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Open Lending Corporation (LPRO) Q2 2021 Earnings Call Transcript

By Motley Fool Transcribing – Aug 11, 2021 at 3:31AM

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LPRO earnings call for the period ending June 30, 2021.

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Open Lending Corporation (LPRO -2.65%)
Q2 2021 Earnings Call
Aug 10, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon. Welcome to Open Lending's second-quarter 2021 earnings conference call. [Operator instructions] On the call today are John Flynn, chairman and CEO; and Ross Jessup, president and COO; and Chuck Jehl, CFO. Earlier today, the company posted its second quarter 2021 earnings release to the 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'd like to remind you that this call may contain estimates and other forward-looking statements that represent the company's views as of today, August 10, 2021. 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 materially from those expressed or implied by such statements.

And now, I'll pass the call over to John for opening remarks. John?

John Flynn -- Chairman and Chief Executive Officer

Thank you, operator, and good afternoon, everyone. Thanks for joining us for our Open Lending second-quarter 2021 earnings conference call. I'd like to start today by reviewing our second quarter highlights and the progress we've made on our growth objectives. Then I'm going to turn it over to Ross, and he is going to provide an update on our OEM opportunity. And then finally, Chuck is going to review our Q2 financials and our outlook for the full-year 2021.

Very pleased to report another record quarter at Open Lending. June and Q2 of 2021, we generated record levels of certified loan volume and the momentum has continued into the third quarter. Q2 2021 certified loans increased 148% year over year to 46,408 certs. Our core credit union and bank business generated 87% certified loan growth year over year in Q2 '21. Our two OEMs combined have grown 136% year to date in 2021. We also reported revenue of $61.1 million, which was an increase of 177%, and adjusted EBITDA of $46.1 million, which was an increase of 199% as compared to the second quarter of 2020.

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In addition, we signed an agreement with a third insurance partner American National, a strategic accomplishment for us. These results were driven by strong execution by our team, finding new customers and further penetrating our existing lender customer base, as well as growth of the underserved market that we target. It's a tremendous opportunity of over $250 billion worth of loan originated annually by borrowers that are classified as near prime. We've only penetrated about 1% of this massive market. Traditionally, near-prime consumers, and these are consumers with FICO scores between 560 and 699, cannot obtain loans from prime lenders. As a result, these borrowers often get credit in subprime focused lenders that come with higher interest rates and lower approval amount than what is appropriate for their credit score. What we do is enable lenders to make loans to consumers that would otherwise not make, deepening relationships with their existing customers and helping forge relationships with new customers. During the quarter, 22 contracts were executed with new lenders, and we currently have over 380 active lenders on the platform that have generated certified loans in the past 12 months.

Of the 22 signed accounts in the second quarter, seven were Tier 1 accounts, classified as over $1 billion in assets, and was a large regional bank with assets over $9 billion. We are focused on the Tier 1 accounts and believe they are the greatest opportunity to continue accelerating our growth. Momentum has also continued into July with five activations and six new contracts signed with over 15 live implementations underway. In certain cases where permissible, we will announce the names of these large new customers once they've gone live on our Lenders Protection platform. Our top 10 lenders, excluding OEMs, have increased their certification volume by 140% year-to-date 2021 as compared to 2020, and six of them have hit an all-time monthly cert volume record in June. During the quarter, we added five new credit unions and banks to the refinance program and now have over 20 financial institutions that are acting as funding sources behind these refinanced channel partners. Our refinance volume was nearly 20% of our total certs in the second quarter of '21, hitting record volume during June.

As a result of our flexible business model, our refinance channel has accommodated consumers by allowing them to modify their existing terms and lower their payments. We also continue to explore third-party funding sources to purchase these loans as part of our long-term growth strategy. I just want to clarify that Open Lending is working with third parties on this effort, and we will not have any ownership or take any balance sheet risk. While the initiative is early, we are encouraged by the progress to date of these third-party funding institutions, utilizing our Lenders Protection platform to underwrite and decision these loans. As you know, we provide a tremendous value to our lending partners, as well as our insurance carrier partners. We provide a consistent flow of unique and profitable business, and the product is a completely turnkey operation for the carrier.

The returns generated for the insurer we believe are well in excess of other lines of businesses due to the high underwriting profitability and the low capital charges. I mentioned earlier, we recently announced that we have signed a third insurance partner agreement with two affiliates of American National Group, enabling them to be additional providers of credit default insurance policy for Open Lending's Lenders Protection program. This has been an important strategic initiative for us, and we're thrilled to be working with such a great team at American National. We do believe that there is more than enough volume to support additional insurance carriers while continuing to deepen our valued relationships with our three existing carriers. So we're extremely pleased with the quarter, our progress growing our business, and the value we bring to our lending and insurance partners. But we're even more proud that we can provide the underserved near-prime consumer access to a credit from a larger range of lenders with higher loan amounts, better interest rates, and appropriate down payment.

So with that I'm going to turn it over to Ross to review our OEM business and our progress on that front. Ross?

Ross Jessup -- President and Chief Operating Officer

Thanks, John. As we have spoken previously, the OEM captive market is substantial and a major growth opportunity for us. As of today, we serve two OEM captives which we expect to continue to ramp up and take advantage of more of our services. We are also in active discussions with other large scale OEMs. As previously discussed, the typical sales cycle for these partnerships take time given their scale. But ultimately, we believe we'll be able to penetrate a substantial portion of the $1 billion addressable OEM captive market.

John mentioned the benefits we provided lenders and insurance partners associated with the underserved consumer. We also provide these benefits to the OEM. They can facilitate new car sales by expanding credit to near-prime consumers where they are not competitive today. They are also able to support car values by increasing financing availability for used vehicles. In addition, continued efforts around subvention functionality for OEMs unlock a much larger opportunity as Lenders Protection will be applicable to the new car market.

The global chip shortage has been affecting all OEMs this year and their ability to keep up production of new cars. With the lack of new cars, OEMs are spending less on incentives than in the past. We expect this shortage to ease eventually and production levels to normalize. When this, happens car values should return to normal levels and create more inventory in our target markets. This shortage is simply creating a timing shift but not a change to our eventual certification, expectations and growth.

To further expand on this, higher vehicle pricing means higher payment-to-income ratios and in turn increases the required insurance premium associated with the risk. Based on our experience, this correlates highly with default risk. This leads to higher interest rate offers and increased counteroffers for near-prime consumers. Accordingly, this has resulted in lower capture rates than in past quarters.

Again, this is also timing and will normalize when the inventory levels return. The OEM captives also receive similar benefits other lenders realize from Lenders Protection, like higher yields, expanded offerings to non-prime customers and risk mitigation from default insurance. They also experience credit loss relief under the CECL standards, offsetting 70% to 80% of the expected losses. Additionally, by partnering with us, they increase repeat buyers and keep consumers in the captive customer ecosystem by increasing customer royalty base. With that said, let me provide an update on OEM No.

1. In the second quarter 2021, we experienced certification growth of approximately 185% compared to Q2 of 20%, and sequential certification growth of 33% compared to Q1 '21. We are awaiting the expansion to other regions on our expanded loan terms from 72 to 75 months, but initial results have been favorable and we expect this to be underway very soon. The 75-month terms only represents 5% of their originations. As later discussed with OEM No.

2, this will grow with expansion. I mentioned the chip shortage earlier. This is impacting new car volumes as well because a significant portion of their volume is new vehicles. For OEM No.

2, certification loan growth was up 42% Q2 '21 compared to Q1 '21. As a reminder, OEM No. 2 was offline from April to October 2020 due to the COVID-19 pandemic. The chip shortage is also impacting this OEM, but we are excited our ramp is working as designed and will be a major part of our growth plan when the chips bought returns to normal levels.

We expanded terms to 75 months in early April 2021 and have seen 75-month loan terms represent about 16% of their originations since April. As you know, we are in discussions with additional OEM prospects. Each of these prospect captives represents 30 million to 100 million in revenue opportunity for us and collectively more than 1 billion revenue. However, I want to remind everyone, these are long sales cycles and require a lot of resources. And these large cabinets are juggling various projects and resources.

We are actively discussing, planning, scheduling and sequencing the IT projects needed to go live at two other large-scale OEMs. Now, turn it over to Chuck to discuss Q2 financials and outlook in more detail.

Chuck Jehl -- Chief Financial Officer

Thanks, Ross. During the second quarter of 2021, we facilitated 46,408 certified loans compared to 18,684 certified loans in Q2 of '20, a 148% increase. As John mentioned earlier, we executed 22 contracts with new customers in the quarter and have over 15 active implementations with go live dates in the 60 to 90 days. Total revenue for the second quarter of 2021 increased 177% to $61.1 million as compared to $22.1 million in the second quarter of 2020.

Profit share revenue represented $38.8 million of total revenue, program fees were $20.6 million, and claims and administration fees were $1.7 million. Now, we would like to further break down the 38.8 million in profit share revenue in Q2 of 2021. Profit share associated with new originations in the second quarter of 2021 was 27 million or $582 per certified loan, as compared to $13.1 million or $701 per certified loan in the second quarter of 2020. Average profit share for certified loan was $623 and $619 per certified loan year-to-date 2021 and 2020, respectively. As previously disclosed, in April of 2021, we removed the vehicle value discount established as part of our underwriting changes implemented at the onset of COVID-19, which had the effect of increasing insurance premiums and corresponding profit share to us during the pandemic by approximately 15% per certified loan. Primarily as a result of transitioning back to pre-COVID underwriting standards, our average profit share unit economics returned to normal levels in the second quarter of 2021 that are now comparable to pre-COVID profit share unit economics. However, this change in underwriting increased our closure rates by over 20%, driving record certified loan volume, and improving our competitive positioning in the market. Also included in profit share revenue in Q2 of '21 was $11.8 million change in estimated revenues from certified loans originated in previous periods.

As a result, the continued overall portfolio performing better than we had expected due to fewer defaults and claims and improved microeconomic conditions. As a reminder, profit share is paid to us monthly by our insurance carrier partners from the underwriting profit associated with Lenders Protection's risk. Under ASC 606, we recognize the estimated profit share upfront in the month a loan is certified based on our forecasted defaults, prepayments, severity, outstanding principle and premium on a loan-by-loan basis. In addition, we have adjustments to our contract assets due to estimation of revenue from loans originated in previous periods on a prospective basis. In our supplemental earnings slides posted on our website today, we included new slides to further explain changes in contract asset, profit share revenue and unit economic trends. We break down the change in estimates over the past six quarters between realized portfolio performance and prospective changes in assumptions for future periods. We would like to point out that during the last 12 months, over 80% of our positive changes in estimates under ASC 606 related to profit share revenue was due to actual realized portfolio performance.

Basically, lower-than-projected claims and severity of losses in historical periods drove these positive changes, increasing our estimate of our contract asset, profit share revenues and in turn drive strong near-term cash flows. Continued strong loan performance from a risk perspective will result in additional positive changes in our contract assets, profit share revenues and near-term cash flows. We strategically shifted our channel mix in the quarter to maximize current market conditions while profit share unit economics remains strong across all channels. As you'll recall, insurance premium pricing is dependent on risk, and we constantly evaluate the best risk-adjusted opportunities in the market to deploy Lenders Protection. For example, the refinance channel has grown to nearly 20% of total certs in Q2 of '21, and exhibits high quality and predictable credit characteristics at a lower insurance premium and corresponding profit share. Our channel mix can change from quarter to quarter as we seek to capitalize on growth opportunities in the market. Now, let me turn to gross profit.

Gross profit was $57 million in the second quarter of 2021, an increase of 182%, driven primarily by 148% increase in certified loans in Q2 of '21 as compared to Q2 of '20, and $11.8 million positive adjustment in second quarter of 2021 related to ASC 606. Gross margin was 93% in the second quarter of 2021 compared to 92% second quarter of 2020. Selling, general and administrative expenses were $12.1 million in the second quarter of 2021 compared to $16.3 million in the previous-year quarter. As a reminder, second quarter 2020 SG&A expenses included $11.3 million in one-time transaction cost associated with the business combination in Q2 '20. Excluding these one-time expenses, SG&A increased approximately $7.1 million in Q2 of '21. The increase primarily represents cost associated with becoming a public company, such as professionally consulting services and additional employee compensation and benefits related to headcount additions to enhance internal controls, financial reporting and compliance functions, risk information, and information technology for a public company. Operating income was $44.9 million in the second quarter of 2021 compared to $3.9 million in the second quarter 2020.

Net income for second quarter 2021 was $76 million compared to a net loss of $49.8 million in the second quarter of 2020. Adjusted EBITDA for the second quarter of 2021 was $46.1 million as compared to $15.4 million in the second quarter of 2020. There's a reconciliation of GAAP to non-GAAP financial measures that can be found in the back of our press release. We exited the quarter with $261.1 million in total assets, of which $57.1 million was unrestricted cash and $111.9 million was in contract assets, and $68.3 million in net deferred tax assets. We had $164.1 million in total liabilities, of which a $147.6 million was an outstanding debt after a $25 million pay down on our revolving credit facility in the second quarter of 2021. In April, we completed a follow-on equity offering of 10.3 million shares of our common stock at an offering price of $34 per share, and we repurchased approximately 613,000 shares of our common stock for $20 million, which was recorded to treasury restocking cost.

In addition, in the quarter, we settled a long-term liability of $92.4 million under a tax receivable agreement from the merger at a discounted price of $36.9 million or $0.40 on the dollar, and recognized a one-time gain on extinguishment of the TRA of $55.4 million from the settlement. We had approximately 126.2 million shares outstanding on June 30, 2021, and we posted an updated second quarter 2021 earnings supplemental to our investor relations website, which includes a slide that lays out our current share count. Now, moving to our guidance for 2021. Despite the potential for the reinstitution of the government-mandated measures to combat another wave of COVID-19, our guidance remains unchanged. Based on second-quarter results and trends into the third quarter of 2021, we are reaffirming our previously announced guidance ranges as follows: total certified loans to be between $161,000 and $206,000, which we'd like to point out is over 90% growth at the midpoint of the range over 2020; total revenue to be between $184 million and $234 million, again over 90% growth at the midpoint of the range; adjusted EBITDA to be between $125 million and $168 million; and adjusted operating cash flows to be between $81 million and $111 million. Now with that, we'd like to turn the call back over to the operator and we're happy to take questions from the group.

Thank you.

Questions & Answers:


Operator

[Operator instructions] Your first question comes from Joseph Vafi with Canaccord. Please go ahead.

Joseph Vafi -- Canaccord Genuity -- Analyst

Hey, guys. Good afternoon. Great to see the continued really, really impressive results and the LTP looks like it's just really gaining traction in the market. So just on OEMs No.

3 and 4, I know, Ross, you gave us a little bit of color there. I mean clearly those guys must be seeing some of the cert numbers coming from the two other OEMs. And I mean, I think at this point a lot of OEMs, the cars are pretty similar out there. And just maybe a little more color on 3 and 4 and some other guys out there should be paying attention by now.

And then maybe, I have a quick follow-up after that.

Ross Jessup -- President and Chief Operating Officer

Yeah, Joe, and you're right. I mean obviously our success that we've had in OEM No. 1 and 2 is resonating with the others and especially from a reference standpoint and all that. Our discussions are going very well.

They are at the -- for both of them, they are at the IT level where we're working to scope out that endeavor. We definitely have senior buy-in to move forward. We are just trying to figure out where that is prioritized in the organization. We have face-to-face meetings going on with that, and I'm really pleased with the progress. And also just from reviewing of our policy and red lining of our agreements and all that, it's making a lot of great progress.

And I'm anxious to share more at the appropriate time. But for sure, they are seeing the need for that. And the fact that our company does well with used and new and there's certainly a benefit to the OEMs for that. And I think just the way we've been able to maneuver around and change some of our attention to refinance, to help mitigate some of the delay has done really well for the quarter.

Joseph Vafi -- Canaccord Genuity -- Analyst

Sure, that's great color. And I mean this might be a tougher question to answer, but if we were in a world where there was no chip shortage, I mean, clearly results were great this quarter. I mean, could you kind of handicap how much you think a non-chip shortage environment would have perhaps helped volumes, maybe not in Q2, but just how much boost would a non-chip shortage environment help the business do you think given its current momentum? Thanks a lot, guys.

Ross Jessup -- President and Chief Operating Officer

I think if you're sitting there and back to normalization, where you had everybody producing vehicles at full scale and then they were having to use incentives to move metal. And the fact that we have that built in our platform and it works very, very well, they would definitely have felt, I guess, the urgency to move forward a little faster. But they are all struggling. They are all having meetings trying to figure out, how are they going to take the chips that they have and allocate that to the vehicles that actually are the best from a marketing standpoint. And a lot of those vehicles are the higher dollar SUVs.

And so we're just excited that we're still able to grow in this environment. Our TAM is huge out there, and from the OEM perspective, we can grow within each one significantly more and definitely expand it to several other OEMs over the next few years.

Joseph Vafi -- Canaccord Genuity -- Analyst

That's great. Thanks so much, Ross.

Operator

Your next question is Vincent Caintic with Stephens.

Vincent Caintic -- Stephens Inc. -- Analyst

Hey, thanks. Good afternoon. Thanks for taking my questions and great results. So first, I'm sure you're going to get a lot of questions OEMs, so I'm going to ask about the non-OEM side.

And I was just wondering if you can kind of go further in the bank and credit union pipeline that you might outline, so the 15 out, implementations and so forth. If you can maybe help us -- I know that OEMs are larger volumes, but if you could help us maybe size up when you think about the bank and credit union opportunity. Like, when you add a credit union or a bank, how big is that? And also you were talking about the opportunities with refi. I was wondering if you could talk about the growth you've experience in refi versus the growth you've experienced on the purchase side. Thank you.

John Flynn -- Chairman and Chief Executive Officer

Sure. This is John Flynn, Vincent. I think what you're going to see, and I think we alluded to it a little bit in the earnings call is that the credit unions and banks that we're starting to sign up, that we're getting a lot of interest from, are all what we consider to be more of the Tier 1 accounts. We're starting to get the $8 billion credit unions.

Some of the banks that we've just recently signed and again I think we will be a position to announce some of their names shortly, but these are banks that are in the $20 billion and $30 billion assets size. And a lot of them are very interested in the turnkey operation that you just alluded to, the refinance. If they don't have to go out and create a division to do indirect lending, and there's access to flow of consumers that recently bought cars and got too high of an interest rate, we have some of these banks telling us that their target goals are to do no less than a thousand deals a month. So some of these are on that bigger size. I think you've heard us talk in the past and we've got one very large credit union that just in the past four months, five months have grown their cert volume from 450 to 500 certs a month, until last month doing over 2,200 and wanting to climb that to 4,000 certs a month. So we've got a lot of traction, we've got a lot tailwinds behind us to push this forward.

We also alluded to CECL. I think a lot of the inbound calls that we're getting from the larger shops are related to the fact that they are all going to need to comply with CECL in '23. And based on the KPMG webinar that we did together, they all have to have probably 13 to 15 months of getting ready for that. So I think we've got a lot of big things going on with the larger shops right now, and I think we're really starting to see the benefits of it.

Vincent Caintic -- Stephens Inc. -- Analyst

OK, thanks, I appreciate that. Second question on the profit share, I really appreciate the detail you put into it, including how you broke it out, the additional profit share you're recognizing on the current portfolio. On the prospective changes and assumptions, I'm wondering if you could maybe describe that in more detail, because I guess even if you're going back to pre-COVID levels, we're still much better than we were in 2019. So maybe if you could talk about the assumptions. And is this something where the actual cash profit share that you're recognizing above what you've already booked in the past, is that something we should be expecting going forward? Thank you.

Chuck Jehl -- Chief Financial Officer

Hi, Vincent. This is Chuck. Good to talk to you. Yes, thanks for the comment on the slide on the understanding the contract asset and profit share.

Your first question around the prospective changes and assumptions, if you just kind of focus on Q2 of '21, the $11.8 million that was a change in estimate under 606, we thought it was helpful. And maybe I'll start with the realized portfolio performance. You see, one of the things that we wanted to make sure we were clear on and it was about a really good understanding is the portfolio, we have conservatism in certain of our assumptions. A 100-year worldwide pandemic over the last 12 months, 18 months now, and with the Delta variant we're all looking at now, there is still some unknowns out there. So clearly we have some stress built into the model and we're also kind of looking out into even '22. But the portfolio has performed just exceptional from a credit perspective, you know lower defaults, lower claims, which is really what's driving that change in estimate.

And we thought it was really important to really educate that that's an increase to the contract asset and assets accounts receivable and revenue, and it turns to cash very quickly. So in that realized category, just that $11.8 million for Q2, that $7.8 million, that's realized through June 30 2021. So that's actually realized portfolio performance that will turn to cash very quickly. And then if you move to the perspective changes and assumptions, that's just really our kind of near-term outlook on, yes, things are better, the portfolio has continued to perform better than expected. But we still, like I said, have a little stress built out obviously into the future with the stimulus stops, with the delta variant, the unknowns. So obviously, prudent process that we run and obviously we'll bake all of that in, work very closely with our risk team, and also look at the macro assumptions that are in the model, if it's unemployment, if it's car sales, consumer confidence, obviously Manheim.

So all of that's baked into the model in the process. So we felt like this color was really good and it would help folks understand that the change in estimate very much matters.

Vincent Caintic -- Stephens Inc. -- Analyst

OK, perfect, and that's very helpful. Thanks very much.

Chuck Jehl -- Chief Financial Officer

You bet, thank you.

Operator

Next question comes from James Faucette with Morgan Stanley.

James Faucette -- Morgan Stanley -- Analyst

Thanks very much. Sorry about the background noise here. I'm wondering if you can qualitatively walk us through how much the effective stimulus itself has had on the business and how we should think about that rolling off, impacting your business. It seems like obviously there's good car demand and prices are high, etc., but wondering how for a particular segment that you're providing insurance for could be impacted and how you're building that into your business planning?

Chuck Jehl -- Chief Financial Officer

Yeah, I mean -- James, you said, right? How are you doing? 

James Faucette -- Morgan Stanley -- Analyst

Good, good. Thanks.

Chuck Jehl -- Chief Financial Officer

If you think about the stimulus and when we -- I'll go back to the profit share slide that was on Slide 5 of our supplemental. When originally COVID-19 hit, we obviously had a COVID impact that's there in the slide and none of us foresaw the government really put in a liquidity into the market in as much as they did and have. So I think that's definitely had an impact in a positive way. You can see it with our portfolio. Our severity of losses are much lower than our historical averages, as well as our frequency of defaults.

So I think those items in the stimulus have been a positive to environment and been very helpful to the near times consumer that we serve. So, we believe that's been very positive to not only our credit in our portfolio, but also to the consumers. So I think it's had a huge impact.

Ross Jessup -- President and Chief Operating Officer

Yes, James, this is Ross. I mean I think just to pow on a little bit on that, the higher car values on one hand had been very beneficial to us when it comes to what claims have come in, and the lower claims severity than what we've experienced in the past. And that's part of -- what we've realized is those are actually claims that have happened, and our claims severity is down significantly compared to where we modeled and have experienced in the past. So all those have been positive.

Chuck Jehl -- Chief Financial Officer

Yes. And I'll jump in one more, James. In just kind of thinking about the portfolio and some of our comments, you know our portfolio is showing similar delinquency and claim trends that other lenders have seen through this time timeframe through the pandemic and due to the stimulus benefits. So we're seeing the similar benefits.

James Faucette -- Morgan Stanley -- Analyst

Got it, and that makes sense. How about as you think about the end of stimulus then, what kind of planning or things should we anticipate? Do you think a lot of those elements will reverse themselves? And how does that impact like your OEMs and credit mediums in terms of their interest in the product and how do you adapt? So I guess that's really what we're trying to get at, like, kind of what do you think happens going forward?

Chuck Jehl -- Chief Financial Officer

Well, as we think about -- you should think about our modeling and kind of as we go forward in the business, we're already looking out to assume in the future that from a profit year and the 606 perspective that stimulus won't last forever and it will slow or eventually go away. So some of the severity of loss, as well as the defaults as we kind of look out into the future, because as you know the profit share and claims are paid monthly. Even though under 606, we have to book it upfront. We monitor forward looking as well in our assumptions.

So we feel like that's baked in with as it relates to car prices and used car values as well. We don't have those. We did take that into consideration, those will eventually moderate as well.

John Flynn -- Chairman and Chief Executive Officer

Yeah, the one thing that I'd add to that Chuck, if you think through it and you look at that TAM of a $250 billion mark, that was [Technical Difficulty]. You're going to have a lot of consumers, to Ross' point, lots of defaults to default it with higher car prices. You're going to see some people explore this as well. I think the TAM is going to grow.

So when I look at rebound around all these kind of crisis, people are going to continue to buy cars. Credit union and banks, they haven't become geniuses overnight in underwriting near-prime loans. They just don't have the data. So I think you know we're always going to have that huge opportunity ahead of us to continue to fine-tune what we do and continue to have a big part to play in. I think we did 2 billion worth of loans last year of a $250 billion market.

So there's still a huge runway ahead.

James Faucette -- Morgan Stanley -- Analyst

That's great. Thank you very much.

Chuck Jehl -- Chief Financial Officer

Yeah. Thank you, James.

Operator

Your next question, John Hecht with Jefferies. Please go ahead.

John Hecht -- Jefferies -- Analyst

Hey, guys. Good afternoon, thanks very much. This is maybe more of just some of the inquiry that is like from Vincent so forth on call it the assumptions with the insurance counter-parties. I guess what I'm more interested in is what's the cadence of how you guys are thinking of the normalization of credit and the normalization of used car prices? Are the current assumptions in the insurance underwriting model reflective of getting back to normalized levels of pricing and loss rates sometime next year? Or how do we think about kind of how you process that change?

Ross Jessup -- President and Chief Operating Officer

Yeah, I think for one is the chip shortage, when is that going to get back to the normal level to help that car production and I think you have a variety of opinions on that. I think the majority of the folks thinks that this time next year, we'll be, if not back to normal, certainly trending pretty close to that. It's going to be a gradual thing. It's just not happening overnight. And even if it's a balance of next year, that's what we have modeled that.

We do believe that as values decrease, then our claims severity will increase and again, like Chuck said, that is all stressed and factored into our 606 calculation.

John Hecht -- Jefferies -- Analyst

But I guess, I'm not asking for guidance in any sense. But if the normalization of pricing happens at a slower rate, then you could have some favorable readjust in terms of economic value. It sounds like you're maybe being a little conservative in your forecasting.

Chuck Jehl -- Chief Financial Officer

Yeah, I mean, clearly we're in an unusual time in all of our history, right? And so yes, I think if you think about pricing and supply and demand, ultimately, if you go back to the great financial crisis even, pricing went up quickly. Obviously, there was not a lot of supply and it moderates and comes back. As the demand comes back to normal levels and so does pricing. So you know we feel like with all the macro, with Moody's for example, and others that we follow, these trends, with unemployment and some of that that's baked in, we feel like it's the prudent way to look at it in this unusual time. But we do believe it will get back to normal levels and moderate.

Ross Jessup -- President and Chief Operating Officer

To expand on that, Chuck, we're doing this so we do not have a reversal, the assets of 606.

Chuck Jehl -- Chief Financial Officer

Right. Yup. Right. Hopefully we answered your question, John? 

John Hecht -- Jefferies -- Analyst

Yes. No, it get it, I appreciate that very much. And then forgive me if you talked about -- but I'm wondering kind of the variants out there, it seems like certain areas are getting disrupted. Maybe can you talk us through kind of volume trends, July and August anything noticeable there?

Chuck Jehl -- Chief Financial Officer

Yes, I'll start, and then John and Ross can jump in. But as John said, in our prepared comments, second quarter was a record quarter, June was a record quarter. That momentum has continued into July, and our app volumes are very strong on Lenders Protection. We were very encouraged by the growth in our credit union and bank line.

It was 87% year over year for Q2 quarter. So really, a lot of momentum in our core business as well. As the OEMs grow during a difficult time of the OEMs as the shortage gets worked through. But we feel really good about where we're heading into the balance of the year from a cert perspective, as well as earnings and cash, which is why we reaffirmed our guidance and feel really good about the business and the execution.

John Hecht -- Jefferies -- Analyst

I appreciate the color, guys. Thank you very much.

Chuck Jehl -- Chief Financial Officer

Thank you.

Operator

[Operator instructions] And your next question comes from Sameer Kalucha with Deutsche Bank.

Sameer Kalucha -- Deutsche Bank -- Analyst

Hi. Thanks for taking my question. So one of the things I wanted to check on was the insurer number three. How are the volumes trending there compared with the earlier two that you have? Then second is, any color you can provide on the economics for the insurer three? How do they compare with the first two?

John Flynn -- Chairman and Chief Executive Officer

Sure. The economics are identical to the first two. That's one of the agreements we put in place. They all have the same economics for us, so that there's no adverse selection for us to be sending one application to one insurance carrier versus the other.

And we just launched the third carrier on July 1st. So we're just now starting to see the volumes tick up. The beauty of it is they have no capacity issues, very excited about underwriting as much as we can get to them. And we've got them in the mix to make sure they're getting volumes that will keep them happy.

But they're excited about the business.

Sameer Kalucha -- Deutsche Bank -- Analyst

Great, thanks. And just a quick on the, you talked about the unit economics on the profit per share. So it was a little bit lower and probably due to the mix. Is there like a long-term target or like an average that you have in mind that you would like to keep the number at? For example, last quarter 680 and this quarter is like 580.

Is there a normalized target that you have?

Chuck Jehl -- Chief Financial Officer

Yes, Sameer, this is Chuck. Yes, I'll answer that. One of the things you've picked up in our prepared comments, we basically removed our vehicle value discount, which was part of our underwriting standard changes when COVID-19 first started. And it was basically a 5% vehicle value discount that basically increased premium 15% in the COVID time, during the pandemic.

We took that off in April of this year. So in essence, we're back to the pre-COVID normalized profit share in that 580 range. The mix and obviously it's a risk adjusted. Everything we do at Lenders Protection in Open Lending. And mix and profit share and economics will change from quarter to quarter and vary, but that's really the biggest impact on your analysis on the quarter over quarter.

Sameer Kalucha -- Deutsche Bank -- Analyst

Got it. Thank you.

Chuck Jehl -- Chief Financial Officer

And one thing I'd point out is, you probably heard in the prepared comments that we also improved our closure rate, a lift of about 20%, which is obviously part of the record volume in certs, which is very helpful.

Sameer Kalucha -- Deutsche Bank -- Analyst

Got it. Thank you.

Operator

Your next question is from Bob Napoli with William Blair.

Adib Choudhury -- William Blair & Company -- Analyst

Hey, this is Adib Choudhury on for Bob Napoli. Just one question from our end. So the company has super strong cash flow and it seems like you guys are going to continue to build cash. Could you talk a little bit about your capital allocation priorities and in particular your philosophy around M&A? Thank you.

Ross Jessup -- President and Chief Operating Officer

Yeah, you bet. Obviously we generated cash flow in our operating model and when you think about for the quarter, just a little bit of capital uses and allocation. We bought $20 million of our stock back and participated along bank shareholders as a piece of our capital allocation, as well as we're very successful buying back a long-term obligation, or the TRA. It had a significant discount, which is about $37 million use of cash and capital, and as well we paid down a little debt. Obviously, we believe for the balance of the year we'll continue to generate obviously positive cash flow, and as we think about uses of that cash going forward, those are very thoughtful decisions.

We work very closely with our board, and we'll keep the market and everyone up to date as we make decisions on that. But obviously we want to maintain a very strong balance sheet and ample cash to run and service our debt and invest in our business and our human resources and have a conservative financial policy by doing that. So basically, in all of that, our philosophy is opportunistic and focus on maximizing shareholder value.

Adib Choudhury -- William Blair & Company -- Analyst

Great. Thanks very much.

Ross Jessup -- President and Chief Operating Officer

You bet. Thank you.

Operator

I would like to turn the floor over to John Flynn for closing remarks.

John Flynn -- Chairman and Chief Executive Officer

Thank you, everybody. We really appreciate the time and effort you put into following us. We love your continued support. As you can see, we're excited about the future of the company, as well as the results we put up for the second quarter.

And we look forward to continue to grow the company with your support. Appreciate everybody's help. Thank you.

Ross Jessup -- President and Chief Operating Officer

Thank you.

Chuck Jehl -- Chief Financial Officer

Thanks, everyone. 

Ross Jessup -- President and Chief Operating Officer

Have a great day.

John Flynn -- Chairman and Chief Executive Officer

Bye-bye.

Operator

[Operator signoff]

Duration: 47 minutes

Call participants:

John Flynn -- Chairman and Chief Executive Officer

Ross Jessup -- President and Chief Operating Officer

Chuck Jehl -- Chief Financial Officer

Joseph Vafi -- Canaccord Genuity -- Analyst

Vincent Caintic -- Stephens Inc. -- Analyst

James Faucette -- Morgan Stanley -- Analyst

John Hecht -- Jefferies -- Analyst

Sameer Kalucha -- Deutsche Bank -- Analyst

Adib Choudhury -- William Blair & Company -- Analyst

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