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OL

Open Lending Corp (LPRO)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 results were severely impacted by a negative profit share change in estimate of $81.3M tied to underperformance in 2021–2024 vintages, driving total revenue to $(56.9)M, Adjusted EBITDA to $(73.1)M, and diluted EPS to $(1.21) .
  • Certified loans were resilient at 26,065 vs 26,263 in Q4 2023 and above prior Q4 guidance (20,000–24,000) despite credit tightening actions; however, profit share adjustments overwhelmed fundamentals .
  • Management recorded an $86.1M valuation allowance on deferred tax assets, materially increasing tax expense and net loss to $(144.4)M .
  • New CEO Jessica Buss articulated a plan to implement more sophisticated, real-time, insurance-style pricing and underwriting to stabilize profit share economics; pre-market reaction was negative (~−16%), highlighting investor concern but setting expectations for a strategic reset .

What Went Well and What Went Wrong

What Went Well

  • Certified loan volume held steady YoY and exceeded Q4 guidance (26,065 vs 20,000–24,000), reflecting continued customer demand and onboarding momentum .
  • Strategic progress: signed the third OEM captive finance partnership (pilot ramp in early 2025), expanding distribution and validating the value proposition with large enterprise customers .
  • Management outlined concrete pricing and underwriting improvements: “sophisticated, segmented and real-time data-driven pricing” and further enhancements to tools/scorecards to better predict defaults and reduce volatility in profit share revenue .

What Went Wrong

  • Profit share change in estimate of $81.3M drove total revenue negative and gross loss of $63.2M; the core drivers were deterioration in 2021–2022 vintages (≈40%), elevated delinquencies/defaults (≈20%), and two risk cohorts (credit builder tradelines and thin positive tradelines) in 2023–2024 (≈40%) .
  • A valuation allowance on deferred tax assets ($86.1M) materially increased tax expense, pushing net loss to $(144.4)M for the quarter and $(135.0)M for the year .
  • Unit economics degraded: profit share per cert on new originations fell to $314 in Q4 vs $501 in Q4 2023; approval rates and mix were tightened to de-risk cohorts, pressuring near-term volumes and profitability .

Financial Results

Consolidated P&L and EPS vs prior quarters (amounts USD millions except EPS; periods old → new)

MetricQ2 2024Q3 2024Q4 2024
Total Revenue$26.727 $23.476 $(56.924)
Program Fees$14.836 $14.161 $13.734
Profit Share$9.333 $6.822 $(73.160)
Claims Admin & Other$2.558 $2.493 $2.502
Gross Profit (Loss)$21.014 $17.349 $(63.189)
Operating Expenses$17.024 $15.483 $15.368
Operating Income (Loss)$3.990 $1.866 $(78.557)
Net Income (Loss)$2.902 $1.437 $(144.436)
Adjusted EBITDA$9.859 $7.767 $(73.083)
Adjusted EBITDA Margin37% 33% 128%
Diluted EPS ($)$0.02 $0.01 $(1.21)

Segment/Revenue Components (USD millions; periods old → new)

ComponentQ2 2024Q3 2024Q4 2024
Program Fees$14.836 $14.161 $13.734
Profit Share$9.333 $6.822 $(73.160)
Claims Admin & Other$2.558 $2.493 $2.502

KPIs and Unit Economics (periods old → new)

KPIQ3 2024Q4 2024
Total Certified Loans27,435 26,065
Credit Union & Bank Certs21,808 22,260
OEM Certs5,627 3,805
Avg Profit Share per Cert (ex historic CIE)$502 $314
Avg Program Fee per Cert$516 $536
Loan Origination Volume ($000s)$772,469 $732,129
Average Loan Size ($)$28,156 $28,089
New Vehicle Certs % of Total12.9% 11.9%
Used Vehicle Certs % of Total87.1% 88.1%
Indirect Certs %77.3% 77.0%
Direct Certs %19.5% 19.3%
Refinance Certs %3.2% 3.7%

Guidance Changes

MetricPeriodPrevious GuidanceActual/Current GuidanceChange
Total Certified LoansQ4 202420,000–24,000 26,065 Beat
Total RevenueQ4 2024$22–$26M $(56.924)M Miss (profit share CIE)
Adjusted EBITDAQ4 2024$7–$10M $(73.083)M Miss (profit share CIE; tax allowance effect on GAAP)
Total Certified LoansQ1 2025N/A27,000–28,000 New issuance

Notes: Q4 guidance issued on Nov 7, 2024 did not contemplate the magnitude of the Q4 negative change in profit share estimates; Q1 2025 guidance provided only on certified loans .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2–Q3)Current Period (Q4)Trend
Profit share change in estimate (CIE) and vintage performanceQ3: $(7.0)M CIE; volatility driven by 2021–2022 vintages at peak used car values; expectation of lower volatility as vintages roll off Q4: $(81.3)M CIE; ≈40% from 2021–2022 deterioration, ≈20% macro delinquencies/defaults, ≈40% from credit builder tradelines and thin positive tradelines in 2023–2024; creation of excess profit share receipts liability $47.6M; contract assets reduced $33.7M Deterioration recognized; reset underway
Credit tightening and underwriting (LP2.0)Q3: Implemented LP2.0, raised minimum cutoff, targeted price optimization, expected approval rate down ~4% Q4: Further tightened cohorts (credit builder, limited positive tradelines); plan to reduce credit builder mix to <5% in 2025, limited positive tradelines to <0.5% Continued tightening; mix shift to quality
Pricing model and unit economicsQ3: Focus on optimizing unit economics amid macro headwinds Q4: CEO plan for “sophisticated, segmented, real-time” pricing; insurance-style quarterly rate reviews; target toward more predictable profit share Strategic pivot to insurance-style pricing
Technology initiatives (Point Predictive)Partnership launched; aim to reduce friction, improve capture rate; rolled across customers Reinforced as conversion enhancer; complements underwriting tightening Adoption ramp; conversion support
OEM channel expansionQ3: pipeline and enterprise focus Third OEM captive finance signed (pilot in early 2025) Expanding OEM footprint
Insurance carrier capacityNot emphasizedCarriers supportive; ample capacity; long-term profitability strong; profit share split unchanged Stable capacity, relationship intact
Macro: used vehicle values/tariffsQ3: Inventory/affordability improving modestly; Manheim ~203–204; rates elevated Q4: MUVVI decline from 257.7 to 204.1 drove negative equity/severity; tariffs could help back book (higher collateral values) but require forward pricing discipline to avoid 2021–2022 pitfalls Monitoring macro; adjust pricing forward

Management Commentary

  • “We identified new information that negatively impacted our outlook on the performance of our back book…leading to an $81M negative change in estimate…further deterioration of our 2021 and 2022 vintages and two additional factors that negatively impacted our 2023 and 2024 vintages.” — Charles Jehl .
  • “My goal…will be to focus on profitable unit economics…with a pricing approach that seeks to enhance predictability and reduce volatility…We need a sophisticated, segmented and real-time data-driven pricing model designed to enhance predictability of the profit share component of revenue.” — Jessica Buss .
  • “We anticipate…reducing the mix of borrowers with credit builder trade lines to under 5% in 2025…[and] borrowers with limited positive trade lines from 10% in 2024 to less than 0.5% in 2025.” — Charles Jehl .
  • “We are very excited about signing OEM 3…in pilot…growing across their dealerships.” — Charles Jehl .
  • “Currently, we expect total certified loans to be between 27,000 and 28,000 in the first quarter of 2025.” — Charles Jehl .

Q&A Highlights

  • Structural reset and insurance-style economics: CEO emphasized actuarial, predictive modeling and quarterly rate reviews to stabilize profit share volatility and improve unit economics across segments .
  • Profit share exposure and vintage write-downs: Management indicated significant write-downs taken on 2021–2022 vintages; unit economics previously booked largely written down on those vintages; details on outstanding principal to be provided later .
  • Addressable market impact from credit builder cohorts: Tightening actions expected to reduce underperforming cohorts materially without significant impact to overall volume; focus shifts to quality growth via segmented pricing .
  • Insurance carrier capacity and economics: Carriers remain supportive with ample capacity; long-term profitability strong; no change contemplated to profit share splits (Open Lending retains 72%) .
  • Tariffs: Potentially positive for back book (collateral values/severity), but requires forward pricing discipline to avoid repeat of 2021–2022 high-price dynamics .

Estimates Context

  • S&P Global consensus for Q4 2024 revenue and EPS was not available at the time of analysis; results are therefore compared to company guidance and prior periods. Values retrieved from S&P Global where shown in other contexts.*

Key Takeaways for Investors

  • The magnitude of the Q4 profit share change in estimate is a reset event; near-term fundamentals will be driven by underwriting/pricing changes and cohort mix improvement rather than volume growth alone .
  • Expect a transition period: management is moving to insurance-style, real-time pricing and predictive modeling, which should reduce volatility in profit share over time; monitor evidence of improved unit economics (e.g., profit share per cert trending back toward ~$500 over time) .
  • Watch cohort mix metrics: credit builder and limited positive tradelines are guided to fall sharply in 2025; sustained progress here is critical to stabilizing losses and profit share .
  • OEM expansion is a medium-term positive; the third captive finance pilot could diversify volumes and enhance unit economics if coupled with improved underwriting/pricing .
  • Liquidity remains solid (cash and equivalents $243.2M; total assets $296.4M), but the creation of an excess profit share receipts liability ($47.6M) and reduced contract assets reflect the depth of the reset; balance sheet prudence is key .
  • Near-term trading: headline misses vs guidance, tax valuation allowance, and profit share reset drove negative sentiment (~−16% pre-market per call); catalysts to watch are demonstrated improvement in constrained profit share metrics, cohort mix, and OEM pilot scale-up .
  • Medium-term thesis: If pricing/underwriting enhancements deliver and macro stabilizes, volatility in profit share should decline, enabling more predictable EBITDA and cash generation; evidence should emerge via improved constrained profit share per cert and fewer negative CIE adjustments .

Additional Context and Documents

  • Q4 2024 8-K and press release detail the $81.3M profit share CIE, contract asset reduction ($33.7M), and excess profit share receipts liability ($47.6M), plus Q1 2025 certified loan guidance (27,000–28,000) .
  • Q3 2024 results and guidance (for Q4) show pre-reset trajectory and underscore the magnitude of the Q4 miss vs guidance .
  • Q2 2024 results provide prior trend baseline in program fees, profit share, and Adjusted EBITDA .
  • Strategic press releases: Point Predictive partnership (income verification automation) ; Third OEM captive signing ; market stabilization report .