Q1 2024 Credit Acceptance Corp Earnings Call

Okay.

Operator: Good day, everyone, and welcome to the Credit Acceptance Corporation first quarter 2024 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's chief financial officer,

Speaker Change: Good day, everyone and welcome to the credit acceptance Corporation first quarter 2024 earnings call today's call is being recorded.

Speaker Change: The webcast and transcript of today's earnings call will be made available on credit credit acceptance website. At this time I would like to turn the call over to credit acceptance Chief Financial Officer, Jay Martin.

CFO: Thank you. Good afternoon, and welcome to the Credit Acceptance Corporation first quarter of 2024. 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 the federal securities laws. 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.

Jay D. Martin: Thank you.

Good afternoon, and welcome to the credit acceptance Corporation first quarter 2024 earnings call.

Jay D. Martin: As you read our news release posted on the Investor Relations section of our website.

Jay D. Martin: Our credit acceptance stockpile.

Jay D. Martin: And as you listen to this conference call. Please recognize both contain forward looking statements within the meaning of fraud.

Those securities.

Jay D. Martin: These forward looking statements are subject to a number of risks and uncertainties.

Jay D. Martin: Many of which are beyond our control and which could cause actual results to differ materially from such statement.

CFO: These risks and uncertainties include those spelled out in the cautionary statement regarding forward-looking information included in the, Consider all forward-looking statements in light of those and other... Additionally, I should mention that to comply with the SEC's Regulation G, please refer to the financial results section of our newsletter, which provides tables showing how non-GAAP measures reconcile the gap. At this time, I will turn the call over to our Chief Executive Officer, Ken Booth. Thank you all for joining us today to discuss our first quarter results.

Jay D. Martin: Yes.

Jay D. Martin: These risks and uncertainties include those spelled out in the cautionary statement regarding forward looking information included in the news release.

Jay D. Martin: All forward looking statements in light of those and other risks and uncertainties.

Jay D. Martin: 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 showing how non-GAAP measures reconcile to GAAP measures.

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

Kenneth S. Booth: Okay, our gap and adjusted results for the quarter, as compared to the first quarter of 2023, include the following. Related to earnings, adjusted net income of $117 million, which is an 8% decrease from the first quarter of last year, and adjusted earnings per share of $9.28, which is a 4% decrease from the first quarter of last year. Second, related to collections, a decrease in forecasted collection rates that decreased forecasted net cash flows from our loan portfolio by $31 million, compared to stable forecasted collection rates during the first quarter of last year, to increase forecasted net cash flows for our loan portfolio by $9 million or $0.1 billion. Also, forecasted profitability for consumer loans, signed in 2020 through 2022, that was lower than our estimates at March 31st, 2023 This was primarily a result of a decrease in consumer loan prepayments, which remain at below average levels.

Kenneth S. Booth: Thanks J R.

Kenneth S. Booth: Our GAAP and adjusted results for the quarter as compared to the first quarter of 2023.

Kenneth S. Booth: Sure.

Kenneth S. Booth: First related to earnings adjusted net income of $117 million, which is an 8% decrease from the first quarter of last year and adjusted earnings per share of $9 28.

Kenneth S. Booth: Which is a 4% decrease from the fourth.

Kenneth S. Booth: First quarter of last year.

Kenneth S. Booth: Secondly, the collections a decrease in forecasted collection rates the decrease forecast of net cash flows from our loan portfolio by 31.

Kenneth S. Booth: 013 percent.

Kenneth S. Booth: Very good stable forecasted collection rates during the first quarter of last year they.

Kenneth S. Booth: The increased forecast of net cash flows of our loan portfolio by $9 million.

Kenneth S. Booth: Europe was 1%.

Kenneth S. Booth: Also forecasted profitability for consumer loans.

Kenneth S. Booth: In 2020 through 2022.

Kenneth S. Booth: That was lower than our estimate at March 31 2023.

Kenneth S. Booth: Client and work ethic Luxor rates.

The first quarter of 2023.

Kenneth S. Booth: Slower forecasted cash flow timing during 2023 in the first quarter of 2024.

As a result of a decrease in consumer loan prepayments, which remains at below average levels.

Kenneth S. Booth: Then, related to volume, unit and dollar volumes grew 24.1% and 20.2%, respectively, as compared to the first quarter of last year, and the average balance of our loan portfolio is now the largest it has ever been. On a gap and adjusted basis, it increased by 12% and 16%, respectively, as compared to the first quarter of last year. Additionally... an increase in the initial spread on consumer loan assignments to 22% compared to 21% of consumer loans assigned in the first quarter of 2023.

Kenneth S. Booth: It related to volume unit and dollar volumes grew 24, 1% and 22% respectively.

As compared to the first quarter of last year.

Kenneth S. Booth: And the average balance of our loan portfolio is now the largest it has ever been.

Kenneth S. Booth: GAAP and adjusted basis, it increased by 12 and 16% respectively.

Kenneth S. Booth: Compared to the first quarter of last year.

Kenneth S. Booth: Additionally.

Kenneth S. Booth: An increase in the initial spread and consumer loan assignments to 22% compared to 21% at the consumer level low side in the first quarter of 2023.

Kenneth S. Booth: Also an increase in our average cost of debt.

Kenneth S. Booth: The 7%.

Kenneth S. Booth: This was primarily due to.

Kenneth S. Booth: Higher interest rates on our recently completed or extended secured financings recently issued senior notes coupled with the replacement of older secured financing senior notes with lower interest rates.

Kenneth S. Booth: Finally, the decrease in common shares outstanding since the first quarter of 2023 due to stock repurchases of approximately 720000 shares or 6% of the shares outstanding.

Kenneth S. Booth: As of March 31, 2000.

Kenneth S. Booth: Also, an increase in our average cost of debt from 5% to 7%, which was primarily due to higher interest rates on recently completed or extended secured financings and recently issued senior notes, coupled with the repayment of older secured financing and senior notes with lower interest rates. Finally, the decrease in common shares outstanding since the first quarter of 2023 due to stock repurchases of approximately 728,000 shares, or 6% of the shares outstanding as of March 31st, 2023. At this time, Doug Busk, our Chief Treasury Officer, along with Jay and I, will take your

Kenneth S. Booth: 'twenty three.

Speaker Change: At this time, Doug bass, our Chief Treasury Officer, along with Jay and I will take your questions.

Operator: As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. And one moment for our first question. And our first question comes from Rob Wildhack from Autonomous Research. Your line is now open.

Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Speaker Change: And one moment for our first question.

Speaker Change: And our first question comes from Rob Wild Heck from Autonomous Research. Your line is now open.

Robert Henry Wildhack: Hi guys, let me just start out.

Speaker Change: Hey, guys.

Speaker Change: Let me just start out I just wanted to ask about.

Speaker Change: April unit volumes slowing from 11% to 11% from 24% in the first quarter could you talk about what's driving that is it just difficult compare or maybe something else thats contributing.

Kenneth S. Booth: I just wanted to ask about April unit volume slowing from 11% or to 11% from 24% in the first quarter. Could you talk about what's driving that? Is it just difficult to compare, or maybe something else that's contributing?

Speaker Change: Yes, it's a little difficult to say, there really hasn't been material.

Kenneth S. Booth: It's a little difficult to say. There really hasn't been a material change from our perspective in the competitive environment. We do think our competition is a little bit tougher, so that could be why.

Speaker Change: Cereal change my perspective on the competitive environment.

Speaker Change: We do think our comps are a little bit tougher that could be what.

Kenneth S. Booth: Okay, and then on the competitive environment, and in your experience, you know, once competitors have pulled back like they seem to have done or are doing now, what does it usually take to get them to re-enter the market?

Speaker Change: Okay and then.

Speaker Change: On the competitive environment and in your experience when competitors have pulled back like they seem to have done or be doing now what does it usually take to get them.

Speaker Change: Reenter the market.

Kenneth S. Booth: I think it's a big decision when someone pulls out. You know, I don't know the exact timing of when competitors would go back in, but it doesn't seem like something you would take lightly or that you would come back in quickly. So I would think they would need to stabilize their business more, maybe get better access to funding. But again, we're really kind of speculating here; we kind of focus on ourselves, but it's definitely favorable from our standpoint as our competitors pull out.

Speaker Change: I think it's a big decision when someone calls out I don't know the exact timing of when competitors would go back and but it doesn't seem like something you would take lightly or you would come back in quickly.

Speaker Change: They would need to stabilize their business more maybe.

Speaker Change: You get better access to funding, but again were really kind of speculating here.

Speaker Change: On ourselves.

Speaker Change: But it's definitely favorable from our standpoint as our competitors.

Speaker Change: Okay. Thanks.

Operator: and Thank you. And if you would like to ask a question, that is star 11. Again, if you would like to ask a question, that is star 11. And one moment for our next question. And our next question comes from Tony Orange from S&P Global Market Intelligence. Your line is now open. Tony, if your line's on mute, could you please unmute it? One moment for our next question. And we have a follow-up question. One moment, please. And our follow-up question is from Rob Wildhack from Autonomous Research.

Speaker Change: And thank you.

Speaker Change: And if he would like to ask a question that is star one one again, if you would like to ask a question that is star one one.

Speaker Change: And one moment for our next question.

Speaker Change: And our next question comes from Tony Orange from S&P Global market Intelligence. Your line is now open.

Operator: Your line is now open.

Tony Orange: Tony if your line's on mute could you please on mute it.

Tony Orange: One moment for our next question.

Tony Orange: And we had a follow up question.

Tony Orange: One moment please.

Tony Orange: And a follow up question is from Rob Wildcat from Autonomous Research. Your line is now open.

Robert Henry Wildhack: Hey, maybe just one more on the buyback in the quarter, which was pretty punchy. I mean, I think you said before the preferred use of capital is to originate loans and then to share repurchase. So just wondering if there's anything to read into around the elevated buyback in the quarter and the origination growth you're expecting going forward. Um, you know, not really. I, you know, will say.

Robert Henry Wildhack: Hey, maybe just one more on the buyback in the quarter, which was pretty.

Robert Henry Wildhack: Punchy I mean, I think you said before the preferred use of capital is to originate loans and then share repurchase. So just wondering if theres anything to read into around the elevated buyback in the quarter and the.

Robert Henry Wildhack: Origination growth youre expecting going forward.

Kenneth S. Booth: You know, not really. I will say that, you know, we raised a fair amount of new capital in the last part of 2023. We did a $500 million securitization during the first quarter. So, you know, we are growing, but we've raised a significant amount of capital. So we felt good about deploying some of that capital in the form of IVAC.

Robert Henry Wildhack:

Speaker Change: Not really.

Robert Henry Wildhack: We'll say that we raised.

Robert Henry Wildhack: Fair amount of new capital.

Robert Henry Wildhack: In the.

Robert Henry Wildhack: The last part of 2023.

Robert Henry Wildhack: We did a 500 million our securitization during the first quarter.

Robert Henry Wildhack: No.

Robert Henry Wildhack: We are growing but we've raised a significant amount of capital so.

Robert Henry Wildhack: We felt good about deploying some of that capital.

Robert Henry Wildhack: The form of buybacks.

Speaker Change: Okay. Thanks.

Speaker Change: Thank you.

Speaker Change: Yeah.

Operator: And one moment for our next question. And our next question comes from Tony Orange from S&P Global Market Intelligence. Your line is now open. Tony, if you... One moment, please, for our next question. One moment. And our next question comes from Ryan Shelley from Bank of America.

Speaker Change: And one moment our next question.

Speaker Change: And our next question comes from Tony <unk> from S&P Global market Intelligence. Your line is now open.

Speaker Change: Tony.

Speaker Change: Okay.

Tony Orange: One moment please for our next question.

Tony Orange: Just one moment.

Tony Orange: Okay.

Tony Orange: And our next question comes from Ryan Cieslak from Bank of America.

Ryan Shelley: Hi guys, thanks for the question. Just one here on the forecasted collection percentage for the 2022 vintage. I noticed that it's down 5.4%.

Ryan Cieslak: Hi, guys. Thanks for the question just one here on the.

Ryan Cieslak: For our forecasted collection percentage for the 2022 vintage.

Ryan Cieslak: Im curious thats down 4% do you guys have any color there is there anything with that specific vantage.

Kenneth S. Booth: Do you guys have any color there? Is there anything with that specific vintage that you could point to? That would be great, thank you. Yeah, I mean, I think the first thing I'd point out is...

Ryan Cieslak: And that you could point to that would be great. Thank you.

Kenneth S. Booth: Yeah, I mean, the first thing I'd point out is, based on our understanding, that's a... Subprime Auto Finance Industry Phenomenon, so there's nothing unique about our experience there. I think there are a variety of contributing factors there. Those loans originated in a very competitive period, which tends to hurt loan performance for those consumers who financed vehicles at pretty close to peak valuations. Vehicle prices have subsequently come down, and then, of course, there's the impact of inflation on the subprime consumer.

Speaker Change: Yes, I think the first thing I'd point out is based on our understanding thats up.

Speaker Change: Subprime auto finance industry phenomena, so nothing unique about our experience there.

Speaker Change: I think there are a variety of contributing factors. There are those loans were originated the very competitive period, which tends to hurt well performance.

Speaker Change: Although those consumer finance vehicles that pretty close to peak valuations.

Speaker Change: Vehicle prices have subsequently come down and then of course, there is the impact of inflation on the subprime consumer.

Kenneth S. Booth: Inflation is lower than it was a couple of years ago, but the cumulative effect means that, you know, things cost a lot more today than they did a few years ago. So I think it's probably the combination of those factors.

Speaker Change: Inflation is lower than it was a couple of years ago was the cumulative effect.

Ryan Shelley: Got it. Thank you very much.

Speaker Change: But.

Speaker Change: <unk> cost a lot more to date, we've made a few years back. So I think it's probably the combination of those factors.

Speaker Change: Got it thank you very much.

Operator: and Thank you. With no further questions in the queue, I would like to turn the conference back over to Mr. Martin for any additional or closing remarks.

Speaker Change: And thank you.

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

Jay D. Martin: We would like to thank everyone for their support and for joining us on our conference call. If you have any additional follow-up questions, please direct them to our Investor Relations Mailbox at ir at creditacceptance.com. We look forward to talking to you again next quarter. Thank you.

Jay D. Martin: Okay.

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

Martin: If you have any additional follow up questions. Please direct them to our Investor relations mailbox at <unk>.

Martin: IR at credit acceptance Dot com.

Jay D. Martin: We look forward to talking to you again next quarter. Thank you.

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

Speaker Change: Once again this does conclude today's conference we thank you for your participation.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].