Q2 2021 Credit Acceptance Corp Earnings Call

<unk> second quarter 2021 earnings call.

Today's call is being recorded a webcast and transcript of today's earnings call will be need available on credit acceptance website.

At this time on that sort of the call over to credit acceptance as Chief Treasury Officer, Doug Busk, Sir you may now begin.

Thank you.

Good afternoon, and welcome to the credit acceptance Corporation's second quarter 2021 earnings call as you read our news release posted on the Investor Relations section of our website at IR Dot credit acceptance dot com and as you listen to this conference call. Please recognize that both contain.

<unk> 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 of the cautionary statement regarding.

For forward looking information included in the news release.

All forward looking statements in light of those and other risks and uncertainties.

Additionally, I should mention that to comply with the SEC's regulation G. Please refer to the financial results section of our news release, which provides tables.

Regarding our non-GAAP measures reconcile to GAAP measures.

Our results for the quarter include unit and dollar for dollar volumes declined 28, 7% and 25% respectively compared to the second quarter of 2020.

An increase in forecasted collection rates for loans.

<unk> originated in 2017 through 2021.

This resulted in the 100 for $5 million increase in the forecast of net cash flows from our loan portfolio.

Adjusted net income, excluding a onetime reversal of stock compensation expense.

<unk> increased 44% from the second quarter of 2020 to $221.4 million.

Adjusted earnings per share, excluding a onetime reversal of the stock compensation expense increased 53% from the second quarter of 2020 to $13 from 18th.

Yes.

Stock repurchases of approximately 598000 shares 3.6% of the shares outstanding at the beginning of the quarter.

At this time, Ken Booth, our Chief Executive Officer, Jay Martin, Our senior Vice President of Finance and accounting and I will take your questions.

<unk> zone.

Participants we will now begin the question and answer session.

Ask the question over the phone you May press the Star key followed by the number 1.

To withdraw your request you May press the pound key.

That is star 1 to ask the question.

For the pound key to withdraw your request.

First question is from the line of Marsh Orenbuch from Credit Suisse. Your line is now open.

Thanks.

Okay.

If cash.

The book can you talk a little bit about the.

The 104 million debt you Ashish said in terms of the expected higher collections.

Just talk us through how that flows through both on a GAAP and an adjusted basis.

Yes, I mean, the the $104 million was driven by an improvement in the fourth.

Jeff the collection rates on loans originated in recent years.

For adjusted accounting purposes of that improvement will be reflected as of the yield on the portfolio that will be taken into our financial results on the level yield basis over time.

Forecast.

For GAAP the improvement in.

The forecasted cash flows flows through the provision as the reversal of the provision and adjust the allowance to the point, where the net carrying value of of the loan asset would equal the present value of the forecast of net cash flows.

Got it thanks.

I mean I'd side, it's not on your website, yet, but I did see on the FCC's merchants that you filed the 10-Q as Adam just opening it as we speak.

So is there.

Kind of any update from the standpoint of the litigation with the Massachusetts.

For the.

BB that we should be aware of.

Not not really.

We have a little bit of updated disclosure in the 10-Q.

Relative to Massachusetts, particularly.

We're continuing to work towards finalizing.

On the agreement with the Commonwealth that is considered.

The Seattle with the tentative agreement, we came came to back in April.

And the.

The timeframe I guess, it's been just over 3 months right.

On the longer end for 1 of these I mean is there anything that we should kind of.

In terms of that process.

Yeah.

The only things I guess, we know about it is that you agreed to pay them $27 million is there anything else that we should be.

I mean, we can't really say anything other than what we've already.

Disclosed were.

Continuing to work with the Commonwealth.

As I said.

Jordan agreement, that's consistent with.

The understanding we reached in April beyond that we can't really say anything.

And the.

Since there is a subsequent sit from the CFPB June.

You guys had been the kind.

Kind of ongoing.

For.

The period of time.

Any anything different than what they are asking for the.

We shouldnt no debt.

Can't really comment beyond what's in the 10-Q.

Got it okay.

Alright.

Alright, thank you.

Thanks Moshe.

Yes.

Thank you.

Next question.

<unk> is from the line of Ray Cheesman of Anfield capital. Your line is now open.

Doug I wanted to ask you guys with Covid cranking back up again.

Being a very topical.

And of course later, this week and unless something changes the eviction and foreclosure moratoriums kind of running out the ease.

Is it your expectation that I'm just like the the last 2 times you know kind of a early in the pandemic and then kind of over that.

<unk> extended Christmas quiet period do you think there is a risk of another quiet period, if the if the customer base is impacted by either a fear of the disease or fear of making rent payments.

When you are referring to our quiet period, what specifically, you're referring to I'm, saying that the decline in business that occurred.

Kind of over the winter.

Mhm.

You know.

Certainly possible I mean, it's you know I don't think many things in this pandemic of played out as anyone would have thought.

So there I think there is.

Uncertainty in the.

You know how things will progress.

From here so.

Anythings anything's possible.

Second question would be I think that I've been watching the manheim get a little soft or possibly even roll over here.

Does that mean.

Your optimism for the future might go up if it doesn't cost an arm of.

Kurt I'll be get of used car in the future and maybe more people can afford 1.

Yes, I mean, I think that would be helpful.

We pointed out in our earnings release.

<unk> used.

Used cars.

Prices being at elevated levels of presented challenges for our customer base. So.

Of that.

The legacy would be helpful.

Okay, and then just a last 1.

I I mean, you end of lot of other financial institutions were beneficiaries of Cecil Reserve releases. During this particular reporting period and I'm wondering.

Is there a chance that theres more reserve releases.

Is this year to come or do you guys feel like you've got your arms around the best information right here and now.

I mean, we adjust our forecasted collection rates every month.

And that adjustment is based primarily on all of the loans actually perform versus our expectations.

That would like.

So if loan performance continues to exceed.

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Which is far from certain.

Then there will be additional provision reversals.

The loan performance declines than the opposite of oil curve that will be incremental provision. So it just it just.

Function of how the loans performed.

Okay. Thank you very much.

Yeah.

Yeah.

Again participants its star 1 to ask the question or the pound key to a draw your request.

Next question is from the line of Bob while Tac of.

All of this research your line is now open.

Hey, guys.

In the press release, usually the the slowdown in this quarter's unit volume.

The reduced inventories and higher used car prices inventories have been depressed in used car prices have been elevated for some time now.

So I'm wondering if there's anything else that might have contributed to the deceleration in this particular quarter.

But nothing in particular I think that.

From from our understanding.

Both the used car price.

Autonomous, especially for our segment of the market and the inventory levels.

Got incrementally worse during the quarter.

So I think that was as we say the most significant contributing factor the other.

Other thing is as I.

Looking at the industry data, which we only have.

Hey.

It seems like we lost a bit of share in the in the.

The.

Quarter, so that would be a contributing factor as well.

Yeah.

Okay and do you have a hypothesis for why you might have lost share in the quarter.

The most likely.

Through.

Explanations would be.

I think that the inventory challenges have been more significant with independent dealers as you know we get the.

Majority of our originations from independence.

And then I think that.

Theres, probably some reluctance on behalf of dealers given the scarcity of inventory to finance alone with credit acceptance given that the upfront growth.

Is less than it would be with 1 of their traditional lenders.

So we've gotten feedback.

Some dealers given the scarcity of inventory are electing not to finance that consumer and waiting for higher.

Credit quality borrower to come on the lot.

Okay. Thanks.

And I appreciate that you can't comment on the lawsuit.

In Massachusetts for the settlement there, but wondering if you could comment on your business in Massachusetts.

Any noticeable change in volumes, our dealer relationships since you announced the the preliminary settlement.

Yeah.

Nothing significant.

Okay.

Net debt.

Next question is again from the line of Ray Cheesman Anfield capital. Your line is now open.

Just had a quick follow up.

There is an awful lot.

Thank you for capital out there that is chasing loans and often people are being a little bit crazy to get volume and you mentioned market share a minute ago I am wondering if youre seeing any disruptive.

Layers.

Disturbing the market where you.

Service your customers.

Well, you're certainly right that the.

More capital that the industry has the access to the more competitive it tends to be.

I don't really have any particular insight into the business practices of others in.

Of the industry. So I can't I can't provide a good answer of your question right.

But your market share of its not because you feel like somebody is trying to.

Dramatically undercut the kind of rational rate that should be charge for the risk that's assumed.

It's really hard to say.

Say I mean, there's lots of participants in the market.

We price our business to try to maximize the economic profit we tried to make an acceptable return on what we forecast collections for so yes.

I guess, we've kind of looked at it from our perspective.

Disappointed the volume is down, but we view this kind of as a temporary situation how long it.

Last we don't really know, but we think the market will stabilize at some point, we feel good about the business that we're writing.

Thank you very much.

Again participants its star 1 to ask the question.

For the pound key to withdraw your request.

Yeah.

Okay.

Yeah.

With no further questions in the queue I'll now turn the conference back over to Mr. Busk for any additional or closing remarks.

We would like to thank every.

Everyone for their support and for joining us on our conference call. Today. If you have any additional follow up questions. Please direct them to our Investor relations mailbox at IR at credit acceptance dotcom.

We look for look forward to talking to you again next quarter. Thank you.

Once again.

This does conclude today's conference. We thank you for your participation you may now disconnect.

Yeah.

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