to model that out in our technology, this just, again, creates a huge data ball for us. So the fact that we can get 5 or 6 years' worth of prime performance from these different funding sources we have I think really just adds to the value of what we bring to the table.

Sure. That's really exciting. And then just finally here, just kind of the cadence of the business and how it works. I mean, I think you mentioned that you signed 11 new contracts in the quarter and that you've got 12 implementations with go-live dates. I wondering if you could kind of just explain that kind of timing to -- from contract execution to getting the implementation ready and to get to go-live just to understand how that lead time works and what it provides for your visibility?

Sure. We appreciate it. And one of the things we do when we do decide to bring on an account, as we do pretty much a data study like doing for these OEMs to identify what lift we can actually provide them. And obviously, if you can provide a much bigger lift for us than you can for a smaller shop, they're a little bit quicker to react and sign contracts. Normally, from the contract signing to going live, we've got the implementation time line down to as little as 6 weeks. That's if the interface is in place. And you've probably read on some of these releases we've done, we've got upwards of 20 different LOS interfaces in place today.

If they're in place, it's a simple switch that we turn to get the trigger set up. But I would say 6 weeks on the short side, it might take up to 8 weeks if they drag their feet, some of it's driven by their time. We can get it done with 5 different 1 hour phone calls that are normally scheduled 1 to 2 weeks apart, depending on their availability. And then a lot of them we can launch without ever even being on site. So it's really a matter of them being able to pull their different departments together to get on that phone call and get the pricing set up, the different elements that we need to put in place to get it.

Our next question is coming from Matt O'neill from Goldman Sachs

Can you hear me now, just to be clear?

Yes, sure, Matt.

Great. Just to follow-up on the various OEM questions. And given it sounds like the pipeline continues to grow, would you say that there's a potential here for the first one kind of fully up and running and others start to kind of see what you're doing, that there could be a sort of a domino effect here, given your place in the market. It could easily theoretically work with all of them at a point in the future. Is that ultimately the right way to think about it, without getting over my SKUs potentially?

I think so. I mean, the ultimate goal of the captive is to serve the OEM. So the better we can serve them and making their loans more attractive through having subvention built our software, the more advantageous it is to have our program in place. So I don't really see a limitation coming about from that whatsoever.

Matt, I think I expand a little bit too. I think to your point, we've seen exactly the same thing on the credit union space. When you get one of the big ones up and running and they have done their due diligence, if you will, you'll find that the others look at it and go, what are we missing? Why aren't we doing this? And we have found out to be very effective on both sides of the coin, whether it's OEMs or credit unions.

Yes, that makes a lot of sense. Maybe I can turn the discussion over to the insurance side. So currently, two partners. I know there's been some talk of adding a third. I was just looking for any kind of update or progress there since last we spoke?

Sure. As we mentioned probably back as early as March, we had a meeting scheduled when COVID broke out. We do have a third carrier that's interested in what we're doing. We kind of put that meeting on hold to get through the COVID situation. We've reengaged with them. They're interested in putting a phone call on the table to start the process again. We've mentioned a few times, you have to keep the carriers engaged by not committing a certain dollar figure of volume, but they want to know that there's going to be enough premium coming in to get them excited about it. We currently have a really long runway ahead of us as it exists today. But the two carriers we have, but as we get further down the road with whether it's third or fourth OEM, we do have a third carrier that's interested in getting engaged and meetings are being scheduled as we speak.

I think fortunately, we have a great actuarial firm and our insert broker lock in that Dallas has been instrumental in getting some additional meetings set up, and we look forward to pursuing those and having progress reports here in the near future.

Got it. And then I just had maybe two quick ones. One, around the pricing increase that went into place, I believe it was about 15%. Can you just kind of describe how that's being digested by the market? And then maybe just I'll close out with my follow-up just around, should we expect an adjusted EPS reconciliation either in the Q? Or could you help us with that?

Yes. First, on the contract rate question to it is the additional increase in premium caused contract rates to go up in some places up to about 80 to 90 basis points. We do not think that has really affected the capture rate. We think some of the other things that we did to protect ourselves during this COVID period have been very beneficial and are working as designed, like shortening the number of days from 45 days to 30 days from an application being open and requiring proof of income where, formally, we were not doing so. Those were prudent. So our capture rate has gone down a little bit as designed. But I don't think it's at all because of the increase in premium. As far as -- yes, our adjusted EBITDA is in the press release, Matt.

Reconciliation.

Yes, I was just referring to an EPS figure.

No, I don't think -- I don't believe that's in there, is it?

No, it's not in there, Matt.

We'll follow up offline on that for sure.

Next question is coming from Mike Grondahl from Northland Securities.

And congratulations on the progress. The first question, just when you look at the credit unions you're signing up recently, are they larger, similar in size and then when you look across the portfolio of credit unions, directionally, are many of them expanding the FICO score range that they're using that you guys are helping them with?

Yes. Mike, two great questions. And the first one is, yes. The ones that we're signing now seem to be larger. We just signed what, I think, the largest credit union in -- our second largest in Iowa.

The largest, yes.

$6.7 billion in assets. And the other shops that we're signing on are in $1.865 billion. So they're on the larger side, and along with that, we are seeing some expansion of the scores. Every time we -- the phone calls I've been on personally with some of these accounts, what they're saying is we bump up our FICO scores from 620, 640 range up into the 660, 670 on because we just don't know who is going to default and who's not, who's going to have a job. So we are starting to see a little bit of expansion on the scores as well as some of the larger shops signing up.

I think some of the webinars we've done in the past and some of the -- our account managers are getting with our accounts. Talking about the impact that bringing alternative data scoring into a model and the positive effect of that, that if you're not using alternative data, then you're mispricing about 2/3 of your applications, especially if you're in the near and non-prime space that we're in.

Got it. Got it. Secondly, used car sales have been really robust. Used car values have been really robust. Do you worry at all about just the supply of used cars might be waning and that could inhibit sales at all or what you're doing the health credit unions. Are you seeing anything of that nature out there?

I'm not. I mean, you know what you keep hearing about Hertz is about to put a bunch of cars out into the used car market. I mean, I'm not hearing from many of our shops that we do business with if there's any lack of cars out there that people are struggling to find the right one.

Certainly a lack in the new area, but not used.

Our next question is a follow-up from Ashish Sabadra from Deutsche Bank.

Just kind of quick question -- modeling question. Do you plan to provide -- historically, there were some details around the insurance partners' annual earned premium as well as the average loan premium. I was wondering if you plan to provide that going forward. Or can we get that for the second quarter?

It will be in the 10-Q.

Okay. Okay. That's good. That's very helpful. And I was just wondering, is it possible for us -- for you to provide the OEM certs for third and fourth quarter of 2019. We have the number for the full year of 2019, but any color on the third and fourth quarter?

OEM, no.

Our next question is coming from Joseph Vafi from Canaccord.

Just maybe one follow-up. So I think it's just interesting that maybe credit unions decided to jump in, in the middle of the pandemic. And I think probably for some of those credit unions that near prime, this was their first entry into it in a kind of an uncertain macro. So what was their thought process in terms of theoretically taking on more risk in their loan book given the macro by moving into a new market with potentially lower scored borrowers?

Yes. I think, Joseph, what we're finding is a lot of these shops that just recently signed down, we have been courting for some time. They've known what we've done. They've just had other things on their plate to take care of. And then all of a sudden, you see this pandemic hit. You get a lot of the lenders. When you saw -- I think it was Wells pulled out of financing non franchise dealers. A lot of these credit unions just started to see a lot more applications, a lot more people applying for loans. You saw a huge influx of cash. You see a lot of credit unions that are just like what happened in '08 and '09, when the markets are going south, all of these people want to take their money and put it in a safe place. So I think it was almost like the perfect storm for credit unions that they've got all this money flowing in the door. It's cheap capital, and they're looking for ways to put it out there, and they know we can provide that solution to help them get 3x to 4x the yield that they're getting on a prime loan. So I think it's just a combination of a number of things happening at the same time and them seeing a lot of press about what we've been doing, as a result of everything we've put out in the markets over the last 6 months. Our name is out there more often than it was before.

Okay. That's helpful. And then just I'm trying to understand a little bit the expansion of the FICO range with OEM 1. It sounded like the initial range kind of dipped down pretty low and that the expanded range is adding on kind of at the higher end of the new range or the additional range. So I'm just kind of wondering why expanding higher? And why wasn't that the original FICO range from the beginning in near prime, if that makes any sense?

You bet, Joseph. Yes, it's a great question, Andy. So believe me, when we were trying to sell them, we didn't just try to sell them on this 560 to 619 swath. We tried to sell them and typically, we go up to about 650. That's our normal deal. And so I believe what's happening is they kind of realize that they like our technology. They like the fact that we don't have human interaction and our underwriting. That we come back in 5 seconds with a response that's consistent and defendable from a SCRA standpoint and that everybody is similarly situated gets decisioned the same way. And so I really think what's happened is, when we were originally discussing with them, I think they said they probably have about $450 per funded loan and cost for underwriting when they go through their normal process. And so now they've actually looked at what we're doing and providing this automation, and we can significantly reduce their internal costs that they used to have and possibly reduce some of that, which is a huge benefit of them. So just that first pilot starts in September. It's a 3-month one. Unlike the first time they started with us, if you recall, they were about 7 months before expanding. Now they've picked 3 months as a time period to evaluate it before expanding further.

And Joseph, we've seen this in other areas, not just with OEM #1. You get a lot of institutions that feel like they're really good at pricing down to, say, 660 and above. And they're only going to send you the lower-tier because that's where they're uncomfortable buying without us, which I think is what you're seeing here is they've seen that we do a great job from pick a number, 620 down well. So if we can get that safety net from 620 up to 660 in, and it had very little impact on the rate to the consumer, and it's a sellable loan, why don't we just put it on the same portfolio with insurance on it,. Which at the end of the day, if we solve the CECL requirement, that's a huge capital relief to them in that area.

Yes. So the way I read into it too is they obviously are having great underwriting performance experience, with what we've done with them thus far and saving money on the underwriting from a cost standpoint. So this continued to expand, and their dealers must like the quickness of that decision as opposed to what they're used to from some of these applications taking 15 to 30 minutes to underwrite to come back and pretty much that application has gone to some other lender by that time.

That's super helpful. And then I'm just going to ask one more. I'm going to throw it out there. You don't have to answer it. But a lot of other Fintech guys have been kind of talking to us about July and early August in terms of what they're kind of seeing just given how much change everybody is undergoing right now. I just wanted to know if you at least wanted to toss out some directional commentary on certs in July and maybe early August. And great results again.

Yes. I mean, I think we're very encouraged with what we're seeing. I mean we've got some momentum that we're -- that's coming into August, coming off of July. And from an origination standpoint, I can't see why there's going to be any slowdown whatsoever.

Thank you. We reached end of our question-and-answer session. Ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.