Open Lending Corp

NASDAQ:LPRO

Earnings Call Transcript 2023-Q2

[Operator]

Good afternoon, and welcome to Open Lending's Second Quarter 2023 Earnings Conference Call. As a reminder, today's conference call is being recorded. On the call today are Keith Jezek, CEO; and Chuck Jehl, CFO.

Earlier today, the company posted its second quarter 2023 earnings release and supplemental slides to its Investor Relations website. In the release, you will find the reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call.

Before we begin, I'd like to remind you that this call may contain estimated and other forward-looking statements that represent the company's view as of today, August 8, 2023. 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'll pass the call over to Mr. Keith Jezek. Please go ahead.

[Keith Jezek, executive]

Well, thank you, operator, and good afternoon, everyone. Thank you for joining us today for Open Lending's Second Quarter 2023 Earnings Conference Call. I am pleased to announce we exceeded the high end of our Q2 guidance range for all metrics, certified loans, revenue and adjusted EBITDA. During the quarter, we certified 34,354 loans, generating total revenue of $38.2 million and adjusted EBITDA of $20.7 million. I would like to thank all of our team members at Open Lending, who executed and delivered these positive results despite challenging sector and macroeconomic conditions.

As we know, the auto industry continues to navigate through multiple challenges. As of June, there were 1.9 million new vehicles on dealer lots or in transit, representing a 75% increase compared to a year ago. While this is a significant year-over-year increase, these inventory levels are still well below pre-pandemic levels of approximately 4 million units. The improved availability of supply led to an increase in the new vehicle SAAR to 15.7 million units at the end of July, up 5% sequentially since March 2023 and 15% higher than a year ago. Despite this increase, total new sales remain approximately 10% lower than pre-pandemic levels of approximately 17 million units. This improvement in new SAAR was bolstered by average transaction prices in July, declining 0.7% versus June of 2023. In addition, OEMs are continuing to increase incentives, which reached the highest levels since late 2021. We are encouraged by these metrics and progress as they are an indication of a return to pre-pandemic conditions which are more advantageous to the consumer.

Now let's turn to used auto. Used vehicle SAAR ended June at 36.7 million units, up 7% sequentially since March 2023 and almost 3% higher than a year ago. However, this result remains 9% lower than pre-pandemic levels of approximately 40 million units. As the industry continues to deal with the supply constrained environment, retail prices have declined only 3% to an average used vehicle price of approximately $27,000. This is still close to 40% higher than pre-pandemic levels, creating continued affordability challenges for the near and non-prime consumer. Understandably, consumers are holding onto other vehicles longer than historical periods with the average age of a passenger car on the road now exceeding 13.5 years. As cars age, the typical consumer is at risk for major repairs versus just routine maintenance costs. Accordingly, we believe there is a significant pent-up demand within the used auto market, creating a great opportunity for which we will be well positioned as the sector and macroeconomic conditions improve.

Shifting to affordability. It remains the most significant challenge for the near and non-prime consumer and ultimately our business. Cox Moody's Vehicle Affordability Index reported the median weeks of income needed to purchase a new vehicle in June decreased to 43 weeks, down slightly from 44 weeks in December. Even though this is moving in the right direction, it is still much higher than the historical average of approximately 35 weeks. While auto prices have slightly decreased, financing costs have not as borrowing costs remain elevated due to the continued tightening actions by the Federal Reserve. For example, the average used auto loan interest rate increased to approximately 13.5%, while the average new auto loan interest rate exceeded 9% for the first time in over a decade.

As we have seen in prior cycles, as supply returns, vehicle prices are expected to moderate and interest rates are likely to decline, which should lead to improved affordability for the near and non-prime consumer.

Now let's turn to our credit union customers, who, as you will recall, became the market leader of all auto loan originators in Q3 2022, reaching 28.4% market share. However, over the past 3 quarters, they have shrunk their market share due to continued liquidity challenges. We have seen credit unions tighten their underwriting standards in this environment. And most recently, they turned our focus to prime and super-prime borrowers. In fact, Fed data reflects Autoline originations in the 620 to 719 FICO band, decreased 21% from Q4 2022 to Q1 2023. In this environment, all lenders are being extra cautious against going too far down the credit spectrum. As a result, auto loan rejection rates hit all-time highs in June with the greatest increase occurring among near and non-prime borrowers which we serve. As market conditions improve, we expect credit unions to adjust underwriting standards and return to serving all of their members.

As a company, we remain focused on positioning ourselves for the future by making measured and controlled investments with demonstrable ROI. Among these, we continue to refine and optimize our sales channels, enhance our technology offering and attract and retain top-tier talent.

First, on the sales front, we added 13 new accounts in Q2 2023 as compared to 18 new accounts in Q2 2022. Importantly, we expect to generate more certified loans from the 13 new accounts added in Q2 2023 than from the 18 accounts that were added in Q2 of 2022. We -- this is a result of our continued focus on adding mostly larger accounts. The new accounts added during the quarter represent a doubling in the average target share to us for financial institutions signed as compared to the prior period. These wins speak to the enduring and ever-growing value that Open Lending brings to all players in the automotive retail ecosystem. Additionally, we continue to enroll financial institutions who operate loan origination systems for which we already have existing successful technology integrations, resulting in improved meantime revenue by over 20% on several of our recent implementations. This significant improvement in operational efficiency will serve us well as conditions improve.

Now turning to marketing. We released our second proprietary research report, loans within REITs, lending enablement benchmark. This fresh take on the automotive lending industry gathers insights from a group of U.S.-based auto lenders to determine the role lending enablement solutions play in increasing ROA, reducing risk exposure and improving decisioning speed. In this report, we reveal how using alternate data sources and AI-driven analytics help lenders strategically cater to near and non-prime borrowers, a crucial component of a balanced portfolio. We found that Lending Enablement solutions provide a clear performance advantage to financial institutions surrounding speed, growth and personalization. The release of the report garnered tremendous earned media, including a live Bloomberg Radio segment, coverage from Fintech, Nexus News, global fintech series, used car news and automotive technology. This earned media and prudent investments in marketing continue to lead to a growth and marketing qualified leads.

During this time, we are also making enhancements in our technology. A few highlights. First, we completed our migration to the Azure cloud, removing our dependency on legacy data center colocations and improving our already fast decisioning response time by 25%. This important accomplishment provides enhanced stability, better performance and reduce costs. We've already seen meaningful savings on compute and storage costs alone, and we now have scalable resources immediately available to provide services within the application without manual intervention. Most importantly, this allows us to modernize our platform architecture and automate the delivery of code more safely and securely with less development overhead. Further, our application data is more accessible to our machine learning platforms, which empowers us to streamline modeling used in decisioning and pricing auto loans.

In addition to completing our cloud migration, we are making enhancements within lenders protection to further support our lenders' evolving needs. For example, we incorporated complex logic for decision, which cannot be easily changed by our lender customers within their own loan origination systems, thereby enhancing and improving their daily workflows. We also implemented enhancements that bolster our lender's ability to provide a better direct-to-consumer, digital car-buying experience such as providing a prequalified decision without impacting the consumers' credit score. This enhancement is critical given the industry's progress towards a digital retail transaction. As you can see with these examples, we are laser-focused on supporting and assisting our lender customers.

Lastly, on talent. Hiring and retaining top talent continues to be a priority for us. We recently supplemented our executive leadership team by hiring Matt Sather as our first dedicated Chief Underwriting Officer. Matt is an experienced insurance executive with over 30 years in specialty program underwriting at large insurance carriers. He is responsible for leading our underwriting, claims and actuarial teams. In addition, we remain focused on building a strong people strategy that fosters a diverse and collaborative environment to support Open Lending's long-term growth objectives.

Now I'd like to take a moment to thank John Flynn for his more than 20 years of leadership as a Founder, CEO and Chairman of the Board of Open Lending. As we announced last week, John will be passing over the reins to Jessica Snyder as our new Chairman of the Board. It is important to note, John will remain a valuable member of our Board of Directors, ensuring continuity and an orderly transition of leadership. Jessica, congratulations on assuming the Chairman role. We look forward to partnering with both you and John in the future.

As discussed, having previously managed scaled businesses in the retail auto sector through the Great Recession, I remain confident about our future opportunity as we execute on our mission to help both lenders and underserved borrowers. We are delivering on our previously outlined plans and initiatives of gaining profitable market share by only signing targeted new accounts, adding technology capabilities relevant to our customers and most importantly, thoughtfully growing our team. Given these actions, we expect to capture the pent-up demand as the sector and macroeconomic conditions inevitably recover.

Now with that, I would like to turn the call over to Chuck to review Q2 in further detail as well as provide our thoughts on the outlook for Q3. Chuck?

[Charles Jehl, executive]

Thanks, Keith. During the second quarter of 2023, we facilitated 34,354 certified loans compared to 44,531 certified loans in the second quarter of 2022. It is important to note that if we exclude the refinance channel volume from both periods, which, as we know, has been significantly impacted by interest rate increases over the past 18 months, certified loan volume was up 2% quarter-over-quarter. Total revenue for the second quarter of 2023 was $38.2 million compared to $52 million in the second quarter of 2022. Notably, excluding the profit share revenue change in estimate impact in both Q2 and Q1, total revenues were up 4.5% sequentially compared to Q1 of 2023.

To break down total revenues in the second quarter of 2023, profit share revenue represented $17.8 million, program fees were $17.9 million and claims administration fees and others totaled $2.5 million.

Now let's turn to profit share. As a reminder, profit share revenue is comprised of the expected earned premiums less the expected claims to be paid over the life of the contracts, less expenses attributable to the program. The net profit share to us is 72% and the monthly receipts from our insurance carriers reduce our contract asset each period.

Profit share revenue in the second quarter of 2023 associated with new originations was $19 million or $553 per certified loan as compared to $26.3 million or $591 per certified loan in the second quarter of 2022. In the second quarter of 2023, we recorded a $1.2 million negative change in estimated future profit share related to business and historical vintages, primarily due to higher-than-anticipated prepayments and default frequency, partially offset by lower-than-anticipated severity of losses in the near term.

Concerning severity, the Manheim Used Vehicle Value Index, the MUVVI, experienced the worst May and June in the history of the index. Despite this significant decline, I will note that our conservative forecasting and modeling were in line with the MUVVI as we exited the second quarter of 2023. As you may recall and for reference, in Q1 of 2023, we recorded a $700,000 positive change in estimate. Looking at this on a year-to-date basis, our profit share change in estimate was approximately $500,000 negative, a nominal impact on cumulative profit share revenue.

Gross profit was $32 million and gross margin was approximately 84% in the second quarter of 2023 as compared to $47 million and gross margin of approximately 90% in the second quarter of 2022. Operating expenses were $16.3 million in the second quarter of 2023 compared to $14.2 million in the second quarter of 2022 as compared to $15.8 million in the first quarter of 2023.

We continue to be prudent in adding incremental cost in the current environment. However, given the strength of our balance sheet, cash and margin profile, we are making measured and controlled investments in our business to ensure we are well positioned for growth as market conditions improve.

Operating income was $15.7 million in the second quarter of 2023 compared to $32.8 million in the second quarter of 2022. Net income for the second quarter of 2023 was $11.4 million compared to net income of $23.1 million in the second quarter of 2022. Basic and diluted earnings per share were $0.09 in the second quarter of 2023 as compared to $0.18 in the previous year quarter. Adjusted EBITDA for the second quarter of 2023 was $20.7 million as compared to $34 million in the second quarter of 2022. 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 quarter with $386.8 million in total assets, of which $22.4 million was in unrestricted cash, $59.7 million was in contract assets and $63.3 million in net deferred tax assets. We had $167.7 million in total liabilities, of which $145.7 million was outstanding debt. Year-to-date, we generated $42.6 million in cash before acquiring $21.3 million or 3.1 million shares of our common stock at an average price of $6.87 per share.

Now moving to our Q3 guidance. We are encouraged that auto supply appears to have troughed and absent a potential UAW strike, supply is expected to continue to improve. However, on the demand side, we are looking for signs of incremental improvements and have taken the following factors into consideration in our guidance. The impact of affordability on our target borrower due to elevated used car prices, inflation and rising interest rates, near-term liquidity challenges for our credit unions, tightening underwriting standards leading to a shift towards prime and super-prime borrowers, lenders exiting the indirect auto lending channel as a response to current market conditions, increased percentage of cash buyers due to the current interest rate environment and continued federal reserve actions and potential impact on our refinance channel volumes.

Accordingly, with these considerations, our guidance for the third quarter of 2023 is as follows: total certified loans to be between 26,000 and 30,000, total revenue to be between $29 million and $34 million and adjusted EBITDA to be between $13 million and $17 million.

In closing, we have a strong balance sheet, no near-term debt maturities and generate significant cash flow, which provides us with the financial flexibility to thoughtfully invest in our business, as Keith outlined previously. Given these actions, we expect to capture the pent-up demand as the sector and macroeconomic conditions inevitably recover.

We would like to thank everyone for joining us today, and we will now take your questions.

[Operator]

[Operator Instructions] Your first question comes from Kyle Peterson from Needham. Please go ahead.

[Kyle Peterson, analyst]

Great. Good afternoon, guys. Thanks for taking the question. Wanted to touch a little bit on the refi activity. I guess, just kind of looking at this versus the 1Q level here seems stable, slightly better as a percentage of total certs and just kind of an absolute number here. Barring any like additional rate hikes or big spikes in rates, do you guys have comfort that refi is kind of approaching a bottom or showing some signs of stabilization here in the overall mix?

[Charles Jehl, executive]

Yes. Kyle, it's Chuck. Yes, thank you for the question. Yes, refi in the second quarter was almost 11% of our volume. That was up a little bit from about 8% in Q1. And on a year-to-date basis, about 9.3%. So as we've always said, we're very close to our refi channel partners. And with the Fed actions and what we've seen over the last 18 months, 525 basis point increase in total, we don't need rates to come back down to the pre-Fed actions. We just need rates to stabilize for, call it, 4- to 6-month period to where our refinance channel, we believe, is going to really come back and there's overpriced loans that we can go after with our channel partners. So it's -- again, had a recent action, I think, 25 more bps, still maybe some signals to maybe 50% of the governors of the FOMC think possibly maybe an action, maybe not. But again, we just needed to stabilize and not necessarily come down. We just need to stabilize to get that business going again.

[Kyle Peterson, analyst]

And then just a follow-up on some of the new logo wins, good to see the 13% in the quarter. It sounds like they could be the size accounts for you guys over time. How should we think about the ramp time frame from these guys, whether are they going to kind of start out at whether it's kind of testing volumes that are a little lower and then kind of fully ramp later? Or how quickly should we think about the spigot being turned on with these new logos?

[Keith Jezek, executive]

Yes. Great question. And this is Keith speaking. Truth be told, they're all over the map, whether they're large or small. Importantly, none of these are pilots. These are all launches to go live and they'll just kind of ramp to their full maturity in each individual case kind of on their own accord. But I think the important point is just that given the selection that we're making with these targeted accounts is that because of the integrations that we have with their LOSs and other factors, we're able to get them installed and moving to first cert production much more quickly than we have historically.

[Operator]

The next question is from John Davis from Raymond James.

[John Davis, analyst]

Nice to see the sequential increase in certs, but Keith or Chuck, just -- Chuck, you named several factors and kind of what's weighing on the 3Q certs guide. But maybe relative to 2Q, if you call out the most influential ones, hopefully, just trying to understand kind of the sequential decline expected in certs and kind of what are the biggest factors that you're seeing? Is it the credit needing appetite for loans, affordability, just maybe the top 2 or 3 of the kind of laundry list you laid out.

[Charles Jehl, executive]

Yes. John, good to talk to you. Maybe -- thanks for the comment on Q2, and we're pleased with the positive results in the second quarter. But I think it's important maybe as we think about the guide even and step back a year or more here, record inflation, the Fed began raising rates. Now as I mentioned, 525 bps in total, we thought we were heading into a recession earlier this year with a hard landing. I think the biggest impact, I think Keith said in the prepared comments is consumers and affordability on the consumer with this rate environment, with prices, prices are moderating a bit, but they're still elevated, 40% above pre-pandemic levels. So those are some of the biggest things that impact affordability is price and interest rates. So if I had to point those out, but we are encouraged, though, as we said in the prepared comments that supply has appeared to have troughed. And absent this potential UAW strike, we think supply is going to continue to improve. And then on the demand side, which is driven by -- if you think about the affordability, we're looking for incremental signs of improvement there, but it's just not there yet.

So -- and I'll also point that seasonally Q3 in the auto industry is a seasonally lower auto sales quarter and then with an uptick in the fourth quarter. So -- and liquidity challenges at the credit unions and also, I know this is a longer list, but it's -- they all impact our decision on the guide. And cash buyers, for example, a 24% increase in cash buyers recently it's above 60%. And we need a loan to participate at Open Lending. So all of those went into our factors and our conservative guide to put the guide out. So hope I answered the question.

[John Davis, analyst]

No, no, that's perfect. But fair to say demand and seasonality is more of an impact than kind of credit union appetite for auto loans. I understand it's a factor, but it seems like it's more demand than anything else. Is that fair?

[Charles Jehl, executive]

Absolutely. Keith, you would agree around on the demand side on the affordability of the pricing.

[Keith Jezek, executive]

Yes, for sure. I mean I think the best metric that we track is affordability. And the reason for that is it kind of come plates or combines 2 different metrics. And one is simply the price of the vehicle and just interest rates. And what we are seeing is that, as we've said in the prepared remarks, and we're all seeing in the data is that we are seeing prices begin to moderate, if ever so slightly on the new side and again, if ever so slightly on the used side.

[John Davis, analyst]

Okay. And then it's encouraging to hear that supply should be fingers crossed, improving here. Just curious, any updates on conversations with the OEMs. Obviously, as they have supply come back online, maybe there'll be more demand for them. I'm just curious kind of any conversations with OEM #3 or #4 or anybody else, how those conversations are going?

[Keith Jezek, executive]

I mean, first, I'll address our existing OEMs, number one; and number two, we couldn't be more pleased or encouraged with the performance that they provided over the last couple of quarters, and they were up 23% Q2 versus Q2 of last year, up 21% sequentially and up 17% year-to-date over prior year. So the performance of our existing OEM #1 and #2 is fantastic.

Concerning our pipeline, great news on that front for new OEMs and captives. First and foremost, the number of prospects that are in the pipeline are as high as they've ever been. The frequency of interaction with them are as high as they've been. And then kind of the flow through, what I kind of call the different stage gates from a prospect to a sale, the quantifiable stage gates that are being crossed are getting better every day.

Turning our attention to large lenders and other enterprise-type accounts. We've added a seasoned sales executive and our pipeline from that cohort, including banks, is double and higher than what it's ever been.

Yes, now we'd just add a final thought there is just that OEMs see our value prop. Our value prop just gets getting stronger each and every day. As we look at potential future accelerated depreciation, I mean that's the safety net that we create for our lender partners to help them protect against that future potential accelerated depreciation.

[Operator]

The next question is from Faiza Alwy from Deutsche Bank.

[Faiza Alwy, analyst]

So I wanted to talk about affordability, which you just mentioned as sort of the biggest factor here. How do you think that that's result? Because it doesn't look like financing rates are necessarily going to come down. And I'm curious, like if the price of used car vehicles comes down, it seems like there's a sort of a contra adjustment to your revenues as it relates to profit share. So how do you -- how should we think about the risk associated with that? And maybe give us a sense of what you're assuming in terms of severity of loss as you model out your profit share revenues?

[Charles Jehl, executive]

Yes. Faiza, it's Chuck. I'll start with maybe the back side of that question. And if you think about the moderation of price and the impact, the Manheim used vehicle value index with the MUVVI as we call it, or they call it, we monitor that. And as I mentioned in the prepared comments, we were in line with -- both May and June were 2 of the, I guess, single largest months on record of May and June on history declines, and we exited with -- in line with the MUVVI.

So we have a robust process with our risk team. So we're in good shape there. And we continue to -- as we look out and project into the future with the future profit share estimation, we look at that and have stress built in for further declines of the Manheim, so the MUVVI. So we feel really good about where we exited Q2 there and into the future as it affects our profit share. So we -- unless it's outside of what we've already stressed, we've got that managed in our modeling and forecasting.

I hope I answered your question. And then as it relates to affordability, I mean, clearly, we want the prices to come down because we want affordability for the near and non-prime consumer to be healthier, which is going to drive our business and drive our cert volume, so.

[Faiza Alwy, analyst]

Okay. Understood. That helps. And then just on the credit union side, it seems like there are sort of these 2 interrelated points, one being just the funding issues that apparently are lingering. And then there's the issue with the shift towards the prime and super prime. Are those 2 issues linked? Because I would have thought like your value proposition is that the credit unions can go after and do business with the near prime consumer at a lower risk. So I'm curious sort of what the dynamics are around that. What are you hearing from the credit end?

[Keith Jezek, executive]

Yes. We see multiple things. I mean, first of all, it's important to note that they're still the #1 source of new loan originations in the U.S. And so they're still larger than banks and still larger than captive. So doing a great job and then very healthy. They've added over 5 million, almost 6 million new members over the past year. As we mentioned in the prepared remarks, I think what we're simply seeing there is in a liquidity constrained environment. They're seeking to just fulfill their mandate, which is to serve their members, which is people over profits as they call it. And so kind of the first order of business is to make that loan to an existing member, which, in many cases, just happens to already be a prime or a super prime customer. So those are some of the dynamics that we're seeing there. I would say also it's important to note in the credit union space, is that if you back out refi -- so if you look at credit unions ex refi, year-to-date this year compared to year-to-date last year, actually up 7%. So our credit unions are doing are doing very, very well in this environment.

[Operator]

The next question is from Joseph Vafi from Canaccord.

[Joseph Vafi, analyst]

Good afternoon. Nice to see the solid results here in Q2. Maybe any update or color on your insurance partners? We didn't hear anything about it on your prepared remarks. So anything we should be aware of there? And then I have a quick follow-up.

[Charles Jehl, executive]

Joe, it's Chuck. I'll jump in. Yes, we had -- recently, we had all of our carriers in for an annual carrier roundtable and had great sessions with our partners, great relationships with the carriers and no capacity issues as it relates to volume or anything like that. I know there are concerns on the -- when we talked on the Q4 call. But yes, everything is going really well. We just hired, as Keith pointed Matt Sather, our first dedicated Chief Underwriting Officer, and we're welcoming Matt and brings a wealth of insurance experience to the team, and we'll further that, the good work that John and Ross and we've done over the years. So everything is really good on that front and add ample capacity.

[Joseph Vafi, analyst]

Great. And then secondly, maybe on the pipeline of new logos. I know we talked about some of the OEMs and the like. And the fact that you're bringing on more, I guess, you could call it market share or larger lenders in kind of each quarter's worth of new cohorts. Just to get a feel for -- even if we exclude the large OEMs, how that pipeline of maybe new logos looks over the next few quarters relative to what seems like a really good performance here in Q2.

[Keith Jezek, executive]

Thank you for the question. Yes, the pipeline is strong. I won't give absolute numbers, but the pipeline of qualified prospects is actually up compared to this time last year. And importantly, it's comprised of what I would call the right targeted accounts. So we feel good about that. The pipeline is comprised of prospects and leads generated from our own marketing efforts and equally as importantly, as some of our marketing representatives that help us do business for which we're grateful for that. It's our help constantly. I would just say also that the targeting is very specific. I mean we have to want to have the propensity to want a loan in this environment, either because it's the way you want to do business at a credit union, or you're trying to get something like CRA relief if you're a bank that you're large enough to have a target share that's going to help us move our needle and help them move their needle. -- that, as I mentioned, they have a loan origination system for which we already have integration that they have adequate liquidity for which to fund these programs. And then finally, that they're going to open up in 3 channels, both what we call direct, indirect and refi. So it's kind of tough to make it onto that prospect list and that pipeline and that pipeline is larger than it has been.

[Operator]

[Operator Instructions] Your next question comes from James Faucette from Morgan Stanley.

[James Faucette, analyst]

Just wanted to ask, and I appreciate the commentary so far. But I wanted to ask part of the value add for Open Lending has been to help with underwriting history and input there. How has that been trending for Open Lending? And what adjustments, if any, have you been recommending that your partners make to their underwriting standards, et cetera?

[Charles Jehl, executive]

James, this is Chuck. I mean, I'll start. I think from -- if we think about it from a -- we announced, I think it was Q2 of 2022 and then again recently in Q1 of '23, you think about underwriting and risk, we put a premium increase, about a 12% premium increase back in Q1 of '22, and then about an incremental 5% in Q2 of '23. So as we think about risk and in the environment, we want to be paid, not only us, but our customers as well as our carrier partners. So we appropriately price for the risk that we're taking in the environment. So if you think about profit share and how that impacts that, we're seeing better credit with the tightening as well as more of a credit shift mix to improve credit. And with that, we charge lower premiums. But with the actions we took, we've preserved our profit share unit economics in that [ 5.50% ] sort of range. So that's how we kind of think about it. And we do that through a vehicle value discount of the collateral, so to make sure we're pricing appropriately. So hope that answered your question.

[James Faucette, analyst]

Yes. Yes. No, that's helpful.

[Operator]

The next question comes from Alexander Villalobos from Jefferies.

[Alexander Villalobos-Morsink, analyst]

Just wanted to get maybe -- sorry, I just wanted to get a little more color maybe on the mix between kind of credit unions and banks on the pipeline side. I know you guys are originating more certs per relationship. But just -- you guys mentioned it last quarter. I just want to see how you guys are doing this quarter. And then on the risk side, are you guys also continuing to originate longer-duration loans, kind of those 84-month term loans? And kind of what composition of the portfolio those were?

[Keith Jezek, executive]

Yes. I'll say on the credit union versus bank, I discussed the pipeline. I was speaking primarily of the credit union pipeline just momentarily, I guess. So that pipeline is up. On the bank pipeline, with the addition of that senior sales leader that I mentioned, that pipeline is multifold. So we're looking to be -- primarily our customers have been OEM captives, credit unions and banks. As you well know, with banks being a bigger percentage than captives and the credit unions being the majority. But we're targeting banks and that pipeline has more than doubled for bank additions.

[Charles Jehl, executive]

Great. And Alex, I'll jump in on the 84-month term you had asked about. That's -- while still early, we're encouraged and is performing as expected and actually better than expected. And we talked a lot about affordability for the near and non-prime consumer. And obviously, the term actually helps that for the payment buyers, and we didn't really see -- and we're not seeing the incremental risk and we're pricing for it in our risk pricing. So our portfolio today -- year-to-date 2023 is about 14% is 84-month term, so.

[Alexander Villalobos-Morsink, analyst]

Perfect. Congrats on the good quarter.

[Keith Jezek, executive]

Yes. Thank you.

[Operator]

Our final question comes from Vincent Caintic from Stephens.

[Vincent Caintic, analyst]

First question, kind of a broad question about the demand environment or the volume. If you could maybe describe kind of the conversations you're having with your cert partners. Is the -- when we think about the volume, is the volume changes due to, I guess, changing partner appetite and/or is that from maybe the change in consumer landscape in terms of consumer credit?

[Charles Jehl, executive]

Vincent, it's Chuck. It's more -- if you think about -- our app volume is still very robust as we think about it, but lenders in this environment, especially in the credit union space, which is our primary customer, have tightened a bit. Obviously, we've talked about the continued liquidity constraints. So -- but with what they are lending is to that more super prime to prime lender or the borrower today. So we support the near and nonprime. But the opportunity is going to continue to be there for us. The pent-up demand for the near and non-prime is there. And we're going to be well positioned. And we believe the liquidity crisis, as we kind of think forward into the last half of this year into 2024, that there's going to be improvement there, and we'll continue to see that and be ready for it.

[Keith Jezek, executive]

I would just add, I think an important factor and the question and answer is we think about future volumes. As Chuck mentioned earlier, let's all just recall that we've raised premiums, almost 18%. Open Lending has never and will never chase volume. So we're pricing risk appropriate to the market as we see it. And that obviously has -- those raised premium rates obviously have an impact on volume.

[Vincent Caintic, analyst]

Okay. That's helpful. Second question kind of a different question. But in terms of the refinancing volume, that's come down a little bit. But for the volume you are generating, I guess, how much of that is kind of an improvement to the consumers rate that they're getting on the loan versus consumers maybe wanting to extend out the terms of lowering the monthly payments? That was sort of one of the things we've been hearing about in terms of those consumers are maybe stressed a little bit that they're looking to manage their cash flow. So I'm just kind of wondering in terms of refi volume, how that's shaking up?

[Keith Jezek, executive]

Yes. And this is Keith. What we're seeing there is, I think as you kind of guessed it, is an extension of term and that extension of term translates into roughly a $65 a month savings. So most refi right now is being pulled through with an extension to term.

[Operator]

Thank you. I'd like to turn the call back to Mr. Keith Jezek for closing comments.

[Keith Jezek, executive]

Well, thank you, everyone, for joining us today. We are pleased with the results we generated in Q2 2023, again, and I want to send a sincere heartfelt thank you to the entire Open Lending team for making these results possible. You've heard me say it before, but I think it's worth repeating again, these cycles in the automotive industry rebound and are always led by used autos. Simply stated, consumers can defer the purchase of a new vehicle, but ultimately, they cannot defer the purchase of transportation. Thank you all again for joining us today, and we look forward to speaking with you on our next earnings conference call.

[Charles Jehl, executive]

Thank you.