Open Lending Corp Aktie

Good day, everyone, and welcome to the Open Lending Corporation's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. 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 and 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.

And 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, Mass Monaco; and our Chief Underwriting Officer, Matt Sather. The first quarter marked another step forward in our operational execution and reinforce 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 2 weeks of January still reflected some residual impact from the fourth quarter pricing conversion factor that rolled off on January 15. 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 to 110,000 certified loans. As Mass will discuss in more detail, adjusted EBITDA was $2 million for the quarter compared to $3.2 million in the first quarter of 2025.

Now let me turn to the quality of our book and details on certified loan volumes. As expected, total volumes were lower year-over-year in the first quarter. Keep in mind, Q1 2025 was the last period in which SuperThin 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 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 book 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, channels that have consistently delivered better performance than the rest of our portfolio. Second, the rate increases we 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 CreditBuilder products in the market. This has allowed us to target and price loans featuring CreditBuilder trade lines more appropriately with more rate. Fourth, SuperThin, which historically carried loss ratios in the 90s are no longer part of our portfolio. And 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 estimates, 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 improvements in our core business loss ratio over the course of the year as the underwriting actions taken in 2025 continue to earn out in 2026. These include rate increases on thin files and rate reductions on fixed files, a net positive given the mix shift towards more profitable fixed file business as well as rate increases on borrowers in the 5.60 to 5.99 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 road map 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 CreditBuilder initiatives that 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 3. 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 evident by the fourth quarter.

The bottom line is that we are actively managing every lever across the entire certified loan life cycle 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 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, and 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 Rock can be seen in the work we are doing in our CreditBuilder segment, which represents approximately 30% of our application flow. Red Rocks has improved our ability to differentiate between stronger and weaker CreditBuilders, giving us the ability to improve pricing and capture more of what we view as the higher quality volume in this large segment.

By more precisely evaluating and pricing applications that have CreditBuilder 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 3 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 offerings. We are entering Q2 with improving daily set 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 cert 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 Mass 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-accretive 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. And 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 received 72% of the net profit share. Any losses are accrued and carry forward for future profit share calculations. And 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 percent 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 nonrecurring 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 30, 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 30, 2025, we updated the presentation of adjusted EBITDA to exclude certain other nonrecurring 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 payment 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 nonexecutive 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; and 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 entered 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. And we look forward to demonstrating continued progress as the year unfolds.

With that, we will open it up for questions. Operator?

[Operator Instructions] 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.

Hello, and welcome, everyone, joining today's Open Lending Corporation's Fourth Quarter 2025 Earnings Conference Call.

[Operator Instructions]

Please note, this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Ryan Gardella, Investor Relations. Please go ahead.

Thanks, Leo. Prior to the start of this call, the company posted their fourth quarter and full year 2025 earnings release and supplemental slides to its 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, March 12, 2026. Open Lending disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to today's earnings press release and 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.

And now I'll pass the call over to Jessica to give an update on the business and financial results for the fourth quarter and full year 2025.

Thanks, everyone, for joining us here on our fourth quarter and full year 2025 earnings conference call. I'm joined today by our CFO, Mass Monaco; and our Chief Underwriting Officer, Matt Sather. This quarter marks the completion of my first full year as CEO. From day 1, my focus has been clear: stabilize the business and position it for durable growth.

That meant improving profitability, reducing volatility in our profit share revenue, growing total revenue and customer retention, strengthening operational execution and building a culture of accountability.

I am pleased to report that 1 year in, we believe we've made meaningful progress on executing these goals. We've improved the stability of our profit share unit economics, strengthened underwriting standards and expanded our platform through ApexOne Auto.

With that launch, we are evolving from a single product company into a full spectrum decisioning and dynamic pricing engine. We believe this progress is reflected in our full year results and more importantly, in the stronger foundation we've built to drive higher quality growth in the years ahead.

Over the past year, we have also strengthened the leadership team by bringing in new executives and elevating internal leaders across the organization as we position Open Lending for the next phase of growth. Before jumping into our results, I want to put a finer point on the strategic reasons behind the significance for maintaining tighter underwriting standards and appropriately pricing risks, both of which contributed to our results in the fourth quarter.

As an experienced executive coming from the underwriting and insurance industry, I believe that we have positioned ourselves to deliver disciplined, profitable growth to our stakeholders over multiple credit cycles, not just the one we currently find ourselves in.

Trust, relevance and discipline, combined with our unique product offering, define Open Lending. As I have said many times in the past, we are, at our core, an auto credit pricing and decisioning engine. The name of our flagship product, Lenders Protection Program is not branding.

It's our operating philosophy. When we look at the current commercial credit environment, the importance of this discipline is clear.

Over the last few years of volatility, we've seen several auto lenders go out of business, largely due to overextension, loosened underwriting standards and rates that were not balancing the actual risks.

When economic pressures and delinquencies rose, they couldn't sustain the losses they had at the prices they were charging. I mentioned this to say that we have clearly chosen a different path for our company, our employees and our stakeholders.

The decisive changes made in 2025 and the strategic initiatives we have put into place and outlined on all of the earnings calls since I became CEO have all contributed to our continued relevance in the near and non-prime space. We believe that these changes are working and driving real value for our stakeholders in the form of sustainable, profitable growth regardless of the changing macroeconomic environment.

With that as a backdrop, I would like to move on to results. For the full year, we facilitated 97,348 certified loans and recorded total revenue of $93.2 million, resulting in adjusted EBITDA of $15.6 million.

For the fourth quarter, we facilitated 19,308 loans, generating revenue of $19.3 million and adjusted EBITDA of $2.8 million. We believe that our deliberate tightening of lending standards will result in a higher quality book, and we have already observed improved 2025 vintage performance as compared to prior year vintages. For vintage year 2025, the over 60-day delinquency at 12 months on book is approximately 200 basis points lower than both the 2023 and 2024 vintages.

In the fourth quarter, our certified loan shortfall compared to guidance was driven by a temporary headwind in conversion rates as we actively managed risk and made targeted adjustments to how retail vehicle values were treated in our pricing models.

As new information became available, we tested price elasticity, measured the response to results and then refined our response accordingly. After reviewing the performance of the quarter, we determined that certain rate increases implemented were creating unnecessary obstacles to our certified loan pipeline.

After rolling back a subset of the changes in phases, concluding the week of January 16, we are now seeing improved momentum and sustainable growth, while credit performance remains strong. This is disciplined risk management, test, measure and refine. Exercising this process and creating this muscle memory is essential not just to our LPP product, but for our ApexOne Auto platform and the full spectrum of credit products.

Ultimately, our decision to maintain a tighter credit box and appropriate pricing was deliberately done to reinforce the strategic principles we have emphasized all year of discipline in our underwriting and pricing. We believe this approach reduces exposure to elevated defaults, rising delinquencies and adverse loss ratios over time.

While that discipline may have resulted in fewer certified loans in the fourth quarter, intentionally avoiding business that we believe is mispriced or inconsistent with long-term profitability is ultimately in the best interest of Open Lending and our stakeholders.

While we were not happy with the impact of certs, the silver lining is that our controls and feedback loops are working as intended. I'm also pleased to report that since February 1, we have averaged 353 certs per business day compared to 293 certs during the impacted period. Importantly, the 353 level is consistent with the average certs per business day we experienced in the 60 days prior to the change being implemented. Additionally, through February, our application flow was approximately 20% up year-over-year.

We are getting more back to the business we want, which is direct evidence that our lender profitability initiatives and newly launched dashboards are working and that our customers see tangible value in the full life cycle of the Open Lending relationship.

Now I'd like to move on to talk about our ongoing initiatives across the company. First, as discussed on our prior earnings call, we have been actively working with our third-party modeling partner on a more sophisticated real-time simulation engine that we have internally called Project Red Rocks. Once completed, we expect Red Rocks will allow us to instantly see the impact of any proposed rate or credit box change on volume, loss ratio and profitability before we implement it.

It will also serve as a safety valve and control check on the trade-off between rate and market acceptance, which we believe will prevent future headwinds like we experienced in the fourth quarter.

We remain committed to disciplined pricing and building more sophisticated models to predict our actions on the market. Understanding the dynamics of price elasticity, volume and profitability is critical to being best-in-class, and we believe Project Red Rocks will deliver that for us.

This project is running on time and on budget, and we are seeing preliminary benefits as we roll components of the model out quarterly. We also entered 2026 with a strengthened go-to-market engine. Anthony Capizzano joined us early in the first quarter as Chief Growth Officer. His first 4 priorities are clear: one, increase wallet share with existing credit union partners and continue to focus on existing customer retention; two, penetrate larger credit unions, banks and other institutions, which we have historically underserved; three, build the go-to-market strategy around ApexOne Auto platform and the additional product and credit spectrums we now service with this introduction; and four, reorient and expand the sales team with additional hunters focused on new logo acquisition and deeper penetration.

Anthony will also begin exploring opportunities to organically expand our platform into additional credit products, leveraging our proprietary data and analytics to extend the reach of our model. Anthony has hit the ground running and quickly made an impact in the sales organization. We have been operating without a Chief Growth/Revenue Officer for several months and believe there are significant opportunities for Anthony to help us accelerate our growth throughout the year.

Now I would like to report on the impacts of our initiatives to improve profitability and drive cert volume growth. Mass will do a deeper dive into the fourth quarter and full year results, but our profit share unit economics for the 2025 vintage continue to be booked at a constrained 72.5% loss ratio, and we believe we'll perform at our target loss ratio of mid-60%.

For the full year, our profit share change in estimate resulted in $0.4 million positive impact to adjusted EBITDA or in essence, was nonvolatile and flat. Our ApexOne Auto platform was launched in the fourth quarter with 2 customers in the Prime Credit auto segment, making us a full credit spectrum dynamic pricing auto solution. Applications flowing through the platform from these customers and our pilot partners are already in the mid-5 figures, all on a subscription-based minimum volume model. The pipeline has more than doubled since launch with several new potential customers in various stages of diligence. Importantly, because ApexOne Auto sits on top of the prime credit funnel, it seamlessly routes declined prime loans into our core LPP products and increases application flow.

Not only does ApexOne Auto operate on a subscription basis reccurring revenue model, but it increases stickiness with customers and gives us an opportunity to capitalize on the $500 million prime decisioning market. The introduction of ApexOne Auto platform also means we now have exposure to the entire spectrum of credit scores.

Given the massive amount of historical data we have access to, we believe we are well positioned to find new ways to leverage and monetize them across the full spectrum of credit and markets that rely on this data to price loans. Next, on to OEM 3. The ramp-up continues as planned.

Volume has grown steadily through Q4, and we are now deploying in Southern California and Texas, which make up a substantial portion of the opportunity. Longer term, we see a substantial opportunity in non-branded business for OEM 3 dealers, where we will become the first look decisioning engine.

Early performance is in line with credit union loss ratios, and we expect OEM 3 to contribute positively to both channel mix and overall book quality in 2026. Credit union health also continues to improve. Share growth, deposit recovery and lending capacity are all trending positively.

I recently attended the Governmental Affairs Conference in Washington, D.C. and sat with many of our credit union customers and prospects. One message was clear. They are looking to grow, looking for solutions and have the capital to do it. Credit unions have seen improved strength with loan-to-share ratios at 83.2% in the fourth quarter of 2025. We believe this supports an environment where our platform and relationships are poised to organically grow more products and solutions, driving a deeper relationship.

Our responsibility is to ensure that growth occurs with the right loans at the right price. Without that discipline, the industry risks repeating the performance challenges seen in 2021 and 2022 vintage years. Discipline is precisely why they trust us. Moving on to our customer retention efforts. We lost 0 customers in the fourth quarter and 4 in the full year of 2025.

We added 6 new logos in the fourth quarter and 46 in the full year and saw existing clients and materially higher application volumes. The lender profitability dashboards have been universally well received and are driving deeper engagement. We are also prioritizing annual profitability reviews with each customer, which is an initiative championed by our new Chief Growth Officer.

Our increased same customer application flow is another proof point that our retention efforts are driving more stickiness. We are of the opinion that the auto refinance market remains an opportunity across the credit union ecosystem, particularly following the elevated interest rate environment of the past several years.

While auto loan rates remain higher than pre-pandemic levels, they have begun to moderate following the Federal Reserve's 75 basis points of cumulative easing that began in late Q3 of 2025. Historically, this type of rate environment has driven increased refinance activity.

As borrowers who originate loans during peak rate environments seek payment relief, we expect the refinance channel to show renewed momentum.

Against this backdrop, we believe Open Lending is well positioned to capture incremental certification and partner expansion within the credit union market if rates decline further in 2026.

We are actively working with our credit union partners to appropriately and timely loosen ROA targets in response to rate drops to remain competitive. The next area I want to address is our book mix and full year impact of credit builders and super thin files.

As we discussed on prior calls, we virtually eliminated our exposure to super thin files following underwriting guideline changes implemented in the fourth quarter of 2024. At one point, these represented approximately 11% of quarterly certifications. And today, we underwrite none, making them a negligible part of our portfolio.

With respect to credit builders, they remain a relatively small portion of the book. As a reminder, we took a more blunt approach initially with approximately 100% insurance premium rate increase to ensure appropriate risk-adjusted returns.

In 2025, credit builders represented approximately 6% of our new certifications and are performing as expected. Each quarter, we continue refining our definitions and segmentation of credit builders across cohorts, and we are confident in our ability to screen, price and underwrite these applications with increasing precision, allowing us to responsibly grow this segment while maintaining strong profitability.

Much of this has been made possible by the model enhancements we are already seeing for Project Red Rocks. Next, we turn to the elements of our business that we considered in shaping our outlook for 2026. We feel strongly that our conversion rate headwind from the fourth quarter has been completely solved at this point, and we believe we are well positioned for growth in '26.

However, we believe that growth will compound over each quarter in 2026 or said another way, will be greater in the latter quarters and is likely to increase incrementally each quarter. This is also impacted by the fact that we had super thins and credit builders in the first quarter of 2025, and we have to replace that volume with growth that we want, which is why we believe our 2025 vintage is performing better than expected.

We believe our new models, sales strategy and underwriting clarity will drive that. In addition, we believe the strength of our go-to-market strategy will improve customer retention and drive new logos in 2026. We believe these factors, coupled with the expected impacts of the refinance market and the anticipated ramp of OEM 3 will be drivers that position us for growth in 2026.

As we discussed earlier, due to the increased health of credit union partners, we believe credit unions are in one of the strongest capital positions they have been in over recent years and are seeking responsible growth. Lastly, with the introduction of ApexOne Auto, we now have full credit spectrum dynamic pricing and decision capabilities that we believe will help facilitate additional certified loans.

This enables customized growth strategies aligned with each institution's risk appetite with and without insurance, while preserving our core commitment to protecting lenders and serving the underserved. We plan to continue to innovate and deepen our relationships. Taken together, we are providing full year certified loan guidance of 100,000 to 110,000 for 2026 with between 21,000 and 22,000 expected in the first quarter and full year adjusted EBITDA guidance of $25 million to $29 million for 2026.

We believe introducing annual guidance for the first time since 2022 reflects our confidence in the growth trajectory of our business in 2026, following the strong execution on improving profitability we delivered in 2025.

On the capital allocation side, in the fourth quarter, we paid down approximately $50 million of our senior secured term loan, which based on projected forward interest rate curves will result in quarterly interest saving expense of approximately $575,000.

With our strong cash balance, partially due to favorable profit share cash flows, our Board of Directors and management team ultimately decided that this was the best use of capital for our shareholders.

We also repurchased approximately 564,000 shares in the quarter at an average price of $1.66 per share. We will continue to evaluate capital allocation strategies each quarter and focus our priorities, where we believe we are driving the best strategic returns for our shareholders.

I would like to conclude with this. By all accounts, 2025 was a successful year for Open Lending. We set the company on the right course with largely flat CIEs or back book adjustments. We generated meaningful revenue and adjusted EBITDA in our core business, and we reinforced the strategic pillars of our business and cut unnecessary costs out of our organization. By remaining disciplined in our underwriting and pricing, we believe we have avoided the fate of those who overextended and prioritize volume over building a durable cycle-agnostic business.

As a result, we believe we are positioned to capitalize on future opportunities from a position of strength. And importantly, we are protecting our carriers, our credit union partners and our broader financial institution relationships. I am personally excited about the future. We believe this positions us well for growth in '26, but growth in the right business at the right price and within the right risk framework.

This philosophy is embedded in our full year guidance. Our #1 priority is ensuring the durability of our portfolio in order to grow responsibly. Making disciplined decisions in challenging markets is what sustains long-term relevance and long-term shareholder value.

We have remained relevant and intend to keep it that way. We have the models, data and talent to grow profitably at a time when others have lost their way. This is the definition of opportunity. Now I'd like to turn the call over to Mass to discuss the financials in detail. Mass?

Thanks, Jessica. Before walking through the results, I will highlight a few key financial takeaways from the quarter. First, the business delivered stable financial performance as we continue to move beyond last year's change in estimate adjustment.

Second, we made good progress on expense discipline while continuing to invest in key growth initiatives. And third, we strengthened the balance sheet through debt reduction and ongoing share repurchases. Now let me walk through the numbers for the quarter and guidance before Jessica and I open it up for Q&A.

During the fourth quarter, we facilitated 19,308 certified loans, compared to 26,065 certified loans in the fourth quarter of 2024. As Jessica mentioned, the shortfall in certified loans was driven by a temporary headwind in conversion rates as we tested pricing adjustments in response to emerging credit trends.

These adjustments had an outsized impact on certain segments. Select changes were rolled back in phases and completed by mid-January. Based on current trends, we do not expect this issue to create any ongoing disruptions. Certified loan volume in the quarter also reflected typical seasonal patterns, along with further strategic implementation of enhanced underwriting standards aimed at building a higher quality loan portfolio.

Looking ahead, we expect volumes to accelerate throughout 2026 as anticipated in our guidance. We believe the business is well positioned to capitalize on new growth channels such as the ApexOne auto platform and the continued rollout of OEM 3.

We are also placing increased emphasis on certs from our credit union and bank partners, which typically carry higher program fees and more attractive unit economics compared to OEM certs. Total revenue for the fourth quarter was $19.3 million, compared to a negative $56.9 million in the prior year period. The current quarter included an insignificant change in estimate profit share revenue, compared to an $81.3 million reduction in the fourth quarter of 2024.

As a reminder, the fourth quarter of 2024 included a significant negative change in estimate adjustment driven by macroeconomic factors and unexpected performance issues in certain newer vintage cohorts. Breaking down total revenues in the current quarter, program fee revenues were $10.9 million. Profit share revenues was $6.2 million and claims administration fees and other revenues were $2.3 million.

As a reminder, profit share revenue represents our share of the expected earned premiums less the expected lifetime claims and program expenses. Open Lending received 72% of net profit share and any losses in the net profit share are accrued and carried forward for future profit share calculations.

When cash consideration previously received is in excess of the expected profit share revenue, the amount of excess funds and the forecasted losses are recorded as an excess profit share receipt liability.

Profit share revenue in the fourth quarter of 2025 associated with new originations was $6.2 million or $322 per certified loan as compared to $8.2 million or $314 per certified loan in the fourth quarter of 2024. As we have previously mentioned, we have taken steps to reduce volatility in future change in estimate adjustments by booking more conservative unit economics at the time of certification.

At this level, the initial booking reflects an implied loss ratio of approximately 72.5%. Based on our current pricing actions and expected credit performance, we believe these vintages will ultimately perform closer to a mid-60s percent loss ratio.

Operating expenses were $13.9 million in the fourth quarter, compared to $15.4 million in the fourth quarter of 2024, representing a decrease of 9.3% year-over-year. As I mentioned last quarter, one of my priorities moving forward will be to closely monitor and control operating expenses and continue to find efficiencies in our spending.

Net income for the fourth quarter was $1.7 million, compared to a net loss of $144 million in the fourth quarter of 2024. Diluted net income per share was $0.01 in the fourth quarter compared to a net loss of $1.21 per share in the fourth quarter of 2024. Adjusted EBITDA for the quarter was $2.8 million compared to a negative $75.9 million in the fourth quarter of 2024.

Beginning in the quarter ended June 30, 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 30, 2025, we updated the presentation of adjusted EBITDA to exclude certain other nonrecurring expenses that do not contribute directly to management's evaluation of its operating results.

Prior periods 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 full year 2025, our cash flow from operating activities was a negative $3.2 million.

However, excluding the onetime payment of $11 million made to Allied in Q3, cash flows from operating activities was $7.8 million, inclusive of approximately $16.8 million in profit share cash received. We exited the fourth quarter with $236.7 million in total assets, of which $176.6 million was unrestricted cash. We had $161.7 million in total liabilities, of which $84.8 million was outstanding debt. During the quarter, we used $50 million in cash to pay down a portion of our senior secured term loan.

In conjunction with our Board, we determined that reducing leverage represented the most prudent use of capital at this time. While the remaining debt continues to carry attractive terms and favorable cost of funds, this action strengthens the balance sheet, reduces leverage and preserves financial flexibility going forward.

Importantly, we remain disciplined in how we deploy capital and continue to prioritize investments that support organic growth and long-term shareholder value. Based on current interest rate expectations, this paydown is expected to reduce quarterly interest expense by approximately $575,000. We believe this will allow further value to accrue to shareholders in the future. In the fourth quarter, we repurchased approximately 564,000 shares for a total consideration of approximately $0.9 million.

We have approximately $20.1 million remaining on our current share repurchase program, which expires in May of 2026. Our capital allocation priorities remain consistent. First, investing in the organic growth of the platform; second, maintaining a strong balance sheet; and third, returning capital to shareholders through share repurchases when appropriate.

Finally, I wanted to address our guidance. For the first quarter, we are expecting total certified loans to be between 21,000 and 22,000 units. For the full year, we are expecting 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 expecting 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 believe our strategy and performance have become increasingly strong and predictable, striking the right balance between growth and profitability as we continue to scale Open Lending and deliver consistent results for our stakeholders across the market cycle.

Most importantly, as we move into 2026, we believe the strength of our platform and the investments we've discussed continue to deepen our relevance with partners and position us well for the opportunities ahead. With that, we will open it up for questions. Operator?

[Operator Instructions]

Our first question comes from Madison Suhr with Raymond James.

I wanted to start here just at a very high level. Obviously, there's a lot of concern in the marketplace around AI and potential AI disruption across both software and payments and all kinds of technology names.

So I guess with that context, I would love to just hear your guys' high-level thoughts about how you view AI, both from an opportunity standpoint and then what risks you're assessing as it relates to potential AI threats.

Yes. Madison, this is Jessica Buss, and thank you for your question today. We, as a technology company, obviously use many forms of AI in our tools and in our models, not as much in our pricing mechanisms, but certainly in the build-out of Red Rocks and sort of where we're going as a company.

We've built AI, as you've probably seen in some of our press releases and some of the mechanical tools resolved in our claims process as well. Now we do have human in the loops, and we are obviously validating those AI processes as we bring them on board.

But again, we believe that our models and what we've built, which are primarily using machine learning and the data that we have is far superior to what you could build with just a straight AI tool. So we believe the combination of what we have in AI, what we have in terms of proprietary data and what we've built, again, with our machine learning tools and our Project Red Rocks is superior to what anybody else has out in the market.

Okay. And then I did want to ask on the cert outlook, both for and 2026. So obviously, 1Q implies that certs are going to be down in the mid-20% range. You mentioned full year up in the high single digits. Can you just help us kind of bridge how we get from the down mid-20s?

I know there were some pricing changes and things of that nature that have since been rolled back. But can you just help us frame how we get from kind of that down mid-20s to up high singles? And kind of how quickly do you think the business can return to cert growth as 2026 progresses?

Yes. Yes, that's a great question. So first quarter -- compared to first quarter last year, if you had been following in 2025, you would know that the first quarter of last year contained a high number of credit builders and super thins, which we had, in essence, eliminated all super thins in 2025 and significantly reduced the amount of credit builders that we approved by implementing almost 100% rate increase.

And then also, we took a tighter credit stance and put a tighter credit box on our OEMs. So that's sort of influencing the change quarter-over-quarter. Now the good news is that we do believe that incrementally quarter-over-quarter, we are going to experience the growth that we have in our cert projection, and that's going to come from a variety of different things that I'd like to outline for you.

So one, we're already seeing application volume up 20%. The second thing is that we have now found through our Project Red Rocks, a solution to write credit builders at a profitable level.

And credit builders currently represent about 30% of our applications. We believe that they're here to stay. We believe that we can price the good ones correctly and write those and not be adversely selected against. We've been monitoring the performance.

And again, based on our new model, have additional applicant data that we believe is a better predictor. We have our strategy that we're implementing with OEM 3, we've seen that certification volume jump significantly quarter-over-quarter, up 76% in the fourth quarter over the third quarter.

So OEM 3 will be a driver. We believe if rates continue to go down, refinance. But as importantly, both ApexOne and our new go-to-market strategy and engine with what we're doing with retention tools with additional hunters, with our profitability tools is something that's also going to drive growth.

So we have many tailwinds, I believe, to our growth story. So we believe those will start to ramp up, as I say in my script, incrementally and get stronger quarter-over-quarter. It will be sort of third and fourth quarter loaded. We did have the issue that was -- the headwind in the fourth quarter that was reversed on January 16. So the first quarter is slightly implemented by that. But again, we have a new Chief Growth Officer. We'll start to see that in the second quarter. And then from the third and fourth quarter on, we believe those fundamentals will really drive growth for us.

We'll move now to Joseph Vafi of Canaccord.

Nice to see an outlook showing some sequential increases here in Q1. Maybe we just start with that on the cert line. Maybe could you walk us through a little bit, maybe Q4 to Q1 on kind of a cert walk, OEM 3 would be interested on some commentary on also how OEM 1 and 2 are doing in terms of stability. And then if you wanted to just drill down a little bit more into health of the credit union channel with some more comments, that would be appreciated.

Sure. Sure, Joseph. I would be happy to do that. So our walk from fourth quarter to first quarter, again, we have the sort of reversal of the headwind on the rate issue that we discussed that will help. We have OEM 1 and OEM 2 that remain stable and flat to sort of where they've been in the last couple of quarters.

We will see a ramp-up in OEM 3. I think you may have heard us talk on prior earnings calls and even in the current script that they'll be launching 2 of our largest states sometime at the end of the first -- end of the first quarter, beginning of the second quarter. So while we are seeing pretty large increases, as I mentioned, 79% fourth quarter over third quarter, we would expect that to continue.

We'll see that sort of magnify as they add those states on throughout the year and even in the first quarter. So we're excited about that piece as well. We'll have the solution to the credit builders that will probably impact more of the second quarter. But again, we've seen significant increase in applications, the hiring of our Chief Growth Officer. I think all those things will have the impact going from Q4 to Q1. And then if that's kind of the cadence you're looking for.

That's great. And then if you want to just double-click on the health of the credit union channel and how you see that potentially -- how that could evolve if we get another 50 bps here in 2026 on rate cuts?

Yes. Yes, that's a great question. So I just spent 4 or 5 days in Washington, D.C. with our credit unions at GAC, as I mentioned in my script. And one of the messages that was clear is that their loan-to-share values are -- and I won't say at all-time lows, but lower than they've been probably the last couple of years, close to the 80% mark, and they are looking to grow.

They're looking to grow in the auto space, and they're looking to do it in a disciplined way. A lot of their boards are concerned, obviously, with what's going on in consumer credit. That's why our tool is even more important and our insurance carriers and the credit protection they provide with our insurance products is even more important.

That's why we're expanding our conversations with ApexOne, which allows us to do both prime and near prime sort of decisioning pricing with and without insurance. So the health of the credit unions is good. They've gotten more sophisticated.

They are looking to grow. Now with rates, one of the other interesting things that we're working on is working with our credit unions to be more nimble in reducing their ROA targets.

Typically, it takes them a little bit longer than, let's say, a sophisticated bank to react to rate changes. We've been working with them to bring those down quicker. As those begin to come down, both with rate cuts from the Fed and with our working with them on their ROA targets, we believe that there is a very large refinance opportunity for us in the future.

And we've been opening up -- and continuing to open up refi channels with our credit union partners. So we're really excited about that as an opportunity for '26 as well.

[Operator Instructions]

We'll now move on to Mike Grondahl with Northland Securities.

This is Keaton Schuelke on for Mike. You've made a lot of moves in the management with new Chief Growth Officer, new CFO and you becoming a new CEO. Is the team built out now? Or are there any more additions that you would be expecting for 2026?

Yes. Thank you for the question. And I'm really excited to talk about our management team. I think the most important thing to having a great business is having a great team. And the people that we've brought on board in all of the key management positions, all of my direct reports with most recently the addition of Anthony, as you mentioned, Mass earlier this year or at the end of last year, are all key players to how we're going to be able to execute on these priorities.

At this point, all positions or all sort of senior executive positions that report to me and have accountability for running all aspects of our business are now filled. I can tell you that the team is working very well together. And I think that you can see that sort of in the execution that Open Lending has been able to sort of deliver this year.

For the first time, we delivered new products. We increased our EBITDA. We have had flat CIE. We've -- in the process of implementing Project Red Rocks. Those are things that weren't possible before. And that's really a tribute to our senior management team and all of our employees as well. We spent a lot of time on culture and breaking down silos and focusing on getting 4 things right this year, and I feel like we've delivered on those promises to our shareholders.

Great. And then I was hoping to get a little more color on kind of your current outlook for delinquencies or credit quality for auto loans in your book?

Yes. So I'll start and I'll let Matt jump in here. I think I said in my script that the delinquencies that we're seeing on our most recent vintage are running about 200 basis points better at the 60-day delinquency mark than they were in vintage years '23 and '24. We do not participate in the full sub-prime market.

We are near non-prime. So we are actually -- feel like we're pricing correctly for the delinquencies. We're seeing better-than-expected outcomes. So we're excited about that. Again, it has a lot to do with our tighter credit underwriting and our pricing mechanism we put into place and the investments that we've made into models. But I'll let Matt add any color that he wants.

I think you covered most of it. We're seeing it across all measures of delinquency, 30-day delinquency, 60-day, 90-day. Every measure that we look at shows favorable improvement in vintage year '25. So we're very comfortable with where we're pricing our book today. We look forward to a strong performance into the future.

And I guess the only other piece of color I would add that is sort of an indicator of that is that we have had a flat change in estimate, in essence, a positive $400,000 for the year in total on our back book of business, which would indicate that we have correctly sized -- we believe we've correctly sized the delinquencies for our back book as well.

[Operator Instructions]

We'll now move on to Peter Heckmann with Davidson.

Thanks for providing the guidance for full year 2026. I think that's helpful for investors to think about how management is thinking about the full year. I wanted to see if you could maybe give a range about -- thinking about the conversion from EBITDA to free cash flow for 2026.

I know you have a few working capital needs in the form of the excess profit share receipts. But I guess, could you give us a little bit of additional detail to maybe give us some pieces that can help us get to maybe even it's a wide free cash flow range?

Sure, Peter. This is Jessica. Nice to hear from you. Yes. So first off, again, we are really excited and feel confident in providing our full year guidance. And that was a nice thing to be able to do after multiple years of not being in a position to do that.

So thank you for recognizing that. In terms of free cash flows, we obviously do not provide guidance on free cash flows, and I'll let Mass jump in here in a minute. I would say that we did collect profit share this year.

We do not have a capital allocation or capital set aside for the liability that you're referring to in terms of a cash flow mechanism. If you remember that, that is -- that would be collected from the future cash flows, yes, but it's not sort of a cash flow set aside.

But again, so we don't -- we're not actually predicting that. What we can tell you is sort of what we've talked about before in terms of profitability in terms of how we're booking our loss ratio at a more constrained level, how we think that book is actually performing and that sort of drives how our cash flows from profit share comes in. But I don't know, Mass, if you want to add anything to that?

Yes. Peter, I think as we've mentioned in the past, it is difficult for us to predict when the losses will come in on the back book. But as the forecast stands right now, the free cash flows would be relatively in line with the EBITDA guidance we're giving. Again, I do caution that it is difficult to forecast the losses.

At this time, there are no further questions in queue. I'd be happy to return the call to Jessica for closing comments.

Thank you all for your time today, and thank you to our shareholders, investors, credit unions and insurance carriers for your continued support. I'd also like to thank the entire Open Lending team for their dedication and execution over the past year.

We laid the foundation for sustainable profitable growth in 2025, and we believe we are well positioned to build on that momentum in '26, while maintaining disciplined risk management. We appreciate your confidence in our strategy and look forward to updating you on our continued progress on our next call. Thank you.

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

Good day, everyone, and welcome to the Open Lending Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this call is being recorded and I will be standing by should you need any assistance.

It is now my pleasure to turn the conference over to Ryan Gardella, Investor Relations. Please go ahead.

Thank you. I appreciate you joining us. Prior to the start of this call, the company posted their third quarter 2025 earnings release and supplemental slides 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 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, November 6, 2025. 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 in such statements.

And now I will pass the call over to Jessica to give an update on the business and financial results for the third quarter of 2025.

Thank you. Good afternoon, everyone, and thank you for joining us today. We are pleased to announce our results for the third quarter of 2025, which we believe reflects the transition we are making from a company stabilizing their business to what I would consider the new norm of running and operating Open Lending.

When I assumed the role of CEO, 2 of my key objectives were to promote earnings stability and to guide the company towards predictable results for our shareholders. We have sought to achieve these objectives by fostering less volatile profit share unit economics and more segmented and sophisticated pricing changes. We have executed on both of these objectives with positive outcomes, as I will discuss today.

In addition to the work we have done on our core Lenders Protection platform, we have recognized the need to diversify Open Lending's current offering to meet the evolving needs of our lender customers. Based on customer feedback, our first new product initiative was to deliver a pricing, underwriting and decisioning tool for our lender customers to use for their prime auto borrowers.

Therefore, we are excited to announce the introduction of ApexOne Auto, our new prime credit automated decisioning platform. ApexOne Auto not only diversifies Open Lending's revenue by product, but also adds a reoccurring revenue stream driven by subscription-based minimum application volumes.

ApexOne Auto will address the approximately $500 million per year opportunity to serve segments of the automotive credit market that our current decisioning engine does not. Built on our core LPP offering, ApexOne Auto extends our analytics into the prime auto lending segment, a strategic expansion that addresses the industry's shift towards higher-rated credit, where our customers and their borrowers demand faster, more efficient and more accurate loan decisioning and pricing.

Over the years, we have received strong interest from our customers for products addressing the prime auto loan segment. To date, we've already launched with 2 customers with additional interest in the pipeline. There is strong applicability within our existing client base as the industry gravitates towards comprehensive solutions for the entire credit spectrum.

Unlike our traditional LPP offering, ApexOne Auto Decision loans are priced and placed without the insurance wrapper or profit-sharing component, focusing purely on an automated advanced decisioning process that many financial institutions aren't equipped to handle internally.

It is also worth noting that ApexOne Auto and LPP are complementary products with loans not approved in ApexOne Auto being seamlessly directed to LPP for review. As a result, we believe the use of ApexOne Auto by our customers may result in additional revenue from our core lenders protection platform over time.

We believe ApexOne Auto is a logical expansion of our brand, helping to protect ourselves from competitive intrusion, while also giving financial institutions one vendor to provide them with decisioning support over the entire auto credit spectrum, which we anticipate will help us with customer retention.

From an expense and investment perspective, ApexOne Auto was developed internally and no large outside capital investments have been made. ApexOne Auto gives Open Lending a new revenue opportunity that utilizes our existing expertise and, in the future, may contribute positively to our growth. We will continue to update our investors on our progress.

While we recognize it is still early days as we begin the rollout of ApexOne Auto with our current LPP customers, we are committed to the future of Open Lending, and we are here to stay.

Now I wanted to talk through our ongoing efforts to improve profitability and produce less volatile profit share unit economics in our core Lenders Protection platform. We are proud to say that we have delivered 3 consecutive quarters of positive adjusted EBITDA and reduced volatility in back book performance, including a positive CIE adjustment of $1.1 million.

Further, we continue to apply conservative profit share unit economics to our current period originations, which we believe enhances the quality and sustainability of our earnings.

Third quarter results also benefited from an 8% year-over-year increase in program fee unit economics, reflecting a more favorable mix of lenders. We facilitated 23,880 certified loans in the third quarter of 2025, down from 27,435 in the third quarter of 2024. This decrease primarily reflects our deliberate tightening of lending standards and targeted rate adjustments in lower-margin credit segments, particularly within SuperThin and credit builder profiles.

We believe these tightening and repricing actions have positioned our book for more sustainable profitability in future vintages. Moreover, and just as importantly, we believe we have a higher quality book than we have had in the past in terms of having more loans with the characteristics that we believe drive profitability. We will continue to monitor and measure our progress to promote our desired outcomes.

To that extent, I wanted to highlight 3 incremental pieces of data from our earnings supplement that I think deserve to be recognized on our call today. First, our certain mix by channel for the quarter was 89.8% through credit union and banks with the remaining 10.2% coming from OEMs, with a drop in the OEM production, primarily driven by our tighter underwriting requirements on lower credit debt files.

As we have flagged in the past, we expect OEM 3 to perform more like a credit union, and we are now seeing them begin to steadily ramp up volume on our platform. There may be a dynamic of steadily or slightly increasing OEM share due to this ramping up. We expect these loans, however, to have similar loss ratio performance to those of our credit union customers and believe these loans will contribute positively to the overall quality of our book.

Additionally, across the credit union landscape, we have seen financial health continue to improve with another quarter of strong credit union share growth. While we're mindful of ongoing challenges such as rising delinquencies, affordability pressures and moderating wage growth, these dynamics also create opportunities, and we're taking a proactive approach to capture them.

Second, while flat compared to the second quarter of 2025, we are continuing to see refinance volumes recover and believe that this could be a positive tailwind for certain volume in 2026.

And third, we're dedicated to continuously enhancing and validating our disciplined underwriting standards. Our current credit builder exposure has been reduced and SuperThin files now comprise a negligible amount of new originations. For the most recent quarter, our credit depth concentration in SuperThin and credit builder loans was 6%, down from 24% in the third quarter of 2024.

On the pricing and predictive modeling front, we've partnered with a leading third-party expert to execute a series of onetime efforts aimed at reconfiguring and strengthening our pricing models. However, on the whole, this is not a onetime event. This will be regularly fine-tuning our pricing models with new data and new variables that reflect current and anticipated changes to macroeconomic conditions to stay ahead of the curve.

This is a muscle memory that we will look to continue to build given our desire to be a best-in-class pricing and risk decisioner in the auto space.

As further evidence of our commitment to making tough decisions and investing in the right places, we've also engaged with a third party to help our lender partners improve their performance with repossessions. We believe the servicing of claims is one of the driving factors of performance and severity once a loss occurs.

Next, I wanted to walk through our progress on driving customer retention with enhanced service and technology. We've now rolled out the first phase of our lender profitability dashboards to customers, which have been well received thus far. These dashboards provide real-time data on the full life cycle value of our Lenders Protection platform, ensuring that customers see tangible value in our product before defaults start to happen.

Since rollout, we have received early positive feedback from customers. I also wanted to mention that in the quarter, we added 10 new logos and had no customers cancel, which we believe is a testament to the changes we have made to improve customer retention.

In the third quarter, we also hosted our 12th Annual Executive Lending Roundtable with 264 attendees, including credit union and bank partners. This was a fantastic and successful event that gave us an opportunity to hear directly from our customers and solicit feedback and ideas to help us increase the value of our products and relationships.

We're thrilled to have had the opportunity to connect with our customers and are grateful they dedicated the time to identify and execute on the action items that we jointly feel are necessary to enable more opportunities to grow and to be better partners.

Our industry has always been a relationship business, and there is no better return we get than on strengthening these relationships to ensure we continue to add value for our customers, their customers and our joint mission. We hold this event annually and look forward to next year's event.

In addition, I'm pleased to announce the amendment to our reseller agreement with Allied Solutions, which has been a strong and loyal partner to Open Lending for over 12 years. This revised agreement demonstrates the strengthening of our partnership with Allied and their belief in our product. Allied has been instrumental to our growth since the early days of Open Lending.

This updated agreement builds upon our original partnership, which has enabled us to expand our reach within the credit union ecosystem through Allied's valuable introductions and endorsements.

Recognizing the evolution of our business, we've thoughtfully realigned the terms to better support mutual incentives and long-term sustainability, ensuring both parties are positioned for continued success. The new terms align very well with the behaviors and outcomes we are trying to build into our culture to retain and grow both current customers and new logos. This amendment also brings us future cost savings, which Massimo will speak more about shortly.

We've also made continued progress on reducing costs and improving the accountability of our employee base. We continue to execute towards our committed operating expense reductions and now have clear line of sight to achieving our cost-saving goals.

On the talent front, we continue to focus on retaining and attracting top talent to further our mission. We're actively looking to bolster our team in certain areas where we feel there is room for improvement, including actively recruiting for a new Chief Revenue or Growth Officer. We also look forward to a refresh to our go-to-market strategy once we have identified and appointed a new Chief Revenue Officer.

We are also pleased to announce Ben Massey, who has been with us since 2022 and our Assistant General Counsel since January 2024, has been named General Counsel and Corporate Secretary effective November 7. Lastly, I would like to formally introduce and welcome Massimo Monaco, our newly appointed CFO, to his first Open Lending earnings call. Mas has been with us for just over 2 months, and he has already made a tremendous impact on the organization in many areas.

Before I pass it over to Mas for a review of the numbers, I wanted to address some of the macroeconomic movements we have all observed in data recently. We have seen a lot of headlines about the K-shaped economy, highlighting vulnerabilities in near and non-prime borrowers.

As of mid-October, over 6% of below prime auto loans in the industry were over 60 days delinquent, which is the highest currently on record. However, as you all know, we have been strengthening our book and tightening our credit box for over 8 months already. We believe we have taken steps to account for the conditions that are affecting others in our market segment right now, which we believe is why we have seen minimal impact to our profit share revenue in Q3 from the current credit environment on our prior vintages.

As I mentioned earlier, we are constantly adding new information to our pricing and decisioning models to ensure we are ahead of the curve. And right now, we believe our changes starting in the first quarter of 2025 have positioned us well. The bottom line is that there is a lot of good news and insights within what appears to be another consistent quarter.

And now I'd like to pass the call over to Mass for a more detailed review of the numbers.

Thanks, Jessica. I'm pleased to join you all on my first earnings call as Open Lending's CFO. As Jessica mentioned, I joined in August after more than 2 decades in financial leadership roles across the residential mortgage and financial services industry. I'm excited to bring that experience to Open Lending as we continue to strengthen our financial discipline and pursuing our growth strategy. It's a privilege to be part of such a talented team, and I look forward to connecting more with our investors and analysts soon.

After spending a few months in the seat, I firmly believe that Open Lending has a bright future with significant potential and growth opportunities ahead. I look forward to building on the strong foundation already in place, driving renewed growth and value creation to our stakeholders, while advancing the company's mission to serve the underserved.

Now let me walk through the numbers for the quarter and guidance before Jessica and I open up the line for Q&A. During the third quarter of 2025, we facilitated 23,880 certified loans compared to 27,435 certified loans in the third quarter of '24. Total certified loan volumes reflect typical seasonal patterns, and our strategic tightening of underwriting standards aimed at building a higher quality loan portfolio.

To add on what Jessica mentioned earlier, when we exclude SuperThin and credit builder certs, our cert volume for the quarter were up approximately 7% year-over-year, highlighting continued momentum in our core higher-quality segment.

While we anticipate volumes to remain relatively stable through the remainder of ' 25 on a seasonally adjusted basis, we believe we are well positioned for renewed growth in 2026 with improved underwriting and pricing actions. Our credit union and bank channel loans typically have higher program fees compared to our OEM loans, which leads to more favorable economics.

Total revenue for the third quarter of 2025 was $24.2 million, up 3% from the prior year period and includes a positive $1.1 million change in estimate profit share revenue associated with historical vintages compared to a $7 million reduction during the prior year quarter. To break down total revenue in the third quarter of 2025, program fee revenues were $13.3 million, profit share revenues were $8.5 million and claims administration fees and other revenues were $2.4 million.

As a reminder, profit share revenue comprises the expected earned premiums less the expected claims to be paid over the life of the contracts and less expenses attributable to the program. The net profit share to Open Lending is 72%. When cash constraints previously received is in excess of the expected profit share revenue, the amount of excess funds and the projected future losses are recorded as an excess profit share receipt liability.

Profit share revenue in the third quarter of 2025 associated with new originations was $7.4 million or $310 per certified loan, as compared to $13.8 million or $502 per certified loan in the third quarter of 2024.

As Jessica mentioned previously, one of the steps we've taken to reduce future volatility in profit share revenue related to the change in estimate is to book more conservative unit economics at the time of originations. At these levels, the unit economics equates to 72.5% loss ratio. And with the pricing actions now in place, we expect newer vintages to ultimately perform closer to a mid-60s loss ratio.

We plan to continue booking at conservative unit economics going forward. Additionally, we do not anticipate recording future positive change in estimates to these newer vintages until the vintages are more seasoned.

As Jessica mentioned, in the third quarter, we amended our contract with Allied, which we anticipate will generate over $2.5 million in annual cost savings once the changes are fully implemented in 2027. As part of this contract amendment, we've made a onetime payment to Allied of $11 million, which will generate ROI by eliminating a portion of future commission fees from businesses that is referred to us by Allied.

This evolution to our relationship with Allied reinforces our mutual commitment, extending the term through 2029 and underscoring our commitment to prudent partner management. We believe this will contribute positively to our financial outlook. Overall, this revised agreement positions Open Lending for sustained growth while supporting valued partners like Allied.

Operating expenses were $26.6 million in the third quarter of 2025 compared to $15.5 million in the third quarter of 2024, representing an increase of 71% year-over-year. Excluding the aforementioned onetime payment to Allied of $11 million, operating expenses were relatively flat to the third quarter of 2024. One of my priorities moving forward will be to closely monitor and control operating expenses and find efficiencies in our spending. The reduction the team already made will have a full financial benefit in 2026.

Net losses for the third quarter of 2025 was $7.6 million compared to net income of $1.4 million in the third quarter of 2024. Diluted net loss per share was $0.06 in the third quarter of 2025 as compared to a net income per share of $0.01 in the third quarter of 2024. Adjusted EBITDA for the third quarter of 2025 was $5.6 million as compared to $4.5 million in the third quarter of 2024. Our third quarter '25 adjusted EBITDA excludes the onetime payment of $11 million made in connection to the amendment to the reseller agreement with Allied.

We exited the third quarter with $287.7 million in total assets, of which $222.1 million was in unrestricted cash. We had $214.8 million in total liabilities, of which $134.4 million was an outstanding debt.

Moving on to our capital allocation priorities. We have $21 million remaining on our share repurchase program, which expires in May of '26. Our intent is to utilize our balance sheet to invest in our organic business in a controlled and measured manner to fuel profitable growth. Further, the cash interest expense on our debt continues to be about equal to the amount of interest income being generated on our cash and cash equivalents on a quarterly basis.

We remain in compliance with all of our covenants under our credit agreement and expect to remain in compliance based on our projected performance. Finally, I wanted to address our guidance. For the fourth quarter, we are expecting total certified loans to be between 21,500 and 23,500.

With that, I will open it up for questions. Operator?

[Operator Instructions] I will take our first question from Peter Heckmann with D.A. Davidson.

It's good to hear about ApexOne Auto, the new credit decisioning tool. Jessica, I think you mentioned it was going to be on a subscription basis. But I think you said something about some -- like a volume component. Can you talk a little bit more about how that might work? How much of the payment might be fixed versus volume-based?

Yes. Nice to hear from you, Peter. Thank you for the question today. Yes, ApexOne Auto will be a completely subscription-based product with -- we're looking to do 3-year contracts, which will have monthly minimums and then any overage per loan will be charged based -- that is over the minimum amount. So it will equate to like a per loan fee. None of it will be variable, meaning that we will have a minimum. So the only variable amount would be if there was an overage.

And then anything that is -- and I think I mentioned this during the script, anything that is not then decisioned in ApexOne would be eligible to go into the LP (sic) [ LPP ] product, so they would be complementary to each other. But anything related strictly to ApexOne would be with a noninsurance wrapper and would not be subject to any change in the revenue once booked, it would be on the subscription basis.

Okay. That makes sense. That makes sense. And then Mass, just a follow-up on the Allied change in terms. I think you said you would approximate about a $2.5 million annual savings. Did you say that, that was going to start phasing in next year? Or it was just going to be for the full year 2027?

A small amount we expect to phase in, in 2026, the second half of 2026, but the lion's share of it will be realized in 2027.

And Peter, it will have applicability then sort of going forward in perpetuity, right? It will have a benefit.

Right. It's an ongoing benefit.

Yes, correct.

Our next question comes from Joseph Vafi with Canaccord.

This is Will Johnson on for Joe. Maybe just one kind of high level on the macro environment. Just curious kind of any more color you can share on when you think things could kind of stabilize and trends, you're seeing in the Manheim Index? And just any thoughts on conversations with customers?

Yes. As we've sort of weave through our script, we feel like 2025 was a transition year. There was lots of tightening and changes we needed to make to our pricing models that we felt, and we do feel have proven to put us in a much better and less volatile financial position.

We feel like we're very well positioned for sort of growth in 2026. There's a few things we can point to. We obviously aren't giving guidance into '26. We're seeing a lot more flow coming in from the refi channel. We believe OEM is starting to build some very positive momentum now live in 32 states with a few of the larger states coming live towards the end of the year.

We are bringing in a new CRO, which we believe will also bring more of a strategic lens to how we approach our credit union. And of course, we are seeing an improvement in retention of our credit unions. If you were to actually look at year-over-year, our cert growth our cert volume, excluding credit builders and SuperThin's, which is where we took most of our underwriting action, our cert growth is actually up 7% year-over-year. So I think that gives us a good starting pad as we move into 2026.

We will move next with John Davis with Raymond James.

This is Taylor on for JD. Maybe just to start on the 4Q certified loan assumptions. It looks like certs are supposed to be down about 14% year-over-year at the midpoint. So just curious what you're expecting from a refi versus purchase volume perspective, and then just also the contribution expected from your FIs, credit unions and OEMs.

Yes. So seasonality, fourth quarter is one of our lowest volume quarters. So we did take that into consideration. And then again, we will still have some of the impact of the OEM strengthening that we put into place as that works through sort of its full year effect.

There could be some uplift from refi. We are doing 3 different things right now to become more refi ready at working with active refi partners and our current credit union base, whether we see that uplift in the fourth quarter or we see that more going into 2026.

And then, of course, again, there's still some uncertainty as to when we'll get some of the full benefits from OEM 3. I don't know -- and about 90% of our business is coming from the CU and the bank. So we would expect that to sort of stabilize as we move into the fourth quarter and into 2026. I think kind of our goal with, I'll say, OEM 1 and 2 is to -- that, that volume will remain below 10% of our overall sort of volume.

I don't know, Mass, if you have anything else to add to that?

No, I agree. And we're comfortable with that OEM 3 or OEMs 1 and 2 at less than 10% of our volume or around 10%, but they could still grow as we grow the overall portfolio, the OEMs 1 and 2 could grow along with it. But the mix has been our focus.

Got it. Makes sense. And then maybe just one more on ApexOne. It's obviously very early days with 2 customers launched, but just curious longer term, what you're expecting from an uptake perspective and then a growth contribution perspective as well? And then does this make sense for all of your lenders to use or just a certain subset, just love to hear some detail on that.

Sure. We would love to share. We're very excited about its launch and a product that we've been working on for the last couple of years as we've gotten feedback from our credit unions. And again, really wanted to diversify into the full credit spectrum.

If we sort of look at the credit unions, we do business with today, we estimate that about 25% of the apps that we see are the subprime apps. And if we were able to capture what we -- and which is what is required, ApexOne, sort of look at all the applications, and we were to get about a 50% adoption rate, we're looking at revenues somewhere between $30 million and $40 million, which we consider to be significant.

But again, early days, and that will take time as we start to sign credit unions up. We have seen a lot of interest from our credit union clients. Again, there's been sort of the flight to quality on paper as the macroeconomic environment is what it is. And so this also, I think, protects us from sort of being more resilient to different market cycles.

So again, we're excited about this product for many different reasons. And we also think it has applicability outside of our credit union customers, right? So there's other institutions, financial institutions that are interested in getting into and learning about and participating in auto decisioning that don't have those tools that we may be able to partner with.

[Operator Instructions] And we show no further questions at this time. I will now turn the call over to Chief Executive Officer, Jessica Buss, for closing remarks.

Thanks, everyone, for your participation and support today. The third quarter represented tangible progress against the initiatives I laid out in my first quarter as CEO and believe that Open Lending is now in a stronger position today than it was just 6 months ago. We believe we are well positioned for growth in 2026, and I look forward to updating to you on our next call. Thank you.

Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.

Good afternoon, and welcome to the Open Lending Second Quarter 2025 Earnings Conference Call. As a reminder, today's conference call is being recorded. On the call today are Jessica Buss, Chairman of the Board of Directors and Chief Executive Officer; and Matthew Sather, Chief Underwriting Officer, who will both be available for Q&A section of the call.

I'd like to pass the call over to Ryan Gardella, Investor Relations, to read the safe harbor statement.

Thank you. I appreciate you joining us. Prior to the start of this call, the company posted the second quarter 2025 earnings release and supplemental slides 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 would 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 6, 2025. 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 will pass the call over to Jessica to give an update on the business and financial results for the second quarter 2025.

Thank you. Good afternoon, everyone, and thank you for joining us today. This marks my third earnings call as CEO, and I am pleased to report on our results for the second quarter, which we believe are starting to reflect the progress we are making in executing our strategy for the business. While we are encouraged by the impact our actions are making on the early results from our changes, we believe that 2026 will truly demonstrate the full financial impact of our initiatives.

Before we get into my comments and results, I will start by thanking Open Lending employees for all the work and efforts, which contributed to the solid and positive momentum in our results and execution. When I first stepped into this role, I laid out a clear vision with 4 priorities. First, we would focus on profitable and less volatile unit economics. Second, we would increase our service level to improve customer retention and demonstrate value through the life cycle of the loan. Third, we would streamline the business by eliminating unnecessary costs and refocus our investments on our core capabilities. And fourth, we would enable a culture of accountability and empower our employee base.

I'm happy to report that we've made substantial progress on all 4 of these priorities in the quarter, and we're going to continue pushing the business and our results forward. As part of our third initiative, we are optimizing efficiencies and reducing expenses to put us in a position where our program and TPA fees support our expense structure. I will also discuss progress in that area.

I want to start by reaffirming our belief in the value proposition provided to our customers by our signature Lenders Protection program, which we believe is the industry-leading solution for pricing and decisioning near and non-prime lending with credit protection. We believe this has been reinforced further by the changes we have made in the past 90 days and the commitment of key stakeholders. As the only risk-based pricing solution for near and non-prime auto industry lenders with an insurance wrapper, we believe that we are positioned to succeed in this rapidly transforming consumer market.

We continue to take steps in an effort to solidify our foundation and make our products and partnerships even more stable during these uncertain macroeconomic times. One example of this is on the carrier front. I am particularly excited to announce that we just signed an early extension of our producer agreement with AmTrust with the same overall terms as our existing agreement. This extension was driven by the strength of our partnership and the value they see in our future. Our agreement was previously set to expire at the end of 2028 and has been extended through 2033.

AmTrust is our largest and longest partner providing insurance coverage to our credit unions, banks and OEMs, and this early extension not only secures our credit capability and capacity, but demonstrates our faith in our product, team and ability to generate profitable business. We're deeply grateful for their partnership and look forward to building value together in the years ahead. Our collaboration with AmTrust spanning over a decade since 2010 has been pivotal in ensuring over $9 billion in auto loans, empowering credit unions to extend credit to near prime and non-prime borrowers with confidence.

We believe our relationship with our 2 other carriers are also solid, and all carriers are rated A by A.M. Best. They have all fulfilled their promise to pay claims in a timely fashion through all market cycles, which mitigates credit union risk, which is exactly what our signature Lenders Protection program was designed to do.

Next, I wanted to provide an update on our strategic priorities and the progress we have made. First, on our focus on profitable and less volatile unit economics, we facilitated 26,522 certified loans in the quarter, down from 28,963 in the prior year period and 27,638 in the first quarter. This decrease is largely due to typical seasonality combined with our intentionally tightened lending standards and targeted rate increases in less profitable segments. In our updated supplemental slides, you can see that we are now including more granular information on certified loans, which we believe speaks to the improved quality of our portfolio.

For example, Super Thin borrowers made up only 0.3% of loans in the quarter, down from a high of over 10% in the fourth quarter of 2024. You'll also see that our program fees remain well over $500. Additionally, the mix of OEM and credit union business continues to shift more towards credit unions, which reflects a better overall profitability position for both components of unit economics. Typically, credit unions have better performing loss ratios, which increases profit share and on average, have higher program fees.

That being said, with regard to cert volumes, we are hopeful that 2025 will be a transition year and the bottom of the J curve in terms of the number of loans we facilitate across all channels. We have made a conscious decision to focus on profitability and improving our business mix in 2025 before pursuing growth. Simply put, we didn't want to grow without first addressing fundamental issues, in particular, how we decision and price our certified loans. Our work has also resulted in a positive book mix shift driven by price increases.

On our certified loan mix by channel, we significantly reduced our OEM exposure, which has positively impacted our overall program fees and loss ratio and therefore, improved our overall portfolio and earnings quality. In the second quarter, our OEM mix fell to 11.1%, down from 12.4% in the prior quarter and 23.9% in the prior year period. While we expect to continue to focus more heavily on bank and credit union lenders, we're seeing encouraging progress with OEM 3 and expect them to perform more like a credit union since they don't offer a competing product.

I'd like to provide an update on OEM 3 progress with our pilot program. While rollout has been deliberately slow, we believe OEM 3 is very happy with the results so far, and we are targeting a full rollout of the program by the end of 2025. We expect to see real cert progress in 2026. We have also made solid progress in the area of our pricing and predictive modeling, both of which are ahead of schedule and utilizing more real-time data. These efforts will result in a further segmented pricing approach and integration of real-time TransUnion data will enable us to see the need for rate and to price for frequency and severity changes faster. These changes are in development, and we will have more to report next quarter.

We have also seen more consistent and less volatile results in our profit share, unit economics and back book performance. I want to reiterate here that we always expect to see movements quarter-to-quarter in our back book. Fortunately, the back book has benefited from lower frequency and severity of claims than expected, partially due to a sequential increase in the Manheim Used Vehicle Value Index, or MUVVI, which rose to 206.9 in mid-July. Increased consumer sentiment and lower wholesale supply are also contributing to an increase in used car wholesale prices, which generally increases the average size of our facilitated loan.

We have made significant progress on rating and pricing changes in defined segments, and we believe our ability to predict loss frequency has improved with the use of real-time data that I mentioned. While we continue to constrain current unit economics based on a 72.5% loss ratio, recent vintages are expected to perform better due to rate and book mix shifts, which we expect may lead to positive adjustments in the future. This is especially true on our 2025 vintages with the changes already discussed, which impacts current loans being put on the books.

Next, on increasing our service level to drive customer retention and future growth, we've implemented 3 primary tools in the quarter: one, enhanced lender profitability reporting and the build-out of real-time champion dashboards; two, improved claims processes, leveraging automation; three, a reinvigorated sales team with the new commission structure effective August 1, which rewards not just sales, but retention and cert volume growth. We believe we're seeing positive early results from these changes. And in fact, we lost only one customer in the second quarter. And notably, they hadn't written a new cert in 2.5 years and are continuing to pay premiums on their already insured loans. We have also added an additional 12 logos this quarter or a total of 30 year-to-date. Third, on streamlining the business and removing unnecessary costs, we continue to rightsize our organization.

Our goal heading into 2026 will be to pursue growth and maintain a cost structure supported by program fees and TPA fees alone. This means we are achieving profitability based on the profit share component of unit economics. In the near term, we will continue to focus on cert quality, and we are hopeful that once we have our new processes in place, this will eventually allow us to increase the quantity of certs while mitigating the risk of another large CIE event.

With that in mind, I wanted to specifically call out that while our operating expenses were up this quarter, this was partially due to onetime severance charges. We've completed the work to identify substantial run rate savings for 2026 and plan to have implemented all planned actions by year-end. This includes secondary RIF that was completed on July 13 and changes to our commission structure. We are also examining potential efficiencies to be gained by utilizing machine learning and scalability, which we believe have the potential to boost productivity and increase the accuracy of our claims review.

I do want to be clear that we will continue to invest in targeted areas, including our data science space. As I mentioned earlier, we are planning to transition into an expense structure that is supported by our program and TPA fees on a run rate basis by the end of 2026.

Finally, on creating a culture of accountability to empower our employee base, we've made a number of changes throughout the organization in order to move the business forward and introduce fresh ideas and insights into Open Lending. The largest impact has been seen in the combination of insurance risk and pricing under our Chief Underwriting Officer, Matt Sather, where we have better feedback loops and collaboration. We're focused on attracting top talent to further our mission of serving the underserved, and we're actively looking to bolster our team in certain areas where we feel there is room for improvement. Overall, we have seen increased execution, clear strategic focus and better collaboration.

On the credit union front, we believe there is still a large need for credit decisioning, pricing and risk mitigation in the near and non-prime space. We continue to monitor the health of our credit unions and the macroeconomic conditions to access growth opportunities, product and pricing enhancements and the impact on performance. At the macro level, we believe that credit union financial positions are improving and refinancing opportunities are returning. While we face some headwinds, we're actively evaluating solutions to capitalize on these market conditions.

In the second quarter of 2025, we have seen a strengthening in credit union balance sheets with total assets in federally insured credit unions rising by $79 billion or 3.5% to $2.3 trillion compared to the second quarter of 2024, reflecting resilience despite rapidly evolving economic conditions. Additionally, total loan growth and share growth in the same credit unions have also seen improvement with year-over-year growth of 3.6% and 4%, respectively.

The Federal Reserve's 3 interest rate cuts in 2024 totaling a full percentage point, have stabilized inflation around 3%, spurring increased refinancing activity, particularly in the auto loan sector, where we believe Open Lending's risk-based pricing and analytics platforms are well positioned to drive growth. We've also seen ongoing trade tensions and proposed tariffs, which could impact how consumers think about their next auto purchase.

As discussed above, Open Lending is proactively responding to these challenges and opportunities by taking steps to enhance our partnerships with credit unions and leverage our lending profitability reporting to offer tailored refinancing solutions to their customers. As part of our goal of increasing customer retention, we have made progress on the build-out of our lender profitability reports and Champion dashboards, which we believe will enable credit unions to see the comprehensive value they receive by partnering with Open Lending. We will dive deeper into these efforts on future calls, but they are important not only for our customers, but for our internal teams to stay current on dashboards and other informative metrics with future decisioning technologies.

Before moving on to a more detailed review of the numbers, I wanted to mention a very positive development on the leadership level. As many of you have already seen, we announced Massimo Monaco as our new CFO effective August 18, 2025. Massimo brings over 2 decades of experience in lending and financial services and will be a key driver of change and strategy in our organization. We are thrilled to welcome him to our leadership team, and you will be hearing from him on our next earnings call.

Now let me walk through the numbers for the quarter before opening the line to Q&A. During the second quarter of 2025, we facilitated 26,522 certified loans compared to 28,963 certified loans in the second quarter of 2024. Total revenue for the second quarter of 2025 was $25.3 million and includes an $8.3 million reduction in estimated profit share revenue associated with new originations during the quarter, as compared to the second quarter of 2024, primarily driven by lower further constrained profit share unit economics per certified loan.

In addition, the second quarter 2025 was impacted by an increase of $300,000 in estimated profit share revenues related to business in historic vintages as compared to $6.7 million reduction in the second quarter of 2024. Break down total revenues in the second quarter of 2025, program fee revenues were $14.9 million, profit share revenue was $8 million and claims administration fee and other revenue was $2.4 million. As a reminder, profit share revenue comprises the expected earned premium less the expected claims to be paid over the life of the contract and less expenses attributable to the program.

The net profit share to us is 72% and any losses in the profit share are accrued and carried forward for future profit share calculations. With cash consideration previously received is in excess of the expected profit share revenue, the amount of excess funds and the forecasted losses are recorded as an excess profit share receipts liability. Profit share revenue in the second quarter of 2025 associated with new originations was $7.7 million or $289 per certified loan as compared to $16 million or $552 per certified loan in the second quarter of 2024. The decrease in unit economics per certified loan is due to our current estimates of loan performance based on recent historical results.

In addition, as I already mentioned on our last call, one of our steps to reduce volatility of future quarter-to-quarter change in estimates is booking initially lower unit economics at the time of origination. At this unit economic, this is equivalent to a 72.5% loss ratio. And with our current pricing actions, we would expect current vintage to ultimately perform closer to a 65% loss ratio.

The positive $300,000 profit share CIE recorded in the current quarter is associated with cumulative total profit share revenue previously recognized of approximately $344 million for periods dating back to January 2019, the ASC 606 implementation date and represents over 409,000 insured in-force loans in the portfolio. We also expected a reasonable CIE variance as the model absorbs new information.

Operating expenses were $18.6 million in the second quarter of 2025 compared to $17 million in the second quarter of 2024, representing an increase of 9% year-over-year. The increase in operating expenses year-over-year includes onetime severance expenses, and we expect additional severance expenses in the third quarter as we continue to rightsize the business. As I have discussed, we have made the controlling of operating expenses a priority going forward and the reductions we have made will have a full financial benefit in 2026. We'll continue to monitor our expenses, rightsize where needed and find efficiencies in our own spending as well as in third-party spending going forward.

Net income for the second quarter of 2025 was $1 million compared to $2.9 million in the second quarter of 2024. Diluted net income per share was $0.01 in the second quarter of 2025 as compared to $0.02 per share in the second quarter of 2024. Adjusted EBITDA for the second quarter of 2025 was $4.1 million as compared to $6.8 million in the second quarter of 2024. Beginning in the quarter ended June 30, 2025, we have updated the presentation of adjusted EBITDA to exclude interest income as we believe the exclusion of interest income aligns our definition with comparable companies. Prior periods presented have been conformed to the current period presentation.

There's a reconciliation of GAAP to non-GAAP financial measures that can be found at the back of our earnings press release. We exited the second quarter with $296.7 million of total assets, of which $230.7 million was in unrestricted cash and $29.5 million in contract assets. We had $217.7 million in total liabilities, of which $136.1 million was in outstanding debt. In the second quarter, we repurchased approximately 2 million shares for a total consideration of approximately $4 million.

Moving on to our capital allocation priorities. We have $21 million remaining on our repurchase program and intend to continue opportunistically repurchasing shares throughout the rest of 2025. As I mentioned last quarter, our intent is to utilize our balance sheet to invest in our organic business in a controlled and measured manner to fuel profitable growth. Further, the cash interest expense on our debt continues to be about equal to the amount of interest income being generated on our cash and cash equivalents on a quarterly basis. We remain in compliance with all of our covenants under our credit agreement and expect to remain in compliance based on our projected performance.

Finally, I wanted to address our guidance. For the third quarter, we are expecting total certified loans to be between 22,500 and 24,500. I believe the second quarter was another step in the right direction for the business as we execute against our strategic priorities, both in the near and long term. We are clearly focused on getting 4 things right, and we'll continue to measure and report our progress against our stated strategic initiatives.

We've made significant progress in adjusting our pricing model to adequately address risk in our portfolio, which we believe will lead to less volatility and more predictable results for the business. We announced the extension of our agreement with AmTrust early, which we believe demonstrates the confidence our partners have in the business. We're continuing to rightsize the business and are targeting profitability based on our program and TPA fees alone. We brought Massimo Monaco on as our new CFO and are actively assessing other moves to improve our leadership and bring our corporate governance in line with best-in-class practices.

We will now take your questions.

[Operator Instructions] We'll move to John Davis with Raymond James.

Just first off, what drove the early extension with AmTrust? Just curious, did you guys go to them and say, "Hey, we want to extend"? Did they come to you? Just obviously, 3 years early extension was a little bit surprising. So just curious kind of the back story on what drove that extension.

Yes. Thanks, John, for the question. This is Jessica. AmTrust actually came to us wanting to extend the agreement. Again, we have a very long-standing partnership with them. I think it was just an important signal to the market given everything that has happened in the last couple of quarters that they stood behind us, and we were really glad that they approached us and happy to enter the extension. Again, at the same terms that the previous agreement was at and covering all the same sectors, OEMs, banks and credit unions.

Okay. No, that's great to hear. And then just -- you had the first kind of positive profit share CIE since, I think, 1Q of '23. Is that a signal that you guys feel pretty good that a lot of the negative adjustments have been taken and are behind us at this point that you've kind of worked through the troubled '21 and '22 vintages. Just obviously, you can't predict the future, but just thoughts there. I mean, I think it's a very positive sign that we're going in the right direction for the first time in a couple of years. But anything bigger picture that we should be aware of or any thoughts on the CIE this quarter and going forward?

Sure. I think, obviously, we all view that as a positive that we had the positive adjustment. I think as I've mentioned on previous calls that we should always expect some minor ups and downs as we run our prior book through the back book through our models and things change in the macroeconomic environment. But we did see 2 things I did mention on the call that were positive. One is a lower frequency in claims versus what we expected and an increase in the MUVVI at 206.9%, which helped reduce projected severity across the claims.

So as long as those things continue, we feel good about where our back book is. But as you mentioned, certainly, things can change moving forward. But sort of our largest years, as we get further out from our largest years and we have those further developed, we feel better about where those sit.

Okay. Great. And then last one for me. Just the 3Q cert guide. Jessica, you've been very clear about steps you're taking to put higher quality, lower-risk certs on the books. So curious, as we look at the year-over-year decline, I think it was down 8%, certs around 8% in the second quarter and the midpoint is roughly down 14% in 2Q. Is that delta and kind of deceleration? Is that demand related? Is that your controls and kind of your restriction on higher quality certs?

Just trying to understand kind of the puts and takes between the demand environment, also credit union's willingness and ability. I think you mentioned that loan-to-value -- or sorry, loan-to-deposit ratios have improved. Their balance sheets are better. But just trying to understand the supply/demand and what you're kind of restricting to do higher quality certs, like what that environment looks like and the push and pull there?

Sure. Yes. I would say the largest sort of put and take in that formula is our decrease in OEM business, which is a result of rate increases and tighter underwriting standards as they also have the largest amount of OSC files that we now are writing 0 of. As we bring on OEM 3, of course, we would expect and hope that in 2026, we start to see an increase in our OEM cert volume.

In terms of credit unions, we still do see a demand there. We're actually seeing an increase -- a significant percentage increase, although it's a small part of our overall portfolio in the refi channel as we've seen interest rate drops and just in general, just sort of that bubble that's likely to break in terms of refi, and we're working to be even more refi ready, as I would call it, as we move into what I would consider to be an environment where we think that there's a good opportunity for us to capitalize on that channel.

But in terms of overall credit union demand, I would say that it is good or better than it was before. And really, this has come down to making sure, again, we have better quality over quantity to position us. And I think I mentioned in the call, hopefully, that we're at the bottom of the inflection point of getting there and that we'll be in a position to be in a growth mode in 2026.

[Operator Instructions] It appears that we have no further questions at this time. I would now like to turn the program back over to Jessica Buss for any additional or closing remarks.

We appreciate your interest and support, and I'd like to again thank all of the team members at Open Lending for your hard work and dedication to our company. Thanks, and have a great day.

Thank you. Ladies and gentlemen, that does conclude today's program. We thank you for your participation. You may disconnect at this time.