Credit Acceptance : 1st Quarter 2025 Earnings Call Final

Published: 2025-05-02 13:52:17 ET CACC

Published on 05/02/2025 at 13:52

Credit Acceptance Corp (Q1 2025 Earnings)

April 30, 2025

Jay Martin; Credit Acceptance Corp.; Chief Financial Officer

Kenneth Booth; Credit Acceptance Corp.; Chief Executive Officer

Jay Brinkley; Credit Acceptance Corp.; Senior Vice President and Treasurer

Douglas Busk; Credit Acceptance Corp.; Chief Treasury Officer

Jeff Soutar; Credit Acceptance Corp.; Vice President and Assistant Treasurer

Moshe Orenbuch; TD Cowen; Analyst

Robert Wildhack; Autonomous Research; Analyst

John Rowan; Janney; Analyst

Jordon Hymowitz; Philadelphia Financial

PRESENTATION

Operator: Good day everyone, and welcome to the Credit Acceptance Corporation First Quarter 2025 Earnings Call. Today's call is being recorded. A webcast and transcript of today's earnings call will be made available on Credit Acceptance's website. At this time, I would like to turn the call over to Credit Acceptance Chief Financial Officer, Jay Martin.

Jay Martin: Thank you. Good afternoon, and welcome to the Credit Acceptance Corporation First Quarter 2025 Earnings Call.

As you read our news release posted on the Investor Relations section of our website at ir.creditacceptance.com, and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of federal securities law.

These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, and which could cause actual results to differ materially from such statements.

These risks and uncertainties include those spelled out in the Cautionary Statement Regarding Forward-Looking Information included in the news release. Consider all forward-looking statements in light of those and other risks and uncertainties.

Additionally, I should say that to comply with the SEC's Regulation G, please refer to the Financial Results section of our news release, which provides tables showing how non-GAAP measures reconcile to GAAP measures.

At this time, I will turn the call over to our Chief Executive Officer Ken Booth, to discuss the first quarter results.

Kenneth Booth: Thanks, Jay. Overall, we had another mixed quarter as it related to collections and originations, two key drivers of our business.

Collections improved sequentially this quarter with only our 2022, 2024, and 2025 vintages modestly underperforming our expectations, while our other vintages were stable during the quarter. Overall, forecasted net cash flows declined by 0.2%, or $21 million, which was our smallest decline of the last eight quarters.

During the quarter, our loan portfolio reached a new record high of $9.1 billion on an Adjusted Basis, up 10% from Q1 last year, although we experienced a decline in unit and dollar volume growth. Our market share in our core segment of used vehicles financed by subprime consumers was 5.2% for the first two months of the year compared to 6% for the same period in 2024. Our unit volume was likely impacted by our Q3 2024 scorecard change that has resulted in lower advance rates and increased competition.

Beyond these two key drivers, we continued making progress during the quarter towards our mission of maximizing intrinsic value and positively changing the lives of our five key constituents: dealers, consumers, team members, investors, and the communities we operate in.

We do this by providing a valuable product that enables dealers to sell vehicles to consumers regardless of their credit history. This allows dealers to make incremental sales to the roughly 55% of adults with other than prime credit.

For these adults, it enables them to obtain a vehicle to get to their jobs, take their kids to school, etc. It also gives them the opportunity to improve or build their credit.

Our customers are people like Vivien from Maryland. Vivien is an elementary school assistant, a role that requires her to consistently and timely show up for children with disabilities and special needs. After her vehicle was totaled in an accident, she was left without reliable transportation. She needed a new vehicle, but worried about her ability to secure financing due to her poor credit history. Her fears were confirmed when she was turned down for financing multiple times. Discouraged but not defeated, she found a dealership who approved her to finance a vehicle through Credit Acceptance. Vivien described the moment she was approved for financing as a turning point in her life. With a reliable vehicle, she regained her independence. Vivien plans to use Credit Acceptance again when it comes time to finance another vehicle, knowing she would be supported by a team that listens and puts her at ease.

During the quarter, we financed over 100,000 contracts for our dealers and consumers. We collected $1.4 billion overall and paid $68 million in dealer holdback and accelerated dealer holdback to our dealers. We enrolled 1,617 dealers and now have our second highest quarterly number of active dealers with 10,789 dealers.

From an initiative perspective, we've made progress with our go-to-market approach with the goal of supporting our dealers faster and more effectively than ever before. This requires teamwork, attention to detail, and an iterative process that attempts to make improvements every step of the way. We also continue to invest in our technology team. We remain focused on modernizing both our key technology architecture and how our teams work to support this goal.

During the quarter, we were named the Top Workplace USA award winner for the fifth year in a row with the number two ranking among companies of our size. Last year, we were recognized with a record 13 workplace awards, and we continue to focus on making our amazing workplace even better. We support our team members in making a difference to what makes a difference to them, raising money for five different charitable organizations that were selected by our team members.

Now Jay Martin and I will take your questions, along with Doug Busk, our Chief Treasury Officer; Jay Brinkley, our Senior Vice President and Treasurer; and Jeff Soutar, our Vice President and Assistant Treasurer.

QUESTIONS AND ANSWERS

$76 million portion of your GAAP provision related to it. Unlike last quarter, when you had a larger forecast change, you had an increase in the adjusted yield, and this quarter, it went down. So maybe could you talk about how we should be thinking about those two items, both in this quarter and going forward?

Now on your point on the adjusted yield, there's a couple of things going on there. If you look at page 10 of our earnings release, you'll notice we added a new metric there, which is adjusted finance charges as a percentage of our adjusted loans receivable. What you'll see there is that similar to last quarter, we did see an increase in the yield from the prior quarter, and that's due to the yields on the current quarter originations. The expected yields on those new originations more than offset the decline due to the underperformance of the loans on the entire portfolio.

We did see the adjusted yield increase slightly from Q4. What you're seeing is adjusted revenue as a percentage of adjusted capital, and that did decrease from 18.4% last quarter to 18.0% this quarter. What was driving a decrease there where adjusted yield went up was the $500 million of cash and cash equivalents we have on our balance sheet. It's higher than what we normally have just due to the timing of some recent debt issuances coupled with slower loan growth. We don't expect to have cash and cash equivalents at that level, but that drove our adjusted capital growing faster than adjusted loans.

First would be the impact of inflation. It's declined some recently, but things still cost a lot more than they did three years ago. And then we don't know what impact tariffs could have on inflation, so that's likely to increase inflation. We also know that vehicle prices could decline, but that risk does seem like it's minimized by the impact of tariffs. And then thirdly, a potential recession. All that can have a negative impact. We'll just have to wait and see, but, again, what we have out there now is our best estimate today.

We also know with the '22 loans, beyond just inflation, there are some other factors on why those have underperformed. A couple of those would be that the loans were originated in a very competitive period, which certainly hurts loan performance, consumers purchased vehicles at peak valuations, vehicle prices subsequently declined, and then as you mentioned, inflation. We also know what we saw in the '22 loans is not unusual compared to what we see from others in the industry.

We also closed a securitization at the end of the quarter. I think in terms of timing, we feel pretty good about getting in and out of the market when we did. Things have gotten fairly volatile out there, and it feels good to be in the cash position that we are right now rather than having to issue into a volatile capital market environment.

Disclaimer

Credit Acceptance Corporation published this content on May 02, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 02, 2025 at 17:49 UTC.