Q3 2023 Credit Acceptance Corp Earnings Call

Okay.

Good day, everyone and welcome to the credit acceptance Corporation third quarter 2023 earnings call today's call is being recorded.

A webcast and transcript of today's earnings call will be made available on credit acceptances website at.

At this time I would like to turn the call over to credit acceptance Chief Treasury Officer, Doug Busk.

Thank you.

Good afternoon, and welcome to the credit acceptance Corporation third quarter 2023 earnings call.

You read our news release posted on the Investor Relations section of our website.

Credit acceptance dot com.

This conference call. Please recognize that both contain forward looking statements.

Federal Securities Law.

These forward looking statements are subject to a number of risks and uncertainties.

Many of which are beyond our control.

Could cause actual results to differ materially from such state.

Yes.

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 mention that to comply with the Sec's regulation G. Please.

Please refer to the financial results section of our news release, which provides tables showing how non-GAAP measures reconcile to GAAP measures.

Our GAAP and adjusted results for the quarter include.

The decrease in forecasted collection rates decreased forecast net cash flows by $69 million.

One 7% compared to a decrease in forecasted collection rates during the third quarter of 2022 that decreased forecasted net cash flows by $87 million or <unk>.

9%.

Forecasted profitability for consumer loans assigned in 2020 through 2022.

It was lower than our estimates as of December 32022.

Due to a decline in forecasted collection rates since the third quarter of 2020 and slower forecast net cash timing during 2023, primarily as a result of a decrease in consumer loan prepayments to below average levels.

Unit and dollar volumes grew 13% and 10, 5%, respectively as compared to the third quarter of 2022.

The average balance of our loan portfolio, our GAAP and adjusted basis increased five nine and 10, 6%, respectively as compared to the third quarter of 2022.

An increase in the initial spread in consumer loan assignments to 21, 4% compared to 22% of our consumer loans aside from the FERC order in 2022.

An increase in our average cost of debt, which was primarily a result of higher interest rates on our recently completed or extended secured financing and the repayment of all of our secured financings with lower interest rates.

Adjusted net income decreased 22% from the third quarter of 2000 $22 million to $140 million adjusted.

Earnings per share decreased 20% from the third quarter of 2022 to $10 70.

At this time, Jeff Booth, our Chief Executive Officer.

J Martin, our senior Vice President Finance and accounting.

I will take your questions.

Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile our Q&A roster.

One moment for our first question.

Okay.

Our first question comes from John Rowan of Janney Montgomery Scott.

Good afternoon.

Hey, John So when I think back.

Overall long timeframe and looking at the company.

Every cycle that we've seen whether it was great financial crisis or Covid. It was roughly about three quarters of of charges that you took to kind of rightsize. The forecasted collections then.

Obviously again after that.

This forecast revisions went away we're at six quarters now in a row of forecasted collection revisions on the downside.

Something different about this environment that makes it more difficult to foresee.

To get that number right is it.

Still COVID-19 reverberations is it seasonal or is it core prices I'm just trying to figure out.

Why we're so much longer into the cycle. We are still seeing these negative charges. Thank you.

I don't it doesn't have anything to do with seasonal I mean, that's just accounting.

In terms of.

Estimated forecasted collection rates.

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Don't have a perfect reasons as to why it's taken longer for the 22 vintage in particular.

Hello.

We were those loans were originated in a pretty unique time was very competitive in the industry.

At very elevated used car prices and.

We have had the impact of inflation.

Which is something we've never previously had to deal with so.

That's really not the best answer I can give you.

Okay and then just.

Obviously, you saw the Q came out and it doesn't seem like there's any material disclosures regarding the.

Yes.

CFPB in New York AG suit, but it does say that there is an update there has to be given on November 3rd is it.

Is there anything you can tell us about what that update would include or is that.

A possible timeframe in which this this case would move forward again, because obviously, it's still currently states. So trying to understand what happens on November 3rd Thank you.

Yes.

That.

Anything is really going to happen with the case until.

Hum.

CFP <unk>.

Spring Carnival roles on the constitutionality of the CFPB.

<unk> was granted a motion to stay on our case.

Pending that decision.

So I don't I don't know exactly what will be discussed in early November with the court.

Alright.

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The court has granted our motion to stay.

Pending the Supreme.

Supreme Court's decision.

Alright, thank you.

Thank you one moment for our next question.

Sure.

Okay.

And our next question comes from John Hecht with Jefferies.

Hey, guys afternoon, and thanks for taking my question I guess my question is a little bit related to John John's Prior question.

There is a longer cycle.

In prior cycle, you guys are kind of emerged.

Price maker.

Other competitors have fallen back, but if you look at the spreads that you are issuing now theres still kind of below where they were even a few years ago I'm wondering kind of how would you describe the competitive market.

Is there something that you would see in the future.

Or any indications of that.

Becoming more favorable because we've gone through such a tough cycle for a period of time.

Oh.

I think we think the competitive environment is relatively favorable today.

We grew.

The loan portfolio, we grew originations in Q3 of rates, we're happy with.

Volume through the first 28 days of October is up materially.

So I think the competitive environment.

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The October volume would indicate.

Even more favorable.

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It's certainly not a situation like that that existed in the credit crisis.

Industry really didn't have access to capital for a period of time.

But I think the competitive environment is certainly better than it was a year ago.

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Don't know, how thats going to play out in the future but.

We're pleased with how it's going today.

And then just I guess maybe comment on.

Youre, writing down the expected cash flows.

Kind of fits and spurts over the past few quarters and that maybe can you just discuss the credit environment.

I mean is it is it a consumer that's just been exhausted by inflation or is it because.

Is it more tied to asset values in the market. How do you describe the credit and the consumer's ability to service their debts right now.

Yeah, I mean, I think it's a combination of several factors probably the two that you mentioned.

Asset values.

Inflation would be though.

Two most material contributors.

Okay. Thanks, very much guys.

Thank you.

And as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

One moment for our next question.

And our next question comes from Robert Wildcard of Autonomous research.

Hey, guys just to follow up on that last point there.

Why do you think the competitive or what's the reason behind the improvement in the competitive landscape is that structural.

Other words competitors going out of business or is that temporary I E. Some just pulling back for a bit.

Yeah.

There have been some companies that have gone out of business or exited the market.

Hey, Kevin.

Huge participants in used vehicle financing to soft brand consumers. So I think it's.

Just more a function of.

Other industry participants.

Turning to price their loans definitely due to the increase in interest rates.

People are also probably reacting to.

Softness in credit performance.

Okay, and then as it relates to.

The downward revisions in forecasted collections have you adjusted your approval rate at all in the recent quarters and that did you change your approval rate at all in October.

We haven't seen a material.

I mean, we approve everyone.

So we haven't seen a change in.

Our approval policies.

And we haven't made any meaningful changes.

And policy or price.

In October.

Okay No change in October.

No material changes no.

Okay.

Thanks.

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

We would like to thank everyone for their support and for joining us on our conference call today.

So if you have any additional follow up questions. Please direct them to our Investor relations mailbox at IR at credit acceptance Dot Com, we 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.

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Operator: Erning's call. Today's call is being recorded. A webcast and transcript of today's earnings call will be made available on Credit Acceptances website. Any input at this time.

Douglas Busk: I would like to invite to the call over to Credit Acceptance Chief Treasury Officer Doug Busk. We didn't detect any input.

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Operator: [inaudible] Thank you, as a reminder, to ask a question, please press star 11 on your telephone. Please press star 11 again, and please stand by while we compile our story.

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John Rowan: Our first question comes from John Rowan of Janie Montgomery Scott. Good afternoon. We didn't detect any input.

Speaker: When I think back, overall long time frame and looking at the company, every cycle that we've seen, whether it was great financial crisis or COVID, it was roughly about three quarters of charges that you took to kind of write size the forecasted collections. And then after that, those forecast revisions went away.

Speaker: We're at six quarters now in a row of forecasted collection revisions on the downside.

Speaker: Is there something different about this environment that makes it more difficult to get that number right? Is it, you know, still COVID revibrations, is it CSOL or is it car prices?

Speaker: I'm just trying to figure out, you know, why we're so much longer into this cycle. We're still seeing these negative charges.

Speaker: We didn't detect any input. I don't have anything to do with CSOL. I mean, that's just accounting.

We didn't detect any input.

Operator: Please try again. We have a way to be connected to our current rates.

Speaker: You know, don't have a perfect reason for us to why it's taken longer for the 22-minute in particular to, you know, settle in. We didn't detect any input. We connected it to the company. It was very competitive in the industry. It had very elevated use car prices.

It didn't detect any input.

We had to try again.

Speaker: We connected to the conference. Which was something that we've never previously had to deal with. So that's really about the best answer I can give you.

Speaker: Okay, and then obviously I saw that the queue came out. It didn't seem like there's any material, you know, disclosures regarding the, you know, the CFPB and New York AG suit.

But it does say that there's an update that has to be given on November 3rd.

Speaker: Is there anything you can tell us about what that update would include?

Or is that, you know, a possible time frame in which this case would move forward again? Because obviously it's still currently state.

Speaker: So from an understand what happens on November 3rd. Thank you. Yeah.

Speaker: I don't think that we didn't detect anything's really going to happen with the case.

Speaker: Or we could be reconnected to the conference. You know, the CFPB or the Supreme Court rules on the Constitutionality of the CFPB. The court is granted a motion to stay on our page.

Or do you detect any input?

We're depending on you to the conference.

Speaker: So I don't, I don't know exactly what we discussed in early November with the court. We didn't detect any of it.

Speaker: Please try again or wait to be granted to the court. I'm going to say, depending on the Supreme Court's decision. Okay, all right.

Operator: Thank you. One moment for our next question.

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Speaker: Hey guys, afternoon. Thanks for taking my question. I mean, I guess my question is a little bit related to John. John's prior question, you know, just because there's a longer cycle.

You know, in prior to detect any input reconnecting you to the conference as other competitors have fallen back. We didn't detect any reds.

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Speaker: I'm wondering kind of how would you describe the competitive market and is there something that you'd see in the future. Or any indications that we didn't detect any more favorable reconnecting you to the conference cycle for a period of time.

Speaker: We didn't. I think we think the competitive environment is relatively connected to the conference. You know, we grew along portfolio and grew our intonations in Q3 of rates. We're happy with volume through the first 28 days of October.

We didn't detect any input.

Speaker: We're connecting you to the conference. The competitive environment is favorable.

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Speaker: Or be reconnected to the conference recently. It's certainly not a situation like that that existed in the credit crisis when, you know, the industry really didn't have access to data.

We didn't detect any input.

Speaker: We're connecting you to the conference. But I think that, you know, the competitive environment is certainly better than it was a year ago.

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Or please go on today.

Speaker: And then just, I guess maybe comment on, you know, obviously you're writing down the expected cash flows.

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Speaker: Yeah, maybe can you just discuss the credit environment?

I mean, is it?

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Speaker: Or wait to be reconnected to the conference because because it's more tied to asset values in the market. How do you describe the credit and the consumer's ability to service their debts right now?

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Speaker: [inaudible] Why do you think that competitive, or what's the reason behind the improvement in the competitive plan?

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But what is going on in this interview?

Speaker: That's a temporary, I some just point back for a bit. You know, there have been some companies that have gone out of business or exited the market, but they haven't been huge.

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Speaker: Please try again. To be reconnected to the government, price their loans differently due to the increase in interest rates. I think people are also probably reacting to.

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And then as it relates to, we didn't protect any input.

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Speaker: Have you adjusted your approval rate at all in the recent quarters? And did you change your approval rate at all in October? We haven't seen a material. We can use it to come through everyone. So we haven't seen a change in.

We didn't protect any input.

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Speaker: We have made any meaningful changes. We haven't seen any changes in policy or price in October. Okay.

No change in.

Any input.

Reconnecting you to the. No material changes. No.

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Douglas Busk: We would like to turn the conference back over to Mr. Busk for any additional or closing remarks. We would like to thank everyone for their support and for joining us on our conference. All today.

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Operator: You have any additional questions? Please direct them to our Investor Relations mailbox at IR at credit.com.

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Operator: Once again, this does conclude today's conference. We thank you for your participation.

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