Q2 2024 Credit Acceptance Corp Earnings Call

Good day, everyone, and welcome to the Credit Acceptance Corporation's 2nd Quarter 2024 earnings call. Today's call is being recorded. A webcast and transcript of today's earnings call will be made available on the Credit Acceptance website. At this time, I'd like to turn the call over to Credit Acceptance Chief Financial Officer Jay Martin.

Operator: Call. Today's call is being recorded.

Operator: Today's call is being recorded. A webcast and transcript of today's earnings call will be made available on the Credit Acceptance website. At this time, I'd like to turn the call over to Credit Acceptance Chief Financial Officer Jay Martin. Thank you.

Operator: A webcast and transcript of today's earning call will be made available on Credit Acceptance website.

Jay Martin: At this time, I'd like to turn the call over to Credit Center's Chief Financial Officer, Jay Martin.

Jay Martin: Thank you.

Jay D. Martin: you. Good afternoon and thank you. 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.

Jay Martin: Good afternoon and welcome to the Credit Acceptance Corporation, second quarter, 2024 earnings call. As you read our news release posted on the Investor Relations section of our website at ir.creditacceptance.com. As you listen to this conference call, please recognize that both contain forward-looking statements that are meeting the 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.

Jay D. Martin: Thank you.

Speaker Change: Good afternoon and welcome to the Credit Acceptance Corporation second quarter 2024 earnings call.

Speaker Change: 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.

Speaker Change: 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.

Jay D. Martin: These risks and uncertainties include those spelled out in the cautionary statement regarding forward-looking information. (inaudible) 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 refer to the financial results section of our news release, 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, to discuss our second quarter results.

Speaker Change: These risks and uncertainties include those spelled out in the cautionary statement regarding forward-looking information included in the news release.

Jay Martin: Consider all forward-looking statements in light of those and other risks and uncertainties.

Speaker Change: consider all forward-looking statements in light of those and other risks and uncertainties.

Jay Martin: Additionally, I should mention that they comply with the SEC's Regulation G.

Jay Martin: Please refer to the financial results section of our news release, which provides tables showing how non-GAF majors reconcile the GAF majors.

Speaker Change: 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.

Ken Booth: At this time, I'll turn the call over to our Chief Executive Officer, Ken Booth, to discuss our second quarter results.

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

Ken Booth: Thanks, Jay. We're in a mixed quarter as it related to collections and originations, two key drivers of our business. Our 2022 vintage continued under performer expectations, and our 2023 vintage began to slip as well.

Kenneth S. Booth: We had a mixed quarter as it related to collections and originations, two key drivers of our business. Our 2022 vintage continued to underperform our expectations, and our 2023 vintage began to slip the scale. We made an additional $147 million adjustment to forecasted net cash flows on top of our normal loan forecast model, but just for loans originated in 2022, 2023, and the first half of 2024. We believe the ultimate collection rate will be based upon trending data over the last several years.

Kenneth S. Booth: Thanks Jay. We have a mixed quarter as it related to collections and originations, two key drivers of our business.

Speaker Change: Our 2022 vintage continued to underperform our expectations, and our 2023 vintage began to slip as well.

Ken Booth: We made an additional $147 million adjustment to forecasted net cash flows on top of our normal loan forecast model, but just our loans originated in 2022, 2023, and in the first half of 2024, when we believe the ultimate collection rate will be based upon trending data over the last several years. Historically, our model has been very good at predicting loan performance and aggregate, but our model's worked best during less volatile times. The pandemic and the triple effects create volatile conditions, heterostimulus and handsome employment benefits, and supply chain disruptions, led to vehicle shortages and inflation, etc., all of which impacted competitive conditions.

Speaker Change: We made an additional $147 million adjustment to forecasted net cash flows on top of our normal loan forecast model, but just our loans originated

Speaker Change: In 2022, 2023, and the first half of 2024, what we believe the ultimate collection rate will be based upon trending data over the last several years.

Kenneth S. Booth: Historically, our model has been very good at predicting low performance in aggregate. Our models work best during less volatile times. The pandemic and its ripple effects created volatile conditions, federal stimulus, enhanced unemployment benefits, and supply chain disruptions, leading to vehicle shortages, inflation, etc., all of which impacted competitive conditions. We have had larger-than-average forecast misses, both high and low, during this volatile period.

Speaker Change: Historically our model has been very good at predicting loan performance in aggregate, but our model has worked best during less volatile times.

Speaker Change: The pandemic and its ripple effects created volatile conditions, federal stimulus, enhanced unemployment benefits, and supply chain disruptions led to vehicle shortages, inflation, etc., all of which impacted competitive conditions.

Ken Booth: We have had larger than average forecast misses, both high and low, during this volatile period, but because we understand forecasting collection rates is challenging, our business model is designed to produce acceptable returns, even if loan performance is less than forecasted. Even with our reduction in forecasted collection of this quarter, we believe we will continue to produce substantial economic profit for share in the future. As I explained in the past, we are less reactive to changes in competitive and economic cycles than others in the industry because we take a long view on the industry. We've priced a maximum economic profit over the long term, and we seek the best position. The company of access to capital will become limited.

Speaker Change: We have had larger-than-average forecast misses, both high and low, during this volatile period. But because we understand forecasting collection rates is challenging, our business model is designed to produce acceptable returns even if loan performance is less than forecasted.

Kenneth S. Booth: But because we understand forecasting collection rates is challenging, our business model is designed to produce acceptable returns, even if loan performance is less than forecast, even with our reduction of forecasted collections this quarter. We believe we will continue to produce substantial economic profit per share in the future, as I've explained in the past. We are less reactive to changes in competitive and economic cycles than others in the industry because we take a long view of the industry.

Speaker Change: Even with our reduction of forecasted collections this quarter, we believe we will continue to produce substantial economic profit per share in the future.

Speaker Change: As I've explained in the past, we are less reactive to changes in competitive and economic cycles than others in the industry because we take a long view on the industry, we price to maximize economic profit over the long term, and we seek the best position in the company if access to capital becomes limited.

Kenneth S. Booth: We price to maximize economic profit over the long term, and we seek the best position in the company if access to capital becomes limited. Ultimately, we are happy we had the discipline to maintain underwriting standards during the easy money times of 2021 and especially 2022, while our market share was lower during those years. We believe it has put us in a better position to take advantage of more favorable market conditions today.

Ken Booth: Ultimately, we are happy we have the difficult to maintain underwriting standards during easy money times of 2021 and especially 2022. As well, our market share was lower during those years. We believe it has put us in a better position to take advantage of our favorable market conditions.

Speaker Change: Ultimately, we are happy we have the discipline to maintain underwriting standards during the easy money times of 2021 and especially 2022. As while our market share was lower during those years, we believe it has put us in a better position to take advantage of more favorable market conditions today.

Ken Booth: During the quarter, we experienced strong growth and had our highest Q2 unit and dollar volume ever, growing our loan unit and dollar volume by 20.9% and 16.3%, respectively. Our loan portfolio is now at new record highs at $8.6 billion on a drop of basis. Our market share and our core segment continues to increase, being 6.6% as of May 31st, 2024. On these two key drivers, we continue making progress during the quarter towards our mission and creating intrinsic value, and positively changing the lives of our five-deaf constituents. Dealers, consumers, team members, investors, and the communities we operate in.

Kenneth S. Booth: During the quarter, we experienced strong growth and had our highest Q2 unit and dollar volume ever, growing our loan unit and dollar volume by 20.9% and 16.3%, respectively. Our loan portfolio is now at new record highs at $8.6 billion on an adjusted basis.

Speaker Change: During the quarter, we experienced strong growth and had our highest Q2 unit and dollar volume ever, growing our loan unit and dollar volume by 20.9% and 16.3% respectively.

Speaker Change: Our loan portfolio is now at new record highs at $8.6 billion on an adjusted basis. Our market share in our core segment continues to increase, being 6.6% as of May 31, 2024.

Kenneth S. Booth: Our market share in our core segment continues to increase, being 6.6% as of May 31st, 2024. And on these two key drivers, we continue making progress during the quarter towards our mission of creating 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 to consumers, regardless of their credit history, enabling dealers to make incremental sales with roughly 55% of adults with other than prime credit. For these adults, it enables them to obtain a truck vehicle, to get to their jobs, take their kids to school, etc. It also gives them the opportunity to improve or build their credit.

Speaker Change: And on these two key drivers, we continue making progress during the quarter towards our mission of creating intrinsic value and positively changing the lives of our FIKE constituents, dealers, consumers, team members, investors, and the communities we operate

Ken Booth: We do this by providing a valuable product that enables dealers to sell to the consumers regardless of their credit history. Dealers make incremental sales with roughly 55% of adults with other than prime credit. For these adults, it enables them to obtain a truck vehicle to get to their jobs, take their kids to school, et cetera, but also gives them the opportunity to improve or build their credit. During the quarter, we originated 100,000 and 57 contracts for our dealers and consumers. We collected $1.3 billion overall and paid $84 million in portfolio profits to our dealers. We ended 1,080 new dealers to the quarter, and now have our largest number of active dealers ever for a second quarter with 10,736 active dealers.

Speaker Change: We do this by providing a valuable product that enables dealers to sell to consumers regardless of their credit history. Dealers make incremental sales with roughly 55% of adults with other than prime credit.

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

Kenneth S. Booth: During the quarter, we originated 100,057 contracts for our viewers and consumers. We collected $1.3 billion overall and paid $84 million in portfolio profit from Portfolio Profit Express to our dealers. We added 1,080 new dealers to the quarter and now have our largest number of active dealers ever for a second quarter with 10,736 customers and Active Dealer.

Speaker Change: During the quarter, we originated 100,057 contracts for our dealers and consumers.

Speaker Change: We collected $1.3 billion overall and paid $84 million in portfolio profit through Portfolio Profit Express to our dealers.

Speaker Change: We added 1,080 new dealers to the quarter and now have our largest number of active dealers ever for a second quarter with 10,736 active dealers.

Ken Booth: From an initiative perspective, we continue trying new go-to-market approaches using a test-and-learn approach. We believe some of these have been successful and have contributed to our growth. We also continue investing in our technology team. We have ramped up personnel in our focusing on modernizing how our team perform work, with the goal of increasing the speed in which we enhance our product for our dealers and consumers.

Kenneth S. Booth: From an initiative perspective, we continue trying new go-to-market approaches using a test-and-learn approach. We believe some of these have been successful and have contributed to our growth. We have also continued investing in our technology team. We have ramped up personnel and are focusing on modernizing how our team can perform work with the goal of increasing the speed in which we enhance our product for our viewers and consumers. During the quarter, we received three awards from Fortune, U.S. News, and the Best Practices Institute.

Speaker Change: From an initiative perspective, we continue trying new go-to-market approaches using a test-and-learn approach.

Speaker Change: We believe some of these have been successful and have contributed to our growth. We also continue investing in our technology team. We have ramped up personnel and are focusing on modernizing how our teams perform work with the goal of increasing the speed in which we enhance our product for our viewers and consumers.

Ken Booth: From the quarter, we received free awards from Fortune, U.S. News, and the Best Practice Institute. We recognize this is a great place to work. We continue to focus on making our major workplace even better, which is for our team members and making a difference. We make the difference for them in connection with their efforts.

Kenneth S. Booth: We recognize this is a great place to work. We continue to focus on making our amazing workplace even better, which supports our team members in making a difference in what makes a difference to them in connection with their efforts, which contributed to organizations such as the Make-A-Wish Foundation, St. Jude Children's Research Hospital, the Shades of Pink Foundation, and Varsity Blood Center of Michigan, among others. Now, Doug Busk, our Chief Jeffrey Officer, Jay, and I will take your questions.

Speaker Change: Around the corner, we received three awards from Fortune, U.S. News, and the Best Practices Institute. We recognize this is a great place to work. We continue to focus on making our amazing workplace even better. We support our team members in making a difference that would make a difference to them in connection with their efforts.

Ken Booth: The contributed organizations such as Make-A-Wish Foundation, St. Jude Children's Research Hospital, the Shades of Pink Foundation, and Vercody Blood Center of Michigan, among others.

Douglas W. Busk: the contributed organizations such as Make-A-Wish Foundation, St. Jude Children's Research Hospital, the Shades of Pink Foundation, and Varsity Blood Center of Michigan, among others. Now, Doug Busk, our Chief Charity Officer, Jay, and I will take your questions.

Operator: Now, Doug Busch, our Chief Secretary Officer, Jay, and I will take your questions. Thank you. At this moment, we'll conduct the question-and-answer session. To ask a question, you'll need to press star one, one on the telephone, and wait for your name to be announced. To withdraw your question, please press star one, one again. Please stand by what we compiled, the Q&A roster.

Operator: Thank you. At this moment, we will conduct a question and answer session. To ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from a line from Moshe Orenbuch of TD Cowen. Your line is now open. Great, thanks.

Speaker Change: Thank you. At this moment, we will conduct the question and answer session. To ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.

Moshe Orenbuch: Our first question comes from the line of Moshe, or in bunch of TD Cowan. The line is now open. Great. Thanks.

Speaker Change: Our first question comes from line of Moshe Orenbuch of TD Cowen. Your line is now open.

Moshe Ari Orenbuch: Great, thanks. Is there any way to kind of explain what changes you made in the forecasting methodology? Did you have misses? More on, you know, the likelihood of default, recoveries on the auto afterwards, or any other practice changes that are involved?

Ken Booth: Is there any way to kind of explain what changes you made in the forecasting methodology? Did you have misses more on the likelihood of default recoveries on the auto afterwards or any other practice changes that are involved? Well, the first thing is, as we now believe that the 2022 originations are a season enough for us to enhance our estimates over what we've provided previously. What we've done simplistically is we have assumed that the 23 and 24 original nations are going to exhibit similar trends in terms of variance from the initial forecast of the slope of the collection curve, which you've divided out over time.

Moshe Ari Orenbuch: Great, thanks. Is there any way to kind of explain what changes you made in the forecasting methodology? Did you have misses more on, you know, the likelihood of default, recoveries on the auto afterwards, or any other practice changes that are involved?

Kenneth S. Booth: Well, the first thing is that we now believe that the 2022 originations are seasoned enough for us to enhance our estimate over what we've provided previously. What we've done, simplistically, is we have assumed that the 23 and 24 originations are going to exhibit similar trends in terms of variance from the initial forecast and the slope of the collection curve, which we've plotted out over time. We're assuming that those percentage changes are going to be similar to what we've seen in 2022.

Speaker Change: Thank you. Bye.

Speaker Change: Well, the first thing is we now believe that the 2022 originations are season enough for us to enhance our estimate over what we've provided previously.

Speaker Change: What we've done, simplistically, is we have assumed that the 23 and 24 originations

Speaker Change: are going to exhibit similar trends in terms of variance from the initial forecast and the slope of the collection curve, which you plot out over time. We're assuming that those percentage changes is going to be...

Ken Booth: We're assuming that those percentage changes is going to be similar to what we've seen in 2022. Those trends that we're seeing in 23 and 24 are there, but they're less severe than the 22 loans. And since the close to business are also performing better from an absolute perspective, the adjustment in percentage terms is less significant than the mess we're going to have on the 22. So it was really just assuming that the 23 and 24 original nations will behave similarly on a percentage basis to what we've seen on 22.

Speaker Change: Douglas Booth, Founder & General Partner, Velociraptors.com

Kenneth S. Booth: Those trends that we're seeing in 23 and 24, but they're less severe than the 22 loans. And since those books of business are also performing better from an absolute perspective, the adjustment in percentage terms is less significant than the mess we're going to have on the 22 business. So I was really just assuming that the 23 and 24 originations will behave similarly on a percentage basis to what we've seen with twenty-five percent.

Speaker Change: similar to what we've seen in 2022.

Speaker Change: Those trends that we're seeing in 23 and 24 are there, but they're less severe than the 22 loans.

Speaker Change: And since those folks in business are also performing better from an absolute perspective, the adjustment in percentage terms is less.

Speaker Change: significant than the mess we're going to have on the 22 business. So it was really just assuming that the 23 and 24 originations.

Speaker Change: will behave similarly on a percentage basis to what we've seen on 22.

Ken Booth: So again, one of the things that's unique about the way you guys, you know, kind of report your adjusted earnings is you take, you know, you take that hit in turn into your provision this quarter, but you spread out the impact on future periods. You had a 19.6% yield adjusted revenue yield. Like, can you give us some way of thinking about how much of this is going to flow through and over what period, and how to think about the impact on that 19.6%? Well, I think that just the yield of the loan asset was 17.7% in the quarter.

Douglas W. Busk: Doug, one of the things that's unique about the way you guys, you know, kind of report your adjusted earnings is you take, you know, you take that hit into your provision this quarter, but you spread out the impact on future periods. You had a 19.6% adjusted revenue yield. Can you give us some way of thinking about how much of this is going to flow through and over what period and how to think about the impact on that 19.6%?

Speaker Change: Doug, one of the things that's unique about the way you guys, you know, kind of report your adjusted earnings is you take, you know, you take that hit into your provision this quarter, but you spread out.

Speaker Change: the impact on future periods. You had a 19.6% adjusted revenue yield. Can you give us some way of thinking about how much of this is going to flow through and over what period and how to think about the impact on that 19.6%?

Douglas W. Busk: Well, I think just the yield on the loan asset was 17.7% in the quarter. I think revenue was a percent of... average capital of $19.6.

Speaker Change: Well, I think just the yield on the loan asset was 17.7% in the quarter.

Ken Booth: I think revenue was a percent of average capital with 19.6. So two slightly different things, but they'll behave similarly. You know, all else equal. We have flown performances exactly as expected. We would expect the yield or revenue, if you want to look at it as a percent of average capital, to decline in Q3. The magnitude of the clock decline will obviously be dependent on the yield on newer generations, and obviously whether loan performance is better or worse than expected. But all else equal, you know, we would expect revenue for the yield on the portfolio to decline.

Speaker Change: I think revenue was a percent of average capital at 19.6, so two slightly different things.

Douglas W. Busk: So they are two slightly different things, but they'll behave similarly. You know, all else equals. If loan performance is exactly as expected, we would expect the yield or revenue, if you want to look at it as a percent of average capital, to decline in Q3. The magnitude of the decline will obviously be dependent on the yield on new originations and, obviously, whether loan performance is better or worse than expected. But all else equal, we would expect revenue for the yield on the portfolio to the company.

Speaker Change: If loan performance is exactly as expected, we would expect the yield, or revenue, if you want to look at it as a percent of average capital, to decline in Q3.

Speaker Change: Thank you.

Speaker Change: The magnitude of the decline will obviously be dependent on the yield on new originations and obviously whether oil performance is better or worse than expected.

Speaker Change: But all else equal, you know, we would expect revenue for the yield on the portfolio to decline.

Moshe Ari Orenbuch: The last one for me, and honestly, I'm struggling as to how to phrase this, but given that this is the second of these in basically a year, you know, I guess why is it a good thing that you're originating more loans? Like, in other words, shouldn't you be doing the opposite? Shouldn't you be pulling back and saying, maybe we're doing something wrong here?

Ken Booth: The last one for me, and honestly, I'm struggling as to how to phrase this, but, you know, given that this is the second of these in basically a year. You know, I guess what, why is it a good thing that you're originating more loans? Like in other words, shouldn't you be doing the office? That shouldn't you be pulling back and saying maybe we're doing something wrong here? You know, it's a fair question. As Ken said in his intro, we still believe that these loans are producing returns and excess of our weighted average cost of capital.

Speaker Change: The last one for me, and honestly I'm struggling as to how to phrase this, but you know given that this is the second of these in basically a year.

Speaker Change: I guess, why is it a good thing that you're originating more loans? Like, in other words, shouldn't you be doing the opposite? Shouldn't you be pulling back and saying, maybe we're doing something wrong here?

Douglas W. Busk: It's a fair question. As Ken said in his introduction, we still believe that these loans are producing returns in excess of our weighted average cost of capital. That's generally a high return that you're going to see from others in the industry. So we think it's adding shareholder value to continue to originate, you know, the business that we're originating. And as I said, we feel better about the 23 and 24 loans than we did about the 22 loans, which were obviously very disappointing to us.

Kenneth S. Booth: It's a fair question. As Ken said in his intro, we still believe that diesels are producing returns in excess of our weighted average cost of capital.

Ken Booth: That's generally highly returned the new ground seat from others in the industry. So we think it's adding shareholder value to continue to originate, you know, the business that we're originating. And as I said, we feel better about the 23 and 24 loans when we did about the 22 loans, which were obviously very disappointing. to us.

Kenneth S. Booth: That's generally a high return that you're going to see from others in the industry. So we think it's adding shareholder value to continue to originate.

Speaker Change: You know, the business that we're originating, and as I said, we feel better about the 23 and 24 loans than we did about the 22 loans, which were obviously very disappointing to us.

Ken Booth: Thank you very much. Thank you.

Operator: Thank you one moment for our next question. Our next question comes from the line of John Rowan of J.D. Montgomery Scott. Your line is now open.

Operator: One word for next question.

Speaker Change: Thank you very much.

Speaker Change: Thank you, one moment, for our next question.

John Rowan: Our next question comes from the line of John Rowan of Jay Montgomery Start. Your line is now open. Good afternoon, guys.

Speaker Change: Our next question comes from the line of John Rowan of J.D. Montgomery Scott. Your line is now open. Good afternoon, guys. I guess I'm going to...

John J. Rowan: Good afternoon, guys. I guess I'm going to... I'm going to ask Moshe's question, but a little differently.

Ken Booth: Yes, I'm going to ask a Moshe question, but a little differently. The implied spreads are still pretty high. The initial implied spreads for 2024 are still high, historically speaking. What gives you confidence that those are the right numbers given the magnitude of the reductions that you're putting into prior forecast revisions and I guess trying to figure out there's more risk of continuing to write portfolio down if we're aggressive on some of the assumptions going in that are again still writing to relatively high spreads historically speaking. I mean, we're, you know, as I said, you know, we're basing our current estimate for 23 and 24, you know, based on the absolute performance to date of those managers, and then we're applying a similar degradation in the collection rate over time to what we've seen on 122.

John J. Rowan: The implied spreads are still pretty high. Again, the initial implied spreads for... 2024 are still high, historically speaking. What gives you confidence that those are the right numbers given the magnitude of the reductions that you're putting into, you know, prior forecast revisions? You know, and I guess just trying to figure out if there's more risk of, you know, continuing to write the portfolio down if we're aggressive on some of the assumptions going in that are, again, still writing to relatively high spreads, historically speaking.

John J. Rowan: I'm going to ask Moshe's question, but a little differently.

John J. Rowan: The implied spreads are still pretty high. Again, the initial implied spreads for 2024 are still high, historically speaking. What gives you confidence that those are the right numbers given the magnitude of the reductions that you're putting into prior forecast revisions?

John J. Rowan: You know, and, you know, I guess trying to figure out if there's more risk of, you know, continuing to write portfolio down if we're aggressive on, you know, some of the assumptions going in that are, again, still writing to relatively high spreads, historically speaking.

Douglas W. Busk: I mean, we're, you know, as I said, we're facing our current estimate for 23 and 24, based on the absolute performance to date of those vintages. And then we're applying a similar degradation in the collection rate over time to what we've seen on 22. Now... You know, we're using history as our guide there and, you know, forecasting. Consumer loans, especially in recent years, have been challenging, so we're putting our best number on it, but is there a chance we could be wrong?

Speaker Change: I mean, we're, you know, as I said, you know, we're basing our current estimate for 23 and 24.

Speaker Change: You know, based on the absolute performance to date of those vintages, and then we're applying a similar degradation in the collection rate over time to what we've seen on 22.

Ken Booth: Now, you know, we're using history as our guide there, and, you know, forecasting consumer loans, especially in recent years, has been challenging. So we'll put in our best number on it, but is there a, you know, chance will cut me wrong? There's always a chance.

Speaker Change: You know, we're using history as our guide there and, you know, forecasting.

Speaker Change: Consumer loans, especially in recent years, has been challenging. So, we're putting our best number on it, but is there you know, a chance with there could be wrong? There's always a chance.

Ken Booth: Okay, and then just for modeling purposes, obviously with the gap loss in the quarter, I assume the share count that you reported was the basic share count. Can you give me an idea of what the like real diluted share count would be, or, you know, how many diluted shares you'd have. So, you know, going forward, we get that in the model. Yeah, I think if you look at, in our 10 queue, there's an earnings per share, but no, it'll show you how many shares were an I diluted for the quarter. That is the case; something was a loss.

Douglas W. Busk: Okay, and then just for kind of modeling purposes, obviously with the gap loss in the quarter, I assume the share count that you reported was the basic share count. Can you just give me an idea of what the like real diluted share count would be or how many diluted shares you'd have so going forward, we get that in the model?

Speaker Change: Okay, and then just for kind of modeling purposes obviously with the gap loss in the quarter I assume the share count that you reported

Douglas W. Busk: was the basic share count. Can you just give me an idea of what the real diluted share count would be, or how many diluted shares you'd have so going forward we get that in the model?

Douglas W. Busk: Yeah, I think if you look in our 10-Q, there's an earnings per share footnote that'll show you how many shares were anti-diluted for the quarter. That is the case.

Speaker Change: Yeah, I think if you look in our 10-Q, there's an earnings per share footnote, it'll show you how many shares were anti-diluted for the quarter. That is the case, since it was a loss, we needed to stick with the basic shares.

Ken Booth: We did just stick with the basic shares. Just taking a quick look here to see what was excluded as an I diluted. It looks like it was around for the quarter, 217,000 shares. Okay, that's right. Thank you. Thank you. One moment for next questions.

John J. Rowan: Since it was a loss, we needed to stick with the basic shares. Just taking a quick look here to see what was excluded as anti-dilutive. Looks like it was around, for the quarter, 217,000 shares. Okay, that's all I needed.

Speaker Change: Just taking a quick look here to see what was excluded as anti-dilutive.

Speaker Change: Looks like it was around, for the quarter, 217,000 shares.

John J. Rowan: Okay, that's all I needed to know. Thank you.

Operator: Thank you one moment for our next question. Our next question comes from the line of Rob Wildhack of Aaronis Research. Your line is now open.

Speaker Change: Thank you one moment for our next question.

Rob Wildhack: Our next question comes from line of Rob Wildhack of our audience research. Your line is now open. Hey guys, one more on the 23 vintage. You know, some other lenders have talked about the early part of that year, maybe the first quarter of 2023, loans originated then as driving underperformance for that vintage. Would you echo that, or is the underperformance that you're seeing in 2023 pretty broad base to cross origination throughout the year? No, I would say that that's a fair comment. You know, we've seen a situation where the early 21 loans performed better than the last half of 21.

Robert Henry Wildhack: Hey guys, one more on the 23 vintage, you know, some other lenders have talked about the early part of that year, maybe the first quarter of 2023, and Loans Originated Bend is driving underperformance for that vintage. Would you echo that? Or is the underperformance that you're seeing in 2023 pretty broad based across originations throughout the year? No.

Speaker Change: Hey guys, one more on the 23 vintage, you know some other lenders have talked about the early part of that year, maybe

Kenneth S. Booth: No, I would say that that's a fair comment. You know, we have seen a situation where the early 21 loans performed better than the last half of 21. The first part of 22 was kind of the bottom from a performance perspective, but things got somewhat better at the end... [inaudible] You know, the performance of the second half of 23 loans was better than the first half, for sure. And that trend has continued into 2024. So, my long-winded answer. I would agree with your commentary.

Ken Booth: The first part of 22 was kind of the bottom of the performance perspective. Things got somewhat better at the end of. 22, and you know, got better in the first part of 23, but the underperformance on, you know, the performance of the second half of 23 loans was better than the first half for sure. And that friend has continued in the 2024.

Speaker Change: was kind of the bottom from a performance perspective. Things got somewhat better at the end of...

Speaker Change: 22 and you know got better in the first part of 23 but the underperformance on

Speaker Change: You know, the performance of the second half of 23 loans was better than the first half, for sure. And that trend has continued into 2024. So, long-winded answer. I would agree with your commentary.

Ken Booth: So, one way to answer, I would agree with your commentary.

Ken Booth: Okay, thanks. And then just on the unit growth, I think April was slower than the quarter was an aggregate, which would imply a step up in growth in May and June. Is there anything specific that was driving the acceleration in May and June? And then to ask the question kind of forward looking, you know, July looks pretty strong at plus 28%. Anything to call out there is July benefiting from an easy compare, anything like that? Or do you think you can continue to grow at that pace going forward? I think it's always difficult for you, you know. There's a lot of macro uncertainties that come from the competitive environment, inflation, interest rates, things like that.

Kenneth S. Booth: Okay, thanks. And then, just on the unit growth, I think April was slower than the quarter as a whole, which would imply a step up in growth in May and June. Is there anything specific that was driving the acceleration in May and June? And then to ask the question kind of forward looking, you know, July looks pretty strong at plus 28%. Anything to call out there? Is July benefiting from an easy comparison or anything like that? Or do you think you can continue to grow at that pace going forward?

Speaker Change: Okay, thanks. And then, just on the unit growth, I think April was...

Kenneth S. Booth: I think it's always difficult to predict, you know; there's a lot of natural uncertainties. We have made progress in the competitive environment. Inflation, interest rates, things like that.

Speaker Change: I think it's always difficult to predict. You know, there's a lot of macro uncertainties.

Ken Booth: And you are right that it's, you know, approved, kind of throughout the quarter in July, whether that continues or not. It's really tough to say we will have talked with our comparables going forward. You know, that means that, you know, we have made improvements for our product, and we're hoping that's having a difference as well. And we believe that is a positive impact. So if you look at buying for dealer itself, so that's a good sign for us. And that means our products probably better, and it means our competitive environment better, and hopefully that continues.

Kenneth S. Booth: To me, you are right that it's improved throughout the quarter and into July. Whether that continues or not, it's really tough to say. We will have tougher comparables going forward. And with that being said, we have made progress and improvements to our product. And we're hoping that it's having a difference as well. And we believe that it is having a positive impact. So if you look at Buying for the dealer itself, that's a good sign for us, and that means our product's probably better, and it means our competitive environment's better, and hopefully that continues. I think the other point I would add to what Ken said...

Speaker Change: improvements for our product and we're hoping that's having a difference as well and we believe that is a positive impact so if you look at

Speaker Change: Buying for dealer itself, so that's a good sign for us, and that means our products are probably better, and it means our competitive environment is better, and hopefully that continues.

Ken Booth: I think the other point I would add to what Kim said is it's hard to draw any conclusions from just looking up one month at a time. I mean, if I look at the growth rates for the quarter, April was 17%, May was 26%, June was 20%, and then July is back up running at 27%. So, you know, when you break it down into smaller units, you obviously get more variability. Yep.

Kenneth S. Booth: I think the other point I would add to what Ken said is that it's hard to draw any conclusions from just looking at one month at a time. I mean, if I look at the growth rates for the quarter, April was 17%. May was 26, June was 20, and then July is back up running at 27. So, you know, when you break it down into smaller units, you obviously get more variability. Yep, that'll be okay.

Speaker Change: I think the other point I would add to what Ken said is, it's hard to draw any conclusion from just looking at one month at a time. I mean, if I look at the growth rates for the quarter, April was 17%.

Speaker Change: May was 26, June was 20, and then July is back up running at 27. So, you know, when you break it down into smaller units, you obviously get more variability.

Ken Booth: Okay.

Operator: Thank you. One moment for next question. Again, as a reminder, to ask a question, you'll need to pre-store one on your telephone.

Operator: Thank you. One moment for our next question. Again, as a reminder, to ask a question, you'll need to press star 1-1 on your telephone. Our next question comes from the line of Ryan Shelley of Bank of America. Your line is now open.

Speaker Change: Thank you. One moment for our next question.

Speaker Change: Again, as a reminder, to ask a question, you'll need to press star 11 on your telephone.

Ryan Shelley: Our next question comes from a line of Ryan Shelley of Bake of America.

Ken Booth: Your line is now open. Hey guys, quick question here. So, along with your earnings, you filed amendments to both the Revolving Credit Agreement and one of the warehouse agreements around the definition of consolidated net income. Can you just explain the rationale there and what that definition change is all about? Thanks. Yeah, I mean, as we've said for years in our press releases, we think the best way to evaluate our financial performance is on the basis of level yield accounting based on forecast and cash flows. So, you know, we're looking at the forecast and amount of timing in the cash flows and discounting that back, and that gives you a yield.

Speaker Change: Our next question comes from the line of Ryan Shelley of Bank of America. Your line is now open.

Ryan Shelley: Hey guys, quick question here. So along with your earnings, you filed amendments to both the revolving credit agreement and one of the warehouse agreements around the definition of consolidated net income. Can you just explain the rationale there? And yeah, like what that definition changes all about? Thanks.

Ryan Shelley: Hey guys, quick question here. So along with your earnings, you filed amendments to both the revolving credit agreement and one of the warehouse agreements around the definition of consolidated net income.

Ryan Shelley: Can you just explain the rationale there and what that definition change is all about? Thanks.

Douglas W. Busk: Yeah, I mean, as we've said for years in our press releases, we think the best way to evaluate our financial performance is on the basis of level yield accounting based on forecasted cash. So, you know, we're looking at the forecasted amount and timing of the cash flows and discounting that back, and that gives you a yield. And, you know, we're using that yield for revenue growth. And then, you know, every month you re-forecast the loans, and if your forecast goes up or down, you adjust your forecast accordingly.

Speaker Change: Yeah, I mean, as we've said for years in our press releases, we think the best way to evaluate our financial performance is on the basis of level yield accounting, based on forecasted cash flows.

Ken Booth: And, you know, we're using that yield for revenue recognition. And then if, you know, every month you reforecast the law, and so if your forecast goes off or down, you adjust your forecast respectively. The adjustments that we made to the definitions in those credit facilities basically start with GAAP net income. Oh. back out the provision for credit losses and then applied floating yield adjustment and when you do that you get to level yield revenue recognition based on forecasted cash flows.

Douglas W. Busk: The adjustments that we made to the definitions in...um, those credit facilities basically start with gap net income, back out the provision for credit losses, and then apply the floating yield adjustment, and when you do that, you get a level yield revenue record based on forecasted caps.

Ken Booth: Got it. Thanks. Thanks for the time.

Ryan Shelley: Got it. Thanks. Thanks for the time.

Operator: We know further questions in the queue.

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

Speaker Change: With no further questions in the queue I would like to turn the conference back over to Mr. Moura for additional or closing remarks.

Jay Martin: I would like to turn the conference back over to Mr. Martin for additional or closing remarks. We'd like to thank everyone for their support and for joining us on the conference call today. If you have any additional follow-up questions, please direct them to our investor relations mailbox at IR@CreditAcceptance.com. We look forward to talking to you again next quarter. Thank you.

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

Mr. Moura: We would like to thank everyone for their support and for joining us on the conference call today.

Speaker Change: If you have any additional follow up questions. Please direct them to our Investor Relations mailbox.

Speaker Change: Credit acceptance dotcom.

Mr. Moura: We look forward to talking to you again next quarter. Thank you.

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

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

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

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.