lpro-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-39326

OPEN LENDING CORPORATION

(Exact Name of Registrant as Specified in its Charter)


Delaware			84-5031428
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

1501 S. MoPac Expressway Suite 450 Austin, Texas			78746
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (512) 892-0400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange
on which registered

Common stock, par value $0.01 per share

LPRO

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the

registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 9, 2023, the registrant had 120,697,953 shares of common stock, $0.01 par value per share, outstanding.

OPEN LENDING CORPORATION

FORM 10-Q

TABLE OF CONTENTS


		Page
PART I.	Financial Information	3

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated Statements of Changes in Stockholders’ Equity	5

	Condensed Consolidated Statements of Cash Flows	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29

Item 4.	Controls and Procedures	30

PART II.	Other Information	31

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3.	Default Upon Senior Securities	31

Item 4.	Mine Safety Disclosures	31

Item 5.	Other Information	31

Item 6.	Exhibits	32

SIGNATURES		33

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

OPEN LENDING CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except share data)


	June 30, 2023		December 31, 2022

Assets
Current assets
Cash and cash equivalents	$	224,445	$	204,450
Restricted cash	5,337		4,069
Accounts receivable, net	6,329		5,721
Current contract assets, net	33,651		54,429
Income tax receivable	11,764		9,714
Other current assets	2,980		2,361
Total current assets	284,506		280,744
Property and equipment, net	3,013		2,573
Operating lease right-of-use asset, net	4,305		4,610
Contract assets	26,004		21,001
Deferred tax asset, net	63,346		65,128
Other assets	5,626		5,575
Total assets	$	386,800	$	379,631
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	30	$	288
Accrued expenses	7,491		6,388

Current portion of debt	3,750		3,750
Third-party claims administration liability	5,318		4,055
Other current liabilities	1,379		626
Total current liabilities	17,968		15,107
Long-term debt, net of deferred financing costs	141,984		143,683
Operating lease liabilities	3,775		4,082
Other liabilities	3,923		3,935
Total liabilities	167,650		166,807
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding	—		—
Common stock, $0.01 par value; 550,000,000 shares authorized, 128,198,185 shares issued and 120,696,156 shares outstanding as of June 30, 2023 and 128,198,185 shares issued and 123,646,059 shares outstanding as of December 31, 2022	1,282		1,282
Additional paid-in capital	501,374		499,625
Accumulated deficit	(191,910)		(215,819)
Treasury stock at cost, 7,502,029 shares at June 30, 2023 and 4,552,126 at December 31, 2022	(91,596)		(72,264)
Total stockholders’ equity	219,150		212,824
Total liabilities and stockholders’ equity	$	386,800	$	379,631

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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OPEN LENDING CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue
Profit share	$	17,809	$	29,157	$	36,411	$	57,467
Program fees	17,893		20,731		35,194		40,457
Claims administration and other service fees	2,452		2,156		4,910		4,188
Total revenue	38,154		52,044		76,515		102,112
Cost of services	6,117		5,085		11,548		9,873
Gross profit	32,037		46,959		64,967		92,239
Operating expenses
General and administrative	10,971		7,968		21,166		15,450
Selling and marketing	4,218		3,994		8,627		7,727
Research and development	1,128		2,188		2,358		4,011
Total operating expenses	16,317		14,150		32,151		27,188
Operating income	15,720		32,809		32,816		65,051
Interest expense	(2,655)		(1,124)		(5,042)		(1,927)
Interest income	2,452		22		4,516		47
Other expense, net	(6)		—		(6)		—
Income before income taxes	15,511		31,707		32,284		63,171
Income tax expense	4,140		8,581		8,375		16,891
Net income	$	11,371	$	23,126	$	23,909	$	46,280
Net income per common share
Basic	$	0.09	$	0.18	$	0.20	$	0.37
Diluted	$	0.09	$	0.18	$	0.20	$	0.37
Weighted average common shares outstanding
Basic	120,648,658		126,221,689		121,878,503		126,218,710
Diluted	121,540,094		126,222,366		122,456,565		126,219,115

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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OPEN LENDING CORPORATION

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited, in thousands, except share data)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Treasury Stock			Total Stockholders’ Equity
	Shares	Amount		Amount		Amount		Shares	Amount		Amount
Balance as of December 31, 2022	128,198,185	$	1,282	$	499,625	$	(215,819)	(4,552,126)	$	(72,264)	$	212,824
Share-based compensation	—	—		1,844		—		—	—		1,844
Restricted stock units issued, net of shares withheld for taxes	—	—		(939)		—		41,148	810		(129)
Shares repurchased, including excise tax	—	—		—		—		(3,095,334)	(21,528)		(21,528)
Net income	—	—		—		12,538		—	—		12,538
Balance as of March 31, 2023	128,198,185	$	1,282	$	500,530	$	(203,281)	(7,606,312)	$	(92,982)	$	205,549
Share-based compensation	—	—		2,361		—		—	—		2,361
Restricted stock units issued, net of shares withheld for taxes	—	—		(1,517)		—		104,283	1,386		(131)

Net income	—	—		—		11,371		—	—		11,371
Balance as of June 30, 2023	128,198,185	$	1,282	$	501,374	$	(191,910)	(7,502,029)	$	(91,596)	$	219,150







	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Treasury Stock			Total Stockholders’ Equity
	Shares	Amount		Amount		Amount		Shares	Amount		Amount
Balance as of December 31, 2021	128,198,185	$	1,282	$	496,983	$	(282,439)	(1,985,309)	$	(56,844)	$	158,982
Share-based compensation	—	—		1,281		—		—	—		1,281
Restricted stock units issued, net of shares withheld for taxes	—	—		(207)		—		5,079	168		(39)
Net income	—	—		—		23,154		—	—		23,154
Balance as of March 31, 2022	128,198,185	$	1,282	$	498,057	$	(259,285)	(1,980,230)	$	(56,676)	$	183,378
Share-based compensation	—	—		988		—		—	—		988
Restricted stock units issued, net of shares withheld for taxes	—	—		(300)		—		7,595	276		(24)
Net income	—	—		—		23,126		—	—		23,126
Balance as of June 30, 2022	128,198,185	$	1,282	$	498,745	$	(236,159)	(1,972,635)	$	(56,400)	$	207,468

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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OPEN LENDING CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities
Net income	$	23,909	$	46,280
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation	4,163		2,269
Depreciation and amortization of property and equipment	496		447
Amortization of debt issuance costs	210		167
Non-cash operating lease cost	305		285
Deferred income taxes	1,782		(998)
Other	6		—
Changes in assets & liabilities:
Accounts receivable, net	(608)		(435)
Contract assets, net	15,775		6,208
Other current and non-current assets	(633)		1,477
Accounts payable	(259)		(885)
Accrued expenses	857		2,094
Income tax receivable, net	(2,133)		(2,964)
Operating lease liabilities	(272)		(240)
Third-party claims administration liability	1,263		(13)
Other current and non-current liabilities	718		(105)
Net cash provided by operating activities	45,579		53,587
Cash flows from investing activities
Purchase of property and equipment	(77)		(70)
Capitalized software development costs	(766)		(294)
Net cash used in investing activities	(843)		(364)
Cash flows from financing activities


Payments on term loans	(1,875)		(1,562)


Shares repurchased	(21,323)		—
Shares withheld for taxes related to restricted stock units	(275)		(63)
Net cash used in financing activities	(23,473)		(1,625)
Net change in cash and cash equivalents and restricted cash	21,263		51,598
Cash and cash equivalents and restricted cash at the beginning of the period	208,519		119,509
Cash and cash equivalents and restricted cash at the end of the period	$	229,782	$	171,107
Supplemental disclosure of cash flow information:
Interest paid	$	4,974	$	1,756
Income tax paid (refunded), net	$	8,726	$	20,853
Non-cash investing and financing:
Property and equipment accrued but not paid	$	—	$	21
Share-based compensation for capitalized software development	$	42	$	—
Capitalized software development costs accrued but not paid	$	59	$	27
Accrued excise tax associated with share repurchases	$	190	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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OPEN LENDING CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1—Description of Business, Background and Nature of Operations

Open Lending Corporation (either individually or together with its subsidiaries, as the context requires, the “Company”), headquartered in Austin, Texas, provides loan analytics, risk-based loan pricing, risk modeling and automated decision technology for automotive lenders throughout the United States of America (the “U.S.”), which enables each lending institution to book near-prime and non-prime automotive loans, coupled with real-time underwriting of loan default insurance, out of their existing business flow. The Company also operates as a third-party administrator that adjudicates insurance claims and premium adjustments on automotive loans.

The Company’s flagship product, Lenders Protection Platform (“LPP”), is a cloud-based automotive lending platform. LPP supports loans made to near-prime and non-prime borrowers and is designed to underwrite default insurance by linking automotive lenders to insurance companies. The platform uses risk-based pricing models that enable automotive lenders to assess the credit risk of a potential borrower using data driven analysis. The Company’s proprietary risk models project loan performance, including expected losses and prepayments in arriving at the optimal contract interest rate. LPP generates a risk-based, all-inclusive interest rate for a loan that is customized to each automotive lender, reflecting cost of capital, loan servicing and acquisition costs, expected recovery rates and target return on assets.

Nebula Acquisition Corporation (“Nebula”), our predecessor, was originally incorporated in Delaware on October 2, 2017 as a special purpose acquisition company for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On June 10, 2020 (the “Closing Date”), Nebula completed a business combination pursuant to that certain Business Combination Agreement by and among Nebula, Open Lending, LLC, BRP Hold 11, Inc. (the “Blocker”), the Blocker’s sole stockholder, Nebula Parent Corp., NBLA Merger Sub LLC, NBLA Merger Sub Corp. and Shareholder Representative Services LLC, as the security holder representative, each as defined in the Business Combination Agreement (the “Business Combination”).

Unless the context otherwise requires, “we,” “us,” “our,” “Open Lending,” and the “Company” refers to Open Lending Corporation, the combined company and its subsidiaries following the Business Combination. “Open Lending, LLC” and “Nebula” refer to Open Lending, LLC and Nebula Acquisition Corporation, respectively, prior to the Closing Date.

The Company has evaluated how it is organized and managed and has identified only one operating segment. All of the Company’s operations and assets are in the U.S., and all of its revenues are attributable to U.S. customers.

Note 2—Summary of Significant Accounting and Reporting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and include the accounts of Open Lending and all its subsidiaries that are directly or indirectly owned or controlled by the Company. All intercompany transactions and balances have been eliminated upon consolidation. Certain prior year amounts have been reclassified to conform to the Company’s current presentation. Such reclassifications had no effect on the Company’s previously reported net income, earnings per share, cash flows or accumulated deficit.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted from these unaudited condensed consolidated financial statements, as permitted by Securities and Exchange Commission (“SEC”) rules and regulations. The Company believes the disclosures made in these unaudited condensed consolidated financial statements are adequate to make the information herein not misleading. The Company recommends that these unaudited condensed consolidated financial statements be read in conjunction with its audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”).

The interim data includes all adjustments that are of a normal recurring nature, in the opinion of the Company’s management, necessary for a fair statement of the results for the interim periods presented. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the Company’s operating results for the entire fiscal year ending December 31, 2023.

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OPEN LENDING CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(a) Concentrations of revenue and credit risks

The Company’s two largest insurance carrier partners accounted for 34% and 10% of the Company’s total revenue during the three months ended June 30, 2023, and 34% and 11% during the six months ended June 30, 2023, respectively. The Company’s three largest insurance carrier partners accounted for 38%, 11% and 11% of the Company's total revenue during the three months ended June 30, 2022 and 38%, 13% and 10% during the six months ended June 30, 2022, respectively.

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, restricted cash, accounts receivable and contract assets to the extent of the amounts recorded on the balance sheets.

Cash and cash equivalents are deposited in commercial analysis accounts, money market funds and U.S. Treasury securities at financial institutions with high credit standing. Restricted cash relates to funds held by the Company on behalf of the insurance carriers, delegated for the use of insurance claim payments. Restricted cash is deposited in commercial analysis accounts at one financial institution. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurance limits of $250,000 per institution. The Company has not experienced any losses on its deposits of cash and cash equivalents and management believes the Company is not exposed to significant risks on such accounts.

The Company’s accounts receivable and contract assets are derived from revenue earned from customers. The Company maintains an allowance for expected credit losses, which represents an estimate based primarily on market implied lifetime probabilities of default and loss severities for assets with similar risk characteristics. As these inputs are derived from market observations, they inherently include forward-looking expectations about macro-economic conditions. The allowance is evaluated quarterly by the Company for adequacy by taking into consideration factors such as reasonableness of the market implied loss statistics, historical lifetime loss data and credit quality of the customer base. Provisions for the allowance for expected credit losses attributable to bad debt are recorded as general and administrative expenses. Account balances deemed uncollectible are written off, net of actual recoveries. If circumstances related to specific customers change, the Company’s estimate of the recoverability of its contract asset could be further adjusted. The Company does not have any material accounts receivable or contract assets receivable balances that are past due and has not written off any balances in its portfolio for the periods presented. The allowance for expected credit losses on accounts receivable and contract assets receivable, in the aggregate, was approximately $0.1 million at June 30, 2023 and December 31, 2022.

At June 30, 2023 and December 31, 2022, the Company had one customer that individually accounted for 15% and 12%, respectively, of the Company’s accounts receivable.

(b) Use of estimates and judgments

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates, and those differences may be material. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively.

The most significant items subject to such estimates and assumptions include, but are not limited to, profit share revenue recognition and the corresponding impact on contract assets, the recognition of the valuations of share-based compensation arrangements and assessing the realizability of deferred tax assets. The Company bases its estimates on historical trends and relevant assumptions that it believes to be reasonable under the circumstances. Accordingly, actual results could be materially different from those estimates.

In connection with profit share revenue recognition and the estimation of contract assets, the Company uses a forecast model to estimate variable consideration based on undiscounted expected future profit share to be received from the insurance carriers. The forecast model projects loan-level earned premiums and insurance claim payments driven by projections of prepayment rate, loan default rate and severity of loss. These assumptions are derived from an analysis of the historical performance of the active loan portfolio, prevailing default and prepayment trends, and macroeconomic projections. Estimates of variable consideration generated by the forecast model are constrained to the extent that it is probable that a significant reversal of revenue will not occur in future periods.

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OPEN LENDING CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company continually assesses the default and prepayment assumptions of the forecast model against reported performance and lender delinquency data. The forecast model is updated to align the default and prepayment rate projections with actual experience.

Although there may be other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or may adopt, as applicable, the Company believes none of these accounting pronouncements has materially impacted or will materially impact the Company’s consolidated financial position or results of operations.

Note 3—Contract Assets

Changes in the Company’s contract assets primarily result from the timing difference between the satisfaction of its performance obligation and the customer’s payment. The Company fulfills its obligation under a contract with a customer by transferring services in exchange for consideration from the customer. The Company recognizes contract assets when it transfers services to a customer, recognizes revenue for amounts not yet billed and the right to consideration is conditional on something other than the passage of time. Accounts receivable are recorded when the customer has been billed or the right to consideration is unconditional.

For performance obligations satisfied in previous periods, the Company evaluates and updates its profit share revenue forecast on a quarterly basis and adjusts contract assets accordingly. During the three and six months ended June 30, 2023, contract asset adjustments attributable to profit share revenue forecast adjustments resulted in decreases of $1.2 million and $0.5 million, respectively, as compared to increases of $2.8 million and $5.5 million, respectively, during the three and six months ended June 30, 2022.

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OPEN LENDING CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Contract assets balances for the periods indicated below were as follows:


	Contract Assets
	Profit Share		Program Fees		Claims Administration and Other Service Fees		Total
	(in thousands)
Ending balance as of March 31, 2023	$	56,641	$	7,661	$	1,640	$	65,942
Increase of contract asset due to new business generation	18,983		17,893		2,452		39,328
Adjustment of contract asset due to estimation of revenue from performance obligations satisfied in previous periods	(1,174)		—		—		(1,174)
Receivables transferred from contract assets upon billing the lending institutions	—		(18,623)		—		(18,623)
Payments received from insurance carriers	(23,508)		—		(2,293)		(25,801)
Provision for expected credit losses	(12)		(4)		(1)		(17)
Ending balance as of June 30, 2023	$	50,930	$	6,927	$	1,798	$	59,655


	Contract Assets
	Profit Share		Program Fees		Claims Administration and Other Service Fees		Total
	(in thousands)
Ending balance as of December 31, 2022	$	65,889	$	7,932	$	1,609	$	75,430
Increase of contract assets due to new business generation	36,871		35,194		4,910		76,975
Adjustment of contract assets due to estimation of revenue from performance obligations satisfied in previous periods	(460)		—		—		(460)
Receivables transferred from contract assets upon billing the lending institutions	—		(36,200)		—		(36,200)
Payments received from insurance carriers	(51,390)		—		(4,721)		(56,111)
Provision for expected credit losses	20		1		—		21
Ending balance as of June 30, 2023	$	50,930	$	6,927	$	1,798	$	59,655

As of June 30, 2023 and December 31, 2022, the Company’s contract assets consisted of $33.7 million and $54.4 million, respectively, as the portion estimated to be received within one year and $26.0 million and $21.0 million, respectively, as the non-current portion to be received beyond one year.

Contract Costs

The fulfillment costs associated with the Company’s contracts with customers do not meet the criteria for capitalization and therefore are expensed as incurred.

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OPEN LENDING CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 4—Long-term Debt

The following table provides a summary of the Company’s debt as of the periods indicated:


	June 30, 2023		December 31, 2022
	(in thousands)
Term Loan due 2027	$	147,187	$	149,063
Revolving Credit Facility	—		—
Less: Unamortized deferred financing costs	(1,453)		(1,630)
Total debt	145,734		147,433
Less: current portion of debt	(3,750)		(3,750)
Total long-term debt, net of deferred financing costs	$	141,984	$	143,683

Credit Agreement—Term Loan due 2027 and Revolving Credit Facility

On September 9, 2022, the Company entered into a First Amendment to its existing Credit Agreement (the “First Amendment”) with Wells Fargo Bank, N.A., as the administrative agent, and the financial institutions party thereto, as the lenders. The First Amendment provided the Company senior secured credit facilities in an aggregate principal amount of $300.0 million, which (i) established a term loan due 2027 with a principal amount of $150.0 million (the “Term Loan due 2027”), and (ii) increased the borrowing capacity on the existing revolving credit facility to $150.0 million (the “Revolving Credit Facility”), both scheduled to mature on September 9, 2027 (collectively, the “Credit Agreement”).

The Company used proceeds from the Term Loan due 2027 to pay off all outstanding amounts under its prior credit agreement and pay transaction costs related to the First Amendment. The remaining proceeds were used for working capital and other general corporate purposes. The transaction was treated as a debt modification under ASC Topic 470-50, Debt — Modifications and Extinguishments.

The obligations of the Company under the Credit Agreement are guaranteed by all of the Company’s U.S. subsidiaries and are secured by substantially all of the assets of the Company and its U.S. subsidiaries, subject to customary exceptions.

Borrowings under the Credit Agreement bear interest at a rate equal to either (i) an Alternate Base rate (“ABR”) or (ii) the term Secured Overnight Financing Rate (“SOFR”) plus 0.100% (“Adjusted SOFR”) plus a spread that is based upon the Company’s total net leverage ratio. The spread ranges from 0.625% to 1.375% per annum for ABR loans and 1.625% to 2.375% per annum for Adjusted SOFR loans. With respect to the ABR loans, interest will be payable at the end of each calendar quarter. With respect to the Adjusted SOFR loans, interest will be payable at the end of the selected interest period (at least quarterly). Additionally, there is an unused commitment fee payable at the end of each quarter at a rate per annum ranging from 0.150% to 0.225% based on the average daily unused portion of the Revolving Credit Facility and other customary letter of credit fees. Pursuant to the Credit Agreement, the interest rate spread and commitment fees increase or decrease in increments as the Company’s Funded Secured Debt/EBITDA ratio increases or decreases.

As of June 30, 2023, the Credit Agreement was subject to an Adjusted SOFR rate of 5.143% plus a spread of 1.625% per annum. Commitment fees were accrued at 0.150% under the Revolving Credit Facility’s unused commitment balance of $150.0 million as of June 30, 2023. As of June 30, 2023, the effective interest rate on the Company’s outstanding borrowings was 7.014%.

In connection with the Credit Agreement, the Company incurred aggregate deferred financing costs of $2.6 million, of which (i) $2.1 million was allocated to the related term loans and capitalized as a contra-liability against the principal balance of the term loans, and (ii) $0.5 million was allocated to the Revolving Credit Facility and included within Other assets on the unaudited Condensed Consolidated Balance Sheets. These deferred financing costs are amortized as interest expense using the effective interest method over the term of the Credit Agreement. Unamortized deferred financing costs related to the Term Loan due 2027 and the Revolving Credit Facility were $1.5 million and $0.3 million, respectively, as of June 30, 2023.

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OPEN LENDING CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Credit Agreement contains a maximum total net leverage ratio financial covenant and a minimum fixed charge coverage ratio financial covenant, which are tested quarterly. The maximum total net leverage ratio is 3.5:1 for any fiscal quarter ending on or prior to June 30, 2024 and then decreases to 3.0:1 for any fiscal quarter ending after June 30, 2024. The minimum fixed charge coverage ratio is 1.25:1. As of June 30, 2023, the Company was in compliance with all required covenants under the Credit Agreement.

Note 5—Income Taxes

During the three and six months ended June 30, 2023, the Company recognized income tax expense of $4.1 million and $8.4 million, respectively, resulting in effective tax rates of 26.7% and 25.9%, respectively. During the three and six months ended June 30, 2022, the Company recognized income tax expense of $8.6 million and $16.9 million, respectively, resulting in effective tax rates of 27.1% and 26.7%, respectively. The Company’s income tax expense for the three and six months ended June 30, 2023 and June 30, 2022 differs from amounts computed by applying the U.S. federal statutory tax rate of 21% primarily due to state income tax expenses and the officer’s compensation limitation under Section 162m.

As of June 30, 2023, the Company has assessed whether it is more likely than not that the Company’s deferred tax assets will be realized. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions. The Company considers, among other things, the reversal of its deferred tax liabilities, the overall business environment, its historical earnings and losses, current industry trends and its outlook for future years. The Company believes it is more-likely-than-not all deferred tax assets will be realized and has not recorded any valuation allowance as of June 30, 2023.

In 2023, the Company changed its policy to recognize interest and penalties related to income taxes as a component of income tax expense to better align the classification with the substance of the associated transactions. This accounting policy change has no impact to net income or basic and diluted earnings per share, or to the unaudited Condensed Consolidated Statements of Operations, for any previous period.

Note 6—Net Income per Share

Basic net income per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed based on the weighted average number of common shares outstanding plus the effect of potentially dilutive common shares outstanding during the period using the applicable methods. The potentially dilutive common shares during the three and six months ended June 30, 2023 and 2022 include unvested and unexercised stock options, unvested time-based restricted stock units and unvested performance-based restricted stock units whose performance conditions have been satisfied. The potentially dilutive common shares during the same periods did not include performance-based restricted stock units if the performance conditions of these awards have not been satisfied. The potentially dilutive common shares are included in the calculation of diluted net income per share only when their effect is dilutive.

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OPEN LENDING CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table sets forth the computation of basic and diluted net income per share attributable to common stockholders for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands, except shares and per share data)
Basic net income per share:
Numerator
Net income attributable to common stockholders	$	11,371	$	23,126	$	23,909	$	46,280
Denominator
Weighted-average common shares outstanding	120,648,658		126,221,689		121,878,503		126,218,710
Basic net income per share attributable to common stockholders	$	0.09	$	0.18	$	0.20	$	0.37

Diluted net income per share:
Numerator
Net income attributable to common stockholders	$	11,371	$	23,126	$	23,909	$	46,280
Denominator
Basic weighted-average common shares outstanding	120,648,658		126,221,689		121,878,503		126,218,710
Dilutive effect of time-based restricted stock units outstanding	891,436		677		578,062		405
Diluted weighted average common shares outstanding	121,540,094		126,222,366		122,456,565		126,219,115
Diluted net income per share attributable to common stockholders	$	0.09	$	0.18	$	0.20	$	0.37

The following potentially dilutive outstanding securities as of June 30, 2023 and 2022 were excluded from the computation of diluted net income per share because their effect would have been anti-dilutive for the periods presented, or issuance of such shares is contingent upon the satisfaction of certain conditions that were not satisfied by the end of the periods:


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Unvested and unexercised stock options	150,336	185,908	150,336	185,908
Unvested time-based restricted stock units	303,322	543,359	303,322	543,359
Unvested performance-based restricted stock units	143,250	234,077	159,965	234,077
Total	596,908	963,344	613,623	963,344

Note 7—Fair Value of Financial Instruments

Fair value is the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants. In arriving at a fair value measurement, the Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. The three levels of inputs used to establish fair value are the following:

•Level 1 — Quoted prices in active markets for identical assets or liabilities;

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OPEN LENDING CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

•Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount rates, available observable and unobservable inputs.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis. These assets, including property and equipment and operating lease right-of-use asset, are subject to fair value adjustments whenever events or circumstances indicate the carrying value of the assets may not be recoverable and are subsequently written down to fair value when impaired. During the three and six months ended June 30, 2023 and 2022, the Company had no impairment charges related to its property and equipment or operating lease right-of-use asset.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company’s financial assets measured at fair value on a recurring basis were as follows:

Total

Fair value measurement as of June 30, 2023

SEC Form 10-Q filed by Open Lending Corporation