OPEN LENDING CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of Open Lending
Corporation's condensed consolidated results of operations and financial
condition. The discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto on Form 10-K for the year
ended December 31, 2021. This discussion contains forward-looking statements and
involves numerous risks and uncertainties, including, but not limited to, those
described under the heading "Risk Factors" set forth elsewhere in this Quarterly
Report on Form 10-Q and our Annual Report. Actual results may differ materially
from those contained in any forward-looking statements. Unless the context
otherwise requires, references in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" is intended to mean the business
and operations of Open Lending Corporation, and its condensed consolidated
subsidiaries.
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              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that involve
substantial risks and uncertainties. Forward-looking statements generally relate
to future events or our future financial or operating performance. In some
cases, you can identify forward-looking statements because they contain words
such as "may," "will," "appears," "shall," "should," "expects," "plans,"
"anticipates," "could," "intends," "target," "projects," "contemplates,"
"believes," "estimates," "predicts," "potential," or "continue," or the negative
of these words or other similar terms or expressions that concern our
expectations, strategy, plans, or intentions. Forward-looking statements
contained in this Quarterly Report on Form 10-Q include, but are not limited to,
statements about:

•our financial performance;

•changes in our strategy, future operations, financial condition, estimated revenues and losses, projected costs, prospects and plans;

•plans and opportunities for expansion;

•the impact of the relative strength of the overall economy, including its
effect on unemployment, consumer spending and consumer demand for automotive
products;

•the growth in loan volume of our top ten automotive lenders relative to that of other automotive lenders, and the associated concentration of risk;

•costs of services in absolute dollars and as a percentage of revenue;

•general and administrative expenses in absolute dollars and as a percentage of revenues;

•sales and marketing expenses in absolute dollars and as a percentage of revenue;

•research and development expenses in absolute dollars and as a percentage of sales;

•the impact of projected operating cash flow and free cash on our business activities in the future;

•the turnover in automotive lenders, as well as varying activation rates and
volatility in usage of our Lenders Protection Platform ("LPP") by automotive
lenders;

•the outcome of any known and unknown litigation and regulatory proceedings,
including such legal proceedings that may be instituted in connection with the
Business Combination and transactions contemplated thereby;

•the possibility of maintaining the listing of our common shares on Nasdaq;

•our ability to recognize the anticipated benefits of the Business Combination,
which may be affected by, among other things, competition and our ability to
grow and manage growth profitably;

•expenses associated with our growth due to demands on our operational, marketing, compliance and accounting infrastructure;

•regulatory agreements between us and state agencies regarding matters such as the conduct and supervision of automobile lenders and the pricing of loans;

•changes in applicable laws or regulations;

•applicable taxes, inflation, supply chain disruptions, including global hostilities and responses thereto, interest rates and the regulatory environment; and

•the effects of the ongoing COVID-19 pandemic on our business.

All forward-looking statements are based on information and estimates available
to us at the time of this Quarterly Report on Form 10-Q and are not guarantees
of future financial performance. We undertake no obligation to update any
forward-looking statements made in this Quarterly Report on Form 10-Q to reflect
events or circumstances after the date of this Quarterly Report on Form 10-Q or
to reflect new information or the occurrence of unanticipated events, except as
required by law.

The outcome of the events described in these forward-looking statements is
subject to known and unknown risks, uncertainties, and other factors described
in the section titled "Risk Factors" and elsewhere in this Quarterly Report on
Form 10-Q and our Annual Report. We caution you that the foregoing list may not
contain all of the forward-looking statements made in this Quarterly Report on
Form 10-Q. You should not rely upon forward-looking statements as predictions of
future events.
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Company overview

We are a leading provider of lending enablement and risk analytics to credit
unions, regional banks and Original Equipment Manufacturers. Our clients,
collectively referred to herein as automotive lenders, make automotive consumer
loans to underserved near-prime and non-prime borrowers by harnessing our
risk-based pricing models, powered by our proprietary data and real-time
underwriting of automotive loan default insurance coverage from insurers. Since
our inception in 2000, we have facilitated over $14.7 billion in automotive
loans, accumulating over 20 years of proprietary data and developing over two
million unique risk profiles. We currently cater to 411 active automotive
lenders.

We specialize in risk-based pricing and modeling and provide automated
decision-technology for automotive lenders throughout the U.S. We believe that
we address the financing needs of near-prime and non-prime borrowers, or
borrowers with a credit bureau score between 560 and 699, who are underserved in
the automotive finance industry. Traditional lenders focus on prime borrowers,
where an efficient market has developed with interest rate competition that
benefits borrowers. Independent finance companies focus on sub-prime borrowers.
Borrowers that utilize the near-prime and non-prime automotive lending market
have fewer lenders focused on loans with longer terms or higher advance rates.
As a result, many near-prime and non-prime borrowers turn to sub-prime lenders,
resulting in higher interest rate loan offerings than such borrower's credit
profile often merits or warrants. We seek to make this market more competitive,
resulting in more attractive loan terms.

Our flagship product, LPP, enables automotive lenders to make loans that are
largely insured against losses from defaults. We have been developing and
advancing the proprietary underwriting models used by LPP for over 20 years. We
believe LPP provides significant benefits to our growing ecosystem of automotive
lenders, automobile dealers, borrowers and insurers.

A key element of LPP is the ability to facilitate risk-based interest rates that
are appropriate for each loan and lender and electronically submitted to our
automotive lenders within approximately five seconds after we receive a loan
application. Our interest rate pricing is customized to each automotive lender,
reflecting the cost of capital, loan servicing costs, loan acquisition costs,
expected recovery rates and target return on assets of each automotive lender.
Using our risk models, we project monthly loan performance results, including
expected losses and prepayments for automotive lenders that use LPP. The product
of this process is a risk-based interest rate, inclusive of elements to recover
all projected costs, program fees and insurance premiums, given the risk of the
loan, to return a targeted return on asset goal.

We believe that our market opportunity is significant. The near-prime and
non-prime automotive loan market is estimated at $250 billion annually. We are
currently serving less than 2% of this market, providing a significant growth
opportunity.

Executive Overview

We facilitate certified loans and have achieved financial success by increasing
our penetration of the near-prime and non-prime automotive loan market while
diversifying our customer base and refining our data analysis capabilities.

We facilitated 43,944 certified loans in the three months ended March 31, 2022compared to 33,318 loans certified during the three months ended
March 31, 2021.

The total turnover was $50.1 million for the three months ended March 31, 2022compared to $44.0 million in the three months ended March 31, 2021.

The operating result was $32.2 million for the three months ended March 31, 2022compared to $29.4 million within three months March 31, 2021.

The net income was $23.2 million for the three months ended March 31, 2022compared to the net result of $12.9 million for the three months ended March 31, 2021.

Adjusted EBITDA was $33.8 million for the three months ended March 31, 2022compared to $30.3 million in the three months ended March 31, 2021. Information regarding the use of Adjusted EBITDA, a non-GAAP measure, and a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP measure, is included in “Non-GAAP Financial Measures to GAAP”.

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Strong points

The table below summarizes the insured loans facilitated and the number of
contracts signed with automotive lenders for the three months ended March 31,
2022 and 2021.

                                                                     Three Months Ended March 31,
                                                                      2022                    2021
Value of insured loans facilitated (in thousands)              $      1,182,567          $   780,341
Average loan size per certified loan                           $         26,911          $    23,421
Number of contracts signed with automotive lenders                              18                   14


Key Performance Measures

We review several key performance measures, discussed below, to evaluate
business and results, measure performance, identify trends, formulate plans and
make strategic decisions. We believe that the presentation of such metrics is
useful to our investors and counterparties because such metrics are used to
measure and model the performance of companies such as ours, with recurring
revenue streams.

Certified Auto Loans

We refer to "certified loans" as the number of loans facilitated through LPP
during a given period. Additionally, we refer to loans with a one-time upfront
program fee payment as "single-pay" loans. For certain loans, the program fee is
paid to us over 12 monthly installments and we refer to these loans as
"monthly-pay" loans.

Average Program Fee

We define “average program fee” as the total program fee revenue recognized for a period divided by the number of loans certified during that period.

Overall underwriting profit of insurers

We define "insurers' aggregate underwriting profit" as the total underwriting
profit expected to be received by insurers over the expected life of the insured
loans.

Insurers' Earned Premium

We define “insurers earned premium” as the total insurance premium earned by insurers during a given period. Earned premiums were $59.5 million and $46.7 millionrespectively, for the three months ended March 31, 2022 and 2021, respectively.

Recent Developments

Product Update

As part of our ongoing efforts to provide our customers enhanced technology and
underwriting decisioning, we routinely evaluate program and system updates to
LPP. As a result of these efforts, we have completed the following product
updates to LPP in the first quarter of 2022:

• Term limits of 84 months for all business channels for approved vehicles; and

• increase in the maximum initial loan amounts for all chains.

Customer rollout of these updates has been initiated and will continue through the second quarter of 2022. These recent updates will provide our lenders with expanded lending opportunities beyond the LPP product parameters previously in place.

Fourth insurance partner

On May 2, 2022, we signed a program management agreement with a fourth insurance
carrier partner, Arch Specialty Insurance Company, a part of Arch Capital Group
Ltd., who will act as an additional provider of credit default insurance
policies for LPP, from which we can earn profit share revenue and claims
administration fees.
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Main factors affecting operating results

Our results of operations and future cash flows depend on a number of opportunities, challenges and other factors, including growth in the number of financial institutions and volume of transactions, competition, assumptions of profit sharing, industry trends and general economic conditions.

The main factors affecting our operating results are as follows:

Growth in the number of financial institutions

The growth trend in active automotive lenders using LPP is a critical factor
directly affecting revenue and financial results. It influences the number of
loans funded on LPP and, therefore, the fees that we earn and the cost of the
services that we provide. Growth in our active automotive lender relationships
will depend on our ability to retain existing automotive lenders, add new
automotive lenders and expand to new goods and services specific to our
industry.

Competition

We face competition to acquire and maintain automotive lenders as customers, as
well as competition to facilitate the funding of near-prime and non-prime auto
loans. For LPP, which combines lending enablement, risk analytics, near-prime
and non-prime auto loan performance data, real-time loan decisioning, risk-based
pricing and auto loan default insurance, we do not believe there are any direct
competitors. The emergence of direct competitors, providing risk, analytics and
loss mitigation, which are core elements of our business, could materially
impact our ability to acquire and maintain automotive lender customers. The
near-prime and non-prime lending market is highly fragmented and competitive. We
face competition from a diverse landscape of consumer lenders, including
traditional banks and credit unions, as well as alternative technology-enabled
lenders. The emergence of other insurers, in competition with our insurers,
could materially impact our business.

Benefit sharing assumptions

We rely on assumptions to calculate the value of profit share revenue, which is
our share of insurance partners' underwriting profit. For example, positive
change in estimates associated with historical vintages generate an increase in
our contract asset, additional revenues and future expected cash flows, while
negative change in estimates generate a decrease in our contract asset, a
reduction in revenues and future expected cash flows. To the extent these
assumptions change, our profit share revenue will be adjusted. Please refer to
"  Critical Accounting Policies and Estimates  " for more information on these
assumptions.

Industry trends and general economic conditions

Our results of operations have in the past been fairly resilient to economic
downturns but in the future may be impacted by the relative strength of the
overall economy and its effect on unemployment, consumer spending and consumer
demand for automotive products. As general economic conditions improve or
deteriorate, the amount of disposable income consumers have tends to fluctuate,
which in turn impacts consumer spending levels and the willingness of consumers
to take out loans to finance purchases. Specific economic factors such as
interest rate levels, changes in monetary and related policies, market
volatility, supply chain disruptions, consumer confidence, the impact of the
pandemic and, particularly, the unemployment rate also influence consumer
spending and borrowing patterns.

Concentration

Our two largest insurance carrier partners accounted for 38% and 14% of our
total revenue during the three months ended March 31, 2022 and accounted for 44%
and 22% of our total revenue during the three months ended March 31, 2021.
Termination or disruption of these relationships could materially and adversely
impact our revenue.

Components of operating results

Total revenue

Our revenue is generated through three streams: (i) profit share, (ii) program
fees paid to us by lenders and (iii) claims administration service fees paid to
us by insurance partners.

Profit share. Profit share represents our participation in the underwriting
profit of third-party insurance partners who provide lenders with credit default
insurance on loans the lenders make using LPP. We receive a percentage of the
aggregate monthly insurance underwriting profit. Monthly insurance underwriting
profit is calculated as the monthly earned premium less
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expenses and losses (including provisions for incurred but unreported losses), with accumulated and carried forward losses for future profit share calculations.

Program fees. Program fees are paid by automotive lenders for the use of LPP,
which provides loan analytics solutions and automated issuance of credit default
insurance with third-party insurance providers. These fees are based on a
percentage of each certified loan's original principal balance and are
recognized as revenue upfront upon receipt of the loan by the consumer. The fee
percentage rate varies by type of loan. For loans with a one-time upfront
payment, there is a sliding scale of rates representing volume discounts to the
lender with fees generally capped at $600 per loan. This cap may vary for
certain large volume lenders. For monthly pay loans, the fee paid by the lender
is a flat 3% of the total amount of the loan and is not capped.

Claims administration service fees. Claims administration service fees are paid
to us by third-party insurers for credit default insurance claims adjudication
services performed by our subsidiary Insurance Administrative Services, LLC on
its insured servicing portfolio. The administration fee is equal to 3% of the
monthly insurance earned premium for as long as the loan remains outstanding.

Cost of services and operating expenses

Cost of services. Cost of services primarily consists of fees paid to third
party partners for lead-generation efforts, compensation and benefits expenses
relating to employees engaged in lenders' services and claims administration
activities, fees paid for actuarial services related to the development of the
monthly premium program and fees for integration with loan origination systems
of automotive lenders. We generally expect cost of services to increase in
absolute dollars as the total number of certified loans continues to grow;
however, we expect the cost of services to remain relatively constant in the
near to immediate term as a percentage of our program fee revenue.

General and administrative expenses. General and administrative expenses are
comprised primarily of expenses relating to employee compensation and benefits,
non-cash share-based compensation, travel, meals and entertainment expenses,
data and software expenses and professional and consulting fees. In the near to
intermediate term, we expect general and administrative expenses to remain
relatively constant.

Selling and marketing expenses. Selling and marketing expenses consist primarily
of compensation and benefits of employees engaged in selling and marketing
activities. We generally expect selling and marketing expenses to increase in
absolute dollars as the total number of certified loans continues to grow in the
long term; however, we expect selling and marketing expenses to remain
relatively constant in the near to intermediate term as a percentage of program
fee revenue.

Research and development expenses. Research and development expenses primarily
consist of employee compensation and benefits expenses for employees engaged in
ongoing research and development of our software technology platform. We
generally expect our research and development expenses to increase in absolute
dollars as our business continues to grow.

Other income (expenses)

Interest expense. Interest expense primarily includes interest payments and the
amortization of deferred financing costs in connection with the issuance of the
debt.

Loss on extinguishment of debt. The loss on extinguishment of debt primarily reflects unamortized deferred financing costs, which were written off as part of the refinancing of our term loan maturing in 2027 on March 19, 2021.

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Operating results

The following table presents our operating results for the three months ended March 31, 2022 and 2021:

                                                               Three Months Ended March 31,
                                                               2022              2021                     % Change
                                                                     ($ in thousands)
Revenue
Profit share                                               $  28,310          $ 27,730                             2  %
Program fees                                                  19,726            14,911                            32  %
Claims administration and other service fees                   2,032             1,367                            49  %
Total revenue                                                 50,068            44,008                            14  %
Cost of services                                               4,788             3,362                            42  %
Gross profit                                                  45,280            40,646                            11  %
Operating expenses
General and administrative                                     7,482             8,212                            (9) %
Selling and marketing                                          3,733             2,397                            56  %
Research and development                                       1,823               591                           208  %
Total operating expenses                                      13,038            11,200                            16  %
Operating income                                              32,242            29,446                             9  %

Interest expense                                                (803)           (3,289)                          (76) %
Interest income                                                   25                84                           (70) %
Loss on extinguishment of debt                                     -            (8,778)                          100  %
Other expense                                                      -              (131)                          100  %
Income before income taxes                                    31,464            17,332                            82  %
Income tax expense                                             8,310             4,470                            86  %
Net income                                                 $  23,154          $ 12,862                            80  %


Key Performance Measures

The following table presents the main performance measures for the three months ended March 31, 2022 and 2021:

                                              Three Months Ended March 31,
                                            2022                      2021        % Change

      Certified loans                 43,944                         33,318           32  %
      Single-pay                      39,561                         28,942           37  %
      Monthly-pay                      4,383                          4,376            -  %
      Average program fees    $          449                       $    448            -  %
      Single-pay              $          420                       $    418            -  %
      Monthly-pay             $          714                       $    648           10  %


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Comparison of the three months ended March 31, 2022 and 2021

Revenue

                                                                       Three Months Ended March 31,
                                                                          2022                  2021
                                                                              (in thousands)
Profit share
New certified loan originations                                    $        25,669          $  22,656
Change in estimated future revenues                                          2,641              5,074
Total profit share                                                          28,310             27,730

Program fees                                                                19,726             14,911

Claims administration and other service fees                                 2,032              1,367
Total revenue                                                      $        50,068          $  44,008


Total revenue increased by $6.1 million, or 14%, for the three months ended
March 31, 2022, as compared to the same period in 2021, driven by an increase in
anticipated profit share, program fees and claims administration and other
service fee revenues on new originations and the change in estimated future
revenues on historical vintages. As the loan default rate and severity of losses
continued to be lower than anticipated during the three months ended March 31,
2022, our estimated profit share on historic business increased.

Profit share revenue increased by $0.6 million, or 2%, during the three months
ended March 31, 2022, as compared to the same period in 2021. During the three
months ended March 31, 2022, we recorded $25.7 million in anticipated profit
share associated with 43,944 new certified loans for an average of $584 per loan
as compared to $22.7 million in anticipated profit share associated with 33,318
certified loans for an average of $680 per loan during the three months ended
March 31, 2021. In addition, during the three months ended March 31, 2022 we
recorded $2.6 million in estimated future profit share on business in historic
vintages, as compared to $5.1 million in estimated future profit share on
historic vintages during the three months ended March 31, 2021.

Program fees revenue increased by $4.8 million, or 32%, for the three months
ended March 31, 2022 as compared to the same period in 2021. The increase was
driven by a 32% increase in certified loan volumes as compared to the prior year
period.

Revenue from claims administration and other service fees, which primarily
represents 3% of our insurance partners' annual earned premium, increased by
$0.7 million, or 49%, for the three months ended March 31, 2022 as compared to
the same period in the prior year, due to a 28% increase in total earned
premiums and a 32% increase in new loan certifications.

Cost of services, gross profit and gross margin

                                         Three Months Ended March 31,
                                              2022                      2021
                                                (in thousands)
            Total revenue      $                           50,068    $   44,008
            Cost of services                                4,788         3,362
            Gross profit       $                           45,280    $   40,646
            Gross margin                                    90  %        92  %


Gross profit increased by $4.6 million, or 11%, during the three months ended
March 31, 2022, as compared to the same period in 2021, driven by an increase in
anticipated profit share, program fees and claims administration and other
service fees revenues on new originations and change in estimated future
revenues based on historical vintages as discussed above.
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Operating expenses, operating income and operating margin

                                              Three Months Ended March 31,
                                                   2022                      2021
                                                     (in thousands)
      Total revenue                 $                           50,068    $   44,008
      Gross profit                                              45,280        40,646
      Operating expenses
      General and administrative                                 7,482     

8,212

      Selling and marketing                                      3,733     

2,397

      Research and development                                   1,823     

591

      Total operating expenses                                  13,038     
  11,200
      Operating income              $                           32,242    $   29,446
      Operating margin                                           64  %        67  %


General and administrative expenses decreased by $0.7 million, or 9%, during the
three months ended March 31, 2022, as compared to the same period last year,
driven primarily by a decrease in professional and consulting fees, partially
offset by increases in employee compensation and benefits as well as travel
expenses.

Selling and marketing expenses increased by $1.3 million, or 56%, during the
three months ended March 31, 2022 as compared to the prior year period,
primarily due to an increase in employee compensation and commissions costs,
driven by both increased headcounts in sales and account management as well as
increased sales.

Research and development expenses increased by $1.2 million, or 208%, during the
three months ended March 31, 2022, as compared to the same period in the prior
year, due to increases in headcount and software development costs.

Operating income for the three months ended March 31, 2022 increased by $2.8
million, or 9%, as compared to the prior year period, driven by increases in
program fees and anticipated profit share from new originations and estimated
future underwriting profits on historic business.

Interest charges

During the three months ended March 31, 2022 and 2021, interest expense was $0.8
million and $3.3 million, respectively. Interest expense decreased $2.5 million
or 76% for the three months ended March 31, 2022, as compared to the three
months ended March 31, 2021, as a result of lower borrowing costs and lower
outstanding debt balances during 2022.

Income taxes

During the three months ended March 31, 2022 and 2021, we recognized income tax
expense of $8.3 million and $4.5 million, respectively. The effective tax rate
for the three months ended March 31, 2022 was 26.5%, as compared to an effective
tax rate of 25.8% for the three months ended March 31, 2021. Income tax expense
increased $3.8 million or 86% during the three months ended March 31, 2022 as
compared to the three months ended March 31, 2021, primarily as a result of the
82% increase in income before income taxes as well as the increase in the
effective tax rate.

Cash and capital resources

Cash flow and liquidity analysis

We assess liquidity primarily in terms of our ability to generate cash to fund
operating and investing activities. A significant portion of our cash from
operating activities is derived from our profit share arrangements with our
insurance partners, which are subject to judgments and assumptions and is,
therefore, subject to variability. We believe that our existing cash resources
and revolving credit facility will provide sufficient liquidity to fund our
near-term working capital needs. We regularly evaluate alternatives for managing
our capital structure and liquidity profile in consideration of expected cash
flows, growth and operating capital requirements and capital market conditions.
Refer to "Critical Accounting Policies and Estimates" in this Quarterly Report
on Form 10-Q and our Annual Report for a full description of the related
estimates, assumptions, and judgments.

Based on our assessment of the underlying provisions and circumstances of our
contractual obligations, other than the risks that we and other similarly
situated companies face with respect to the condition of the capital markets (as
described in "Risk
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Factors" in our Annual Report), there is no known trend, demand, commitment,
event, or uncertainty that is reasonably likely to occur that would have a
material adverse effect on our consolidated results of operations, financial
condition, or liquidity.

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