LPRO

Good day everyone, and welcome to the Open Lending Corporation's first quarter 2026 earnings conference call, at this time all participants are in a listen only mode, later you will have the opportunity to ask a question during the question-and-answer session, to register to ask a question at anytime please press star one on your keypad. Please be advised that today's conference is being recorded we are standing by if you should need any assistance. I'd now like to turn the call over to Ryan Gardella. Please go ahead.

Thank you. Prior to the start of this call, the company posted their first quarter 2026 earnings release and supplemental slides to the investor website. In the release, you'll find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call. Before we begin, I would like to remind you that this call may contain estimates or other forward-looking statements that represent the company's view as of today, May 7, 2026. Open Lending disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to today's earnings press release in our filings with the SEC for more information concerning factors that would cause actual results to differ from those expressed or implied in such statements.

Now, I will pass the call over to Jessica to give an update on the business and financial results for the first quarter 2026.

Thanks everyone for joining us today on our first quarter 2026 earnings conference call. I am joined today by our CFO, Mas Monaco, and our Chief Underwriting Officer, Matt Sather. The first quarter marked another step forward in our operational execution and reinforced the impact of the changes we've been making across the organization. We believe that this progress is translating into certain momentum and supports our path towards a more durable, high quality, and more profitable portfolio of insured loans. The macroeconomic environment remains challenging. Credit quality pressures and consumer stress continue to weigh on the auto lending market, and we are not immune to those dynamics. That said, our first quarter results reflect continued operational discipline.

While applications grew 18% year-over-year, driven by stronger go-to-market performance, approval rates declined as a direct result of our deliberate decision to pull back from higher-risk credit segments and borrowers in favor of higher quality certified loan volume. We are confident that discipline is paying off, our strategy is working, and the necessary tightening actions and credit box changes are now in place. Quality continues to take precedence over quantity. We facilitated 21,064 certified loans in the first quarter. Cert volume in the first two weeks of January still reflected some residual impact from the fourth quarter pricing conversion factor that rolled off on January 15th. Even so, the net result for the quarter was higher quality certified loans and volume that exceeded the top end of our guidance.

We are pleased with our first quarter certified loan results and believe our performance to date positions us well to achieve full year guidance of 100,000-110,000 certified loans. As Mas will discuss in more detail, adjusted EBITDA was $2 million for the quarter, compared to $3.2 million in the first quarter of 2025. Let me turn to the quality of our book and details on certified loan volume as expected total volumes were lower year-over-year in the first quarter. Keep in mind, Q1 2025 was the last period in which super thin borrowers meaningfully contributed to volume, which inflated the comparison. We have taken significant steps in an effort to improve the composition of our book.

This is a deliberate value-creating trade-off we've actively chosen to make and a consistent theme we have communicated on prior earnings calls. Our performance was driven primarily by a combination of slightly stronger than expected volume in our core credit union channel and the continued ramp of OEM 3. We are encouraged by the impact of OEM 3 on cert performance so far this year. We expect that ramp to accelerate as we roll out in the high volume states I discussed last quarter, with the most meaningful cert contribution expected to come in the third and fourth quarters. At the same time, legacy OEM certs continue their intentional decline, a direct reflection of the disciplined actions we took in 2025 to improve the quality of our book.

With that as context, I would like to emphasize that with the profitability muscle memory we have built and the model enhancements underway through Project Red Rocks, which I'll discuss shortly in more detail, we believe we can do both grow and be profitable. We will continue to pursue growth through the key initiatives we've outlined last quarter, led by our new Chief Growth Officer, Anthony Capizzano. We are already seeing tangible progress in these areas, including upticks in customer retention, applications, daily certified loan volumes, and improved profit share unit economics for our 2026 vintage. Turning to credit quality and loss ratio improvement, the underwriting actions we implemented throughout 2025 are now fully flowing through and have positively impacted our Q1 2026 unit economics.

Based on the underwriting changes and rate increases we took in 2025 and resulting book mix, we have booked our Q1 2026 vintage certs at a 70% loss ratio versus the 72.5% we used for the full year of 2025. I want to make it clear that this is not a change in our incremental risk stance, but rather it is simply an adjustment that reflects the realities of our improved underwriting and the higher quality books that we have built. At a 70% loss ratio, we are still maintaining the same level of constrained conservatism at the time of origination that we built in for 2025. At 70%, this remains a consistent and very conservative approach. Now I'd like to walk through the specific actions and performance indicators underpinning this improvement.

First, our book mix has shifted favorably towards our core credit union customers and OEM 3, sales that have consistently delivered better performance than the rest of our portfolio. Second, the rate increases we've deployed on OEM 1 and OEM 2 in May 2025 are now delivering their full impact in 2026. Third, we have continued to refine our understanding of credit builder products in the market. This has allowed us to target and price loans featuring credit builder trade lines more appropriately with more rates. Fourth, Super thin, which historically carried loss ratios in the 90s, are no longer part of our portfolio. Finally, our 2025 vintage core credit union business has performed better than expected, reflecting what we view to be a durable, well-underwritten foundation of our franchise.

In fact, on the whole, our 2025 vintage continues to outperform the 2023 and 2024 vintages, with the ever 60-day plus delinquency rates maintaining an approximate 200 basis point advantage at the 14-month on-book mark. As a result of these efforts, our profit share unit economics for new originations has improved meaningfully, reaching $363 per certified loan in the first quarter of 2026, compared to $322 in the fourth quarter of 2025 and $278 in the first quarter of 2025. A 30% year-over-year improvement. In the first quarter, we recorded a negative change in estimate of $700,000, driven entirely by our pre-2023 back book more seasoned vintages, which is a very small percentage change when considering the size of those vintages.

This adjustment was partially the result of the continued deterioration in macroeconomic trends. In essence, adding to our reserve estimate, not currently a reflection of additional paid losses. It is important to note that while we continue to see favorable development in our 2025 vintage, we are maintaining a measured approach before recognizing these trends as positive adjustments. Looking ahead, we expect further incremental improvement in our core business loss ratio over the course of the year as underwriting actions taken in 2025 continue to earn out in 2026. These include rate increases on thin files and rate reductions on thick files, a net positive given the mix shift towards more profitable thick file business, as well as rate increases on borrowers in the 560-599 LP Score band and the introduction of our lender experience rating.

I would now like to discuss efforts on retention and strategy. In December 2025, we engaged a third party to conduct a voice of the customer exercise to better understand our customers' needs and how we can deepen those relationships. It's paramount that our investments and our strategic roadmap reflect what our customers actually want, not what we assume they want. We're in the early phases of laying out those initiatives. We expect that these initiatives have the potential to improve visibility into profitability, reduce friction in claims and reporting, and create opportunities to enhance and expand our product offerings to drive stickiness. With that in mind, we're making targeted investments to deepen our credit decisioning capabilities, both vertically within our core auto lending platform and over time, horizontally across broader opportunities. On the vertical side, we continue the disciplined tactical work to improve borrower evaluation.

That includes the credit builder initiatives I will discuss later, application optimization, and refined credit rating models that strengthen our underwriting precision and overall portfolio quality. Strategically, we have prioritized extending our advanced decisioning engine and proprietary data assets, leveraging our mature machine learning operations and data infrastructure to support additional products. We anticipate that AI-enabled tools will allow us to develop and bring new decisioning models to market faster. These enhancements are being designed to increase platform stickiness with our credit union partners and broaden top-of-the-funnel opportunities. We anticipate that additional decisioning products will position us for the future growth through incremental low execution risk revenue streams. This strategy builds on the full credit spectrum borrowers of ApexOne Auto, which we delivered in late 2025, and we will expand our ability to create more solutions for our credit union partners.

Turning to ApexOne Auto, we continue to build a pipeline of opportunities with prospective partners. We continue to shape our go-to-market and sales process around ApexOne Auto. We expect these enhancements will enable us to deliver a more comprehensive solution that better meets the needs of our credit union customers and should accelerate adoption in the future. Although ApexOne Auto is not yet a significant contributor to our results, we are encouraged by the quality of the pipeline and the strategic foundation we are establishing. Which we expect will drive incremental subscription reoccurring revenue and incremental cert volumes for our Lenders Protection platform as the rollout advances. Our belief is that top of the funnel automated underwriting and dynamic pricing is the way of the future to maximize profit and efficiencies for our customers. Our customer retention metrics continue to be strong and lender partnerships are deepening.

During the quarter, we added 15 new logos and lost three. Our voice of the customer exercise also helps us identify and define our ideal customer profile, matching our capabilities to partners where we have had the most success. We are a more focused and disciplined company than we were 12 months ago, and we are building the infrastructure as we view necessary to return to sustainable growth for our shareholders. I am very proud of the team we have built and what they have accomplished to date. We expect to see rolling 12-month impact of these efforts begin in the third quarter and become fully evidenced by the fourth quarter. The bottom line is that we are actively managing every lever across the entire certified loan lifecycle, from applications to approvals to certification, to drive growth in 2026 after building the foundation of profitability in 2025.

Understanding what drives certified loan volume across borrower quality, approval decisioning, and market pricing is fundamental to delivering profitable growth. Next on Project Red Rocks. We have continued to make consistent progress on this important initiative. As I've said before, building this muscle memory, consistently refreshing our data and evolving our models is essential for long-term success, and we view this capability as an advantage over our competitors. Through Project Red Rocks, we are establishing a true core competency in simulation and decision intelligence that we expect will differentiate Open Lending through superior execution. The platform is already delivering tangible benefits by enabling us to model the impact of pricing, credit policy, and underwriting changes on volume, loss performance, and profitability with greater precision and speed from application through certification.

As we've discussed in the past, we are always focused on greater pricing segmentation. We expect Red Rocks will allow us to access additional customer cohorts. We anticipate this progress will translate directly into additional certified loan volume with more differentiated and profitable customer segments. A case study of the importance of Project Red Rocks can be seen in the work we are doing in our credit builder segment, which represents approximately 30% of our application flow. Red Rocks has improved our ability to differentiate between stronger and weaker credit builders, giving us the ability to improve pricing and capture more of what we view as a higher quality volume in this large segment.

By more precisely evaluating and pricing applications that have credit builder trade lines, we expect to gain a significant opportunity to add high-quality certs in a segment that has an outsized impact on our ability to write new business for our credit union customers at a better overall loss ratio for that segment. We expect that this change will be executed in the middle of the second quarter. We remain on track with the project and are encouraged by the value we are realizing from the components already deployed. Lastly, I want to provide an update on our insurance company partners. Our insurance capacity is a cornerstone of our Lenders Protection platform and a critical differentiator for Open Lending, enabling us to mitigate risk and support disciplined growth for our customers. We hosted our annual carrier meeting last month, and the feedback from three insurance partners was consistently positive.

They continue to express strong alignment with our disciplined growth strategy and a clear desire to write more business. Our carrier alignment is an important source of confidence as we execute through 2026, and we believe a unique and effective component to our offering. We are entering Q2 with improving daily cert production, healthy application volumes, and what we see as our highest quality portfolio in several years. While much of this year's expected cert volume lift is expected to occur during Q3 and Q4, we believe we are well positioned to deliver throughout 2026. Portfolio durability remains our top priority. It's how we grow responsibly. Disciplined decisions in tough markets are what sustain long-term relevance and shareholder value. We have developed the models, data, discipline, and talent we anticipate will contribute to the profitable growth. Q1 delivered on certs and performed as expected.

We're looking forward to discussing the impact and momentum of our 2026 initiatives on next quarter's call. With that, I'd like to turn the call over to Mas to discuss the financials in detail.

Thanks, Jessica. Before walking through the results, I will highlight a few key financial takeaways from the quarter. First, certified loan volume exceeded the top end of our first quarter guidance, reflecting the deliberate value-accreted decisions we've made to build a higher quality book of business. Second, per loan unit economics improved meaningfully year-over-year, driven by the underwriting and pricing enhancements Jessica outlined. Third, we continue to demonstrate disciplined expense management while still investing in the key initiatives that will drive sustainable growth. Now let me walk you through the numbers for the quarter and guidance before Jessica and I open the line for Q&A. During the first quarter, we facilitated 21,064 certified loans, which came in above the high end of our quarterly guidance.

While this compared to 27,638 certified loans in the first quarter of 2025, the composition of this year's volume is meaningfully stronger, reflecting the intentional shift towards higher quality segments. Looking ahead, we expect volumes to accelerate throughout 2026, as anticipated in our guidance. We expect OEM 3 to continue to ramp as we expand into additional high-volume states. Our core credit union channel remains healthy, with lenders demonstrating both capacity and appetite to grow as our pipeline reflects. Together, these dynamics reinforce our confidence in the volume acceleration we expect over the remainder of the year. Total revenue for the first quarter was $20.5 million compared to $24.4 million in the prior year period.

The quarter included a $0.7 million reduction in estimated profit share revenue related to historic vintages compared to a $0.9 million reduction in the first quarter of 2025. We have continued to see encouraging signs from our 2025 vintage, which has performed well. As we've noted on prior calls, we remain measured in our constrained approach to the recognition of additional profit share revenue from this and other more recent vintages. Breaking down total revenues in the current quarter, program fee revenues were $11.4 million. Profit share revenue was $7.0 million, inclusive of the $0.7 million negative change in estimate, and claims administration fees and other revenue were $2.2 million. As a reminder, profit share revenue represents our share of the expected earned premiums net of expected lifetime claims and program expenses. Open Lending receives 72% of the net profit share.

Any losses are accrued and carried forward for future profit share calculations. When cash received exceeds expected profit share revenue, the excess is recorded as an excess profit share receipt liability. Profit share revenue associated with new originations was $7.7 million or $363 per certified loan compared to $7.7 million or $278 per certified loan in the first quarter of 2025. A 30% improvement year-over-year and up from $322 per certified loan in the fourth quarter of 2025. As we have discussed previously, we have reduced volatility in change in estimate adjustments by booking more conservative unit economics at the time of certification.

For the 2026 vintage, we applied an implied loss ratio of approximately 70%, an improvement from the 72.5% we applied in our 2025 vintages, reflecting the measurable progress we have made in underwriting quality and improved pricing. Based on our current pricing and expected credit performance, we anticipate these vintages will ultimately perform closer to a mid-60s% loss ratio. Our continued focus on expense management delivered further success this quarter. Operating expenses were $16.3 million in the first quarter, down 7% from $17.5 million in the first quarter of 2025. While we continue to invest in our key growth initiatives. As I have noted previously, disciplined expense management remains a top priority.

Q1 operating expense included $0.8 million in non-recurring items, which are excluded from adjusted EBITDA and approximately $1 million related to our Red Rocks project and other initiatives. Net loss for the quarter was $0.5 million compared to net income of $0.6 million in the first quarter of 2025. Diluted net loss per share was $0 in the first quarter compared to a diluted net income of $0.01 per share in the first quarter of 2025. Adjusted EBITDA for the quarter was $2 million compared to $3.2 million in the first quarter of 2025. Beginning in the quarter ended June 30th, 2025, we updated the presentation of adjusted EBITDA to exclude interest income to better align our definition with comparable companies.

In addition, beginning in the quarter ended September 30th, 2025, we updated the presentation of adjusted EBITDA to exclude certain other non-recurring expenses that do not contribute directly to management's evaluation of its operating results. Prior period presentations have been conformed to the current period presentation. A reconciliation of GAAP to non-GAAP financial measures can be found at the back of our earnings press release. Turning to cash flow and balance sheet. For the first quarter, our cash flow from operating activities was a negative $0.8 million, primarily reflecting the timing of payments of our 2025 annual short-term incentive program of approximately $4.5 million. Beginning this year, the payment occurred in the first quarter following the performance year. Previously, the non-executive portion was paid in the fourth quarter.

We exited the first quarter with $231.1 million in total assets, of which $173.3 million was in unrestricted cash. We had $155.8 million in total liabilities, of which $82.9 million was outstanding debt. During the quarter, we continued to make our scheduled principal payments on our senior secured term loan. In conjunction with our board, we remain committed to a disciplined approach to capital deployment. One that strengthens the balance sheet, reduces leverage over time, and preserves financial flexibility going forward. Our capital allocation priorities remain consistent. First, investing in the organic growth of the platform. Second, maintaining a strong balance sheet. Third, returning capital to shareholders through share repurchases when appropriate.

In the first quarter, we did not repurchase any shares under our share repurchase program, partially due to the brief open trading window between the filing of our 2025 10-K and the end of the quarter. As announced, our board recently extended the expiration of the program from May 2026 to May 2027 and increased the size of the program to $50 million, reflecting our continued commitment to return capital to shareholders over time. We have approximately $45.1 million remaining on our share repurchase program. Finally, I wanted to address our guidance. For the second quarter, we are expecting total certified loans to be between 22,000 and 25,000. For the full year, we continue to expect total certified loans to be between 100,000 and 110,000.

At the midpoint of our guidance, this represents an 8% increase over our 2025 results. We are also continuing to expect adjusted EBITDA for the full year to be between $25 million and $29 million. We intend to maintain our dedication to quality over quantity in our book of business, ensuring that this growth rate is additive to our loan portfolio. We enter the second quarter with improving daily cert production, a portfolio that we consider to reflect the highest quality we have seen in several years, and profit share unit economics that are meaningfully stronger than a year ago. We are confident this quarter validates the deliberate choices we've made over the past year and positions us well for the acceleration we expect throughout the remainder of 2026.

We remain confident in our full year guidance and in the platform we are building. We look forward to demonstrating continued progress as the year unfolds. With that, we will open it up for questions. Operator?

Thank you. At this time, if you would like to ask a question, please press star one on your keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to signal and star two to remove yourself. I'll pause for just a moment to allow questions to queue. Once again, that is star one to signal. It appears that we have no questions at this time. I'd like to turn the floor over to Jessica Buss for closing remarks.

Thank you for joining us today and for your continued interest in Open Lending. We appreciate your time and look forward to continuing the conversation on our second quarter earnings call as we execute on our priorities for the year ahead. I also want to thank our Open Lending employees whose dedication and hard work make everything we've accomplished and our vision for the future possible. Goodbye.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may disconnect.