Q2 2025 Credit Acceptance Corp Earnings Call
Okay.
Good day, everyone and welcome to the credit acceptance Corporation second quarter 2025 earnings call.
Today's call is being recorded a webcast and transcript of today's earnings call will be made available on credit acceptance website. At this time I would like to turn the call over to credit acceptance Chief Financial Officer, Jay Martin. Please go ahead.
Jay Martin: Thank you. Good afternoon and welcome to the Credit Acceptance Corporation's second quarter 2025 earnings call. As you read our news release posted on the investor relations section of our website at ir.creditacceptance.com, and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of federal securities law. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in the cautionary statement regarding forward-looking information included in the news release. Consider all forward-looking statements in light of those and other risks and uncertainties.
Thank you good afternoon, and welcome to the credit acceptance Corporation second quarter 2025 earnings call.
As you read our news release posted on the Investor Relations section of our website at IR credit acceptance dotcom.
And as you listen to this conference call. Please recognize that both contain forward looking statements within the meaning of federal Securities law.
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.
All forward looking statements in light of those and other risks and uncertainties.
Jay 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. At this time, I will turn the call to Chief Executive Officer Ken Booth to discuss our second quarter results.
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.
At this time I will turn the call Chief Executive Officer, Ken Booth to discuss our second quarter results.
Ken Booth: Thanks, Jay. Our results for this quarter reflect a steady execution with declines in loan performance and year-over-year origination volumes balanced by continued portfolio growth. Loan performance declined this quarter with our 2022, 2023, and 2024 vintages underperforming our expectations and our 2025 vintage exceeding our expectations, while our other vintages were stable during the quarter. Overall, forecasted net cash flows declined by 0.5% or $56 million. During the quarter, we experienced a decline in unit and dollar volumes, though our loan portfolio still reached a new record high of $9.1 billion on an adjusted basis, up 6% from last Q2. Our market share in our core segment of used vehicles financed by subprime consumers was 5.4% for the first five months of the year, down from 6.6% for the same period in 2024.
Thanks, J R results for this quarter reflect the steady execution with declines in loan performance and year over year origination volumes balanced by continued portfolio growth.
Loan performance decline this quarter with our 2022, 2023, and 2024 advantages underperforming our expectations 2025 beds, it's exceeding our expectations.
Our other benches were stable during the quarter overall forecasted net cash flows declined by <unk>, 5% or $56 million.
During the quarter, we experienced a decline in unit and dollar volumes of our loan portfolio. So reached a new record high of $9 1 billion on an adjusted basis up 6% from last Q2.
Our market share in our core segment of used vehicles financed by subprime consumers of five 4% for the first five months of the year down from six 6% for the same period in 2024.
Ken Booth: Our unit volume was impacted by our Q3 2024 scorecard change that resulted in lower advance rates and likely impacted by increased competition. Beyond these two key drivers, we continued making progress during the quarter towards our mission of maximizing intrinsic value and positively changing the lives of our five key constituents: dealers, consumers, team members, investors, and the communities we operate in. We do this by providing a valuable product that enables dealers to sell vehicles to consumers regardless of their credit history. This allows dealers to make incremental sales. For the 55% of adults with other than prime credit, for these adults, it enables them to obtain a vehicle to get to their jobs, take their kids to school, etc. It also gives them the opportunity to improve or build their credit. Our customers are people like Sugar from Oklahoma.
Our unit volume was impacted by our Q3 2024 scorecard change that resulted in lower advance rates and.
And likely impacted by increased competition.
Beyond these two key drivers, we continued making progress during the quarter towards our mission of maximizing intrinsic value and possibly changing the lives of our constituents dealers consumers team members investors and the community communities we operate in.
We do this by providing a valuable product that enables dealers to sell vehicles to consumers regardless of their credit history. This allows dealers to make incremental sales to.
55% of adults with other than prime credit for these adults and enables them to obtain a vehicle to get to their jobs take their kids to school et cetera.
Also gives them the opportunity to improve our build their credit.
Our customers are people like sugar from Oklahoma.
Ken Booth: Sugar's life took a dramatic turn when the former credit counselor was arrested for driving under the influence in 2014. Overwhelmed with shame and having lost her license, she realized she needed to make a profound change. She sought help from Women's First Step, a treatment facility, and after graduating from the program eight months later, she began rebuilding her life. She regained her license, started a stable career, and achieved a powerful symbol of victory when she was approved by us for a car loan. This journey of recovery came full circle when Sugar was hired to work for the treatment facility that had helped her, dedicating herself to her new mission of helping others find their own second chance. During the quarter, we financed over 85,000 contracts for our dealers and consumers.
His wife took a dramatic term winter the former credit counter was arrested for driving under the influence in 2014 overwhelm Ashame, having lost their license you realize you need to make.
Unchanged.
She sought help from women's first step a treatment facility and after graduating from the program eight months later she began rebuilding her life shrink Gander license service stable career received a powerful symbol victory, which was approved by us for Carlo <unk>.
This journey recovery came full circle with sugar was hired to work for the treatment facility that it helped their dedicated herself to her new mission of helping others find their own second chance.
During the quarter, we financed over 85000 contracts for dealers and consumers.
Ken Booth: We collected $1.4 billion overall and paid $63 million in dealer holdback and accelerated dealer holdback to our dealers. We enrolled 1,560 new dealers and had 10,655 active dealers during the quarter. We continued to invest in our engineering team, which is focused on modernizing both our key technology architecture and how our teams perform work. The engineering team has made significant strides in modernizing our loan origination system. This modernization has laid a strong foundation for us to deploy innovative, frictionless dealer experiences. It has increased the velocity at which we release features from a matter of months to a matter of days, allowing us to accelerate value to our business and customers.
One 4 billion overall and paid $63 million at your hold back and accelerated you'll hold back to our dealers.
We enrolled 1560, new dealers and had 10655 active dealers during the quarter.
We continue to invest in our engineering team, which is focused on modernizing both are key technology architecture, and how our team performed work.
Engineering team has made significant strides modernizing our loan origination system. This moderation. This modernization has laid a strong foundation for us to deploy innovative frictionless dealer experiences is increase the velocity, which we release features from a matter of months, it's a matter of days, allowing us to accelerate value to our business and customers.
Ken Booth: During the quarter, we received two awards for our amazing workplace, including being named one of the 100 best companies to work for by Great Place to Work and Fortune Magazine, with 93% of team members agreeing that Credit Acceptance is a great place to work. This year marked our 11th time in the last 12 years receiving this prestigious award, moving up five spots in the number 34 ranking. We support our team members in making a difference to what makes a difference to them, raising over $270,000 for St. Jude's Research Hospital and Make-A-Wish Foundation. Through these donations, we were able to fund wishes for 15 children, bringing our total to 95 wishes granted. Now, Jay Martin and I will take your questions along with Doug Buss, our Chief Treasury Officer, and Jay Brinkley, our Senior Vice President and Treasurer.
During the quarter, we received two awards for our amazing workplace, including being named one of the 100 best companies to work for by Great place to work in Fortune magazine.
But 93% of team members that brand acceptance as a great place to work. This year marked our 11th time in the last 12 years, receiving this prestigious award.
Up five spots to number 34 ranking.
To support our team members are making a difference to our makes a difference to them raising over 270000% Jude's research hospital and make a wish foundation.
Through these donations we aired the final wishes for 15 children, bringing our total to 95 wishes granted.
R J Martin and I will take your questions along with Doug <unk>, Our Chief Treasury Officer, and Jay <unk>, Our senior Vice President and Treasurer.
Operator: Thank you. If you have a question, please press star one-one on your telephone. You will then hear an automated message advising your hand is raised. If you would like to remove yourself from the queue, press star one-one again. We also ask that you wait for your name and company to be announced before proceeding with your question. One moment for the first question. The first question will come from the line of Marsh Arendoch of TD Carwin. Your line is open.
Thank you if you have a question. Please press star one one of your telephone you will then hear an automated message advising your hand as rates. If you would like to remove yourself from the queue Press Star. One again, we also ask that you wait for your name and company to be announce before proceeding with your question one moment for the first questions.
The first question will come from the line of Marsh R&R of TD Cowen Your line is open.
John Rowan: Great. Thanks. I noticed that, you know, obviously, the collections were down again this quarter, but the adjusted yield higher. That's happened, I think, at least once before, but maybe if you could just talk about what drives that. Usually, the adjusted yield will kind of follow that, the lower collections.
Great. Thanks.
I noticed that obviously the collections were down again this quarter, but the adjusted yield higher that's happened I think at least once before but maybe if you could just talk about what drives that usually.
The adjusted yield will kind of follow that.
The lower collections.
Jay Martin: Sure. So the decline in forecasted collections, the change in the amount and timing there, all things being equal, would drive the adjusted yield down. But the ultimate yield that we recognize is also dependent on the volume and pricing of new loan originations. So that's what you've seen the last few quarters. The yields of the new loans that we've originated more than offset the decline in the yield due to loan performance.
Sure so the decline in forecasted collections.
Change in the amount of time and Theyre, all things being equal would drive the adjusted deal opt out.
But the ultimate yields that we recognize is also dependent on the volume of pricing of new loan originations. So thats, what youll see in the last few quarters the yields of the new loans that we've originated more than offset the decline.
And the yields due to loan performance.
John Rowan: Right. Although, interestingly, I mean, the collection shortfall is kind of greater than the last two quarters. So even though you said that the '25 vintage is outperforming, I mean, you know, the underperformance in the backbook has been greater than it's been in the past. And, you know, I mean, even if you kind of X out the change that you made, it's still bigger than each of the either of the last two quarters. So, I mean, you know, in the discussions we've had before, I guess there had been, you know, an idea that you were burning through those vintages and they should be, I guess, you know, hurting you less, but that's not what happened. Is there any way to kind of, you know, talk about why that is?
Right.
Interestingly I mean, the collection shortfalls kind of greater than the last two quarters. So even though you said that the 25 vintages outperforming.
The underperformance in the in the back book has been greater than it's been in the past.
I mean, even if you kind of ex out the change that you made is still bigger than each of that either of the last two quarters.
So.
And the discussions we've had before I guess there had been an idea that you were burning through those vintages and they should be I guess hurting your less but.
It's not what happened any is there any way to kind of.
Chuck about why that is.
Jay Martin: Yeah. I would say that our forecasting models generally perform well during a relatively stable economic period, but are less accurate during periods of volatility like we've experienced in recent years. We do think the continued impact of inflation is contributing to the loan underperformance we've seen there. You may recall the second quarter last year, we put in an adjustment to address that underperformance. It's worked fairly well for most vintages, but for our 2024 loans, we have seen some more underperformance there than what that adjustment would have anticipated. And it's specifically related to the loans that we originated in '24 before our scorecard changed during the third quarter. So that's the bulk of the decrease you saw for the quarter was on that segment of loans.
Yes, I would say that our forecasting models generally perform well during a relatively stable economic period, but are less accurate during periods of volatility like we've experienced in recent years.
We do think the continued impact of inflation has contributed to the loan under performance. We've seen there you may recall second quarter of last year, we put in an adjustment.
The address of their performance.
It's worked fairly well for most vintages, but for our 2024 loans, we have seen some more underperformance there than what that adjustment would have.
Anticipated and Thats, specifically related to the loans that we originated 24 before our scorecard changes during the third quarter. So thats. The bulk of the decrease you saw for the quarter was on that segment allowance.
Jay Martin: The good news for the loans that we originated, since we put that scorecard change in during the third quarter last year, those loans are performing as expected. We haven't seen any signs of underperformance on those loans.
The good news for the loans that we've originated et cetera, we put that scorecard changed during the third quarter last year.
Is it performing as expected we haven't seen any any size of other performance on those loans.
John Rowan: Right. And then just a couple of other, two other trends that caught my attention. I guess the first is that the loan size continues to decline over the last couple of quarters. Is it a different type of car that you're financing, or is there something else kind of that's going on there? And then a follow-up to that.
Right and then just a couple of other two other trends that.
Caught my attention I guess, the first is that the the loan size continues to decline over the last couple of quarters.
Is there a different type of car that you're financing or is there something else that's going on there.
And then a follow up to that.
Jay Martin: Yeah. I think we've just had a different mix of consumers that's come in in recent years, and that's contributing to the size of the consumer loans. It's just a different mix of business.
Yes, I think we've just.
Just had a different mix of consumer that's come in in recent years and that's contributing to the size of the consumer loans or just a different mix of business.
John Rowan: Different meaning? Higher quality, lower quality? Because, you know, back in '23, I guess you were talking about a higher quality kind of borrower. Is this a lower quality borrower that you're seeing?
Different meaning.
Got it.
Higher quality lower quality.
Back in 'twenty, three I guess, you were talking about a higher quality kind of borrower.
Is this a lower quality borrowers that you are seeing.
Doug Busk: I don't think it's a lower quality borrower. I think there's a slightly different mix of vehicles that are being financed. You know, again, there's been, you know, a fair amount of variability in the mix of vehicles, you know, since the start of the pandemic. So I think it's just normal volatility there.
I don't think it is a lower quality borrower I think there's a slightly different mix of vehicles that are being financed.
Got it.
A fair amount of variability in the <unk>.
Mix of vehicles.
Since the start of the pandemic.
Just normal volatility there.
John Rowan: Right. And I guess the last thing for me is that, you know, you're assuming you've got a forecasted collection percentage that's over 65% for 2025 and actually higher than that for the second quarter. So it's been rising even as you've kind of had these nine quarters in a row of, you know, kind of having to pull your estimates back down. I mean, is that, I guess it's hard for me on the outside. Obviously, we don't see the, you know, the detail in that, but, you know, it's hard to hard to understand that, I guess, from the outside.
Right and I guess the last thing for me is that.
Youre, assuming kind of forecasted collection percentage.
Over 65% for 2025.
It's actually higher than that for the second quarter.
So it's been rising.
Even as you've kind of had these nine quarters in a row.
Kind of having to pull your estimates back down I mean does that.
Yes, it's hard it's hard for me on the outside obviously, we don't see that the detail in that but it's hard to hard to understand that I guess from the outside.
Jay Martin: Yeah. When you look at the initial forecasted collection rate there, to your point, they're very similar, but again, to the point of having a different mix of businesses driving that. So over the last few years, we've lowered our initial expectations. So all things being equal, the loans were originated in '24 and '25. Had we originated those back in '22, we would have had a higher expected collection rate on those. So different mix of business, but we have, as we always have, we can continue to adjust our expectations on the new loans to address that underperformance, and that's reflected in those initial estimates.
Yes, when you look at the initial forecasted collection rate. There you are quite they are very similar but again to the point of having a different mix of business is driving that so over over the last.
Few years, we've lowered our additional expectations. So all things being equal the loans were originated in 'twenty four 'twenty five had we originated those back in 'twenty. Two we would have had a higher expected collection rate out now so different mix of business, but we have as we always have way we can continue to adjust our expect.
Patients on the new loans to address the underperformance of that.
As reflected in those initial estimates.
John Rowan: Okay. Thanks.
Got it okay. Thanks.
Operator: Thank you. One moment for the next question. And the next question will be coming from the line of John Rowan of Janey Montgomery. Your line is open.
Thank you and I'll make sure the next question.
And the next question will be coming from the line of John Rowan.
<unk> Your line is open.
John Rowan: Good afternoon, guys. I guess I just want to understand, you know, the return profile, right? So, you know, your release says that you've got an 8.5% return on capital, adjusted return on capital, but the cost of capital is 7.4%, which leaves like a 110 basis point spread. You know, as you look back at some of these vintages that you've written down, are some actually generating a negative economic return? And where is that, you know, watermark?
Good afternoon guys.
I guess I just want to understand.
Okay.
Return profile right. So.
The release said that you've got at eight 5% return on capital adjusted return on capital, but the cost of capital of seven 4%, which leaves like a 110 basis point spread.
As you look back at some of these vintages that you've written down or some actually generating a negative economic return and where is that.
John Rowan: And I'm just trying to understand, you know, whether or not, you know, there is a point in time when, you know, you, I don't know, I would say get more realistic, but start putting loans on the books at a number that's more achievable and whether or not you're really generating economic profit on the loans that you're putting on today, you know, assuming that, you know, there's going to be a reduction in forecasted collections. I know it's a loaded question, but you spent a lot of money on share repurchases in the quarter, and I'm trying to, you know, assess whether or not you're diverting capital to repurchasing shares because, you know, in reality, when you look back at these older vintages, if '24 and '25 trend that way, they're going to be generating negative economic profit.
Watermark and I'm, just trying to understand whether or not there is a point in time when you know.
I don't know I don't seem to get more realistic, but start putting loans on the books at a number that's more achievable and whether or not youre really generating economic profit on the loans that you're putting on today assuming that.
Theres going to be a reduction in forecasted collections I know, it's a loaded question, but you spend a lot of money on share repurchases in the quarter and im trying to.
We assess whether or not youre diverting capital to repurchasing shares because.
Reality when you look back at these older vintages of $24 25 trend that way theyre going to be generating negative economic profit.
Jay Martin: Yeah. So our business model is designed to produce an acceptable return even if our loans underperform. And to your point, if you look at the '22 vintage, that vintage has underperformed the most of any year that we've presented in that collection rate table. And I'll say those loans in aggregate are still producing a return on capital in excess of our cost of capital, assuming that those collection expectations are accurate. So there would be at some point, if they continue to decline, where that return would fall below our weighted average cost of capital. But based on our current estimates, those are still producing economic profit. They're still profitable loans.
Sure.
Yes, so our business model is designed to produce an acceptable return, even if our loans underperform.
And to your point of view, if you look at the 22 vintage.
That vintages underperformed the most of any year that we presented in that collection rate table I will say those loans in aggregate theres still producing a return on capital.
As of our call.
Cost of capital assuming that those collection expectations.
Our accurate so there would be at some point if they continue to decline.
That return with fall below our weighted average cost of capital, but based on our current estimates those are still producing economic profit is so profitable books.
John Rowan: Okay. And can you tell me how much money you spent on repurchases in the quarter and what the plans are for repurchases going forward? Because it seems like you spent quite a bit of money in the second quarter.
Okay.
Can you tell me how much money you spent on repurchases in the quarter and what the plans are for repurchases going forward because it seems like you've spent quite a bit of money.
In the second quarter.
Jay Brinkley: Yeah. This is Jay Brinkley. We were very active in the quarter. We bought back 530,000 shares at roughly an average price of $490. You know, as always, we look at ensuring that we've got adequate capital to fund new originations and then look at the share price as well. We haven't changed our view there. You know, volume is down, as Ken mentioned, due to our pricing change and our, you know, to some degree, the competitive environment. So year-over-year growth being slower, if you look back over a long period when originations are down, we tend to be pretty active. And that was certainly the case this quarter.
Yes.
This is Jay Brinkley, we were we were very active in the quarter, we bought back 530000 shares.
And average price of $490.
As always we look at ensuring that we've got adequate capital to fund new originations.
And then.
Look at the share price as well.
Haven't changed our view there.
Volume is down is that Ken mentioned.
Due to our pricing change and our.
To some degree the competitive environment, so year over year growth.
Being slower if you look back over a long period.
Originations are down we tend to be pretty active.
That was certainly the case this quarter.
John Rowan: And what's remaining on any current authorization and, you know, where the plan is going forward? That's it for me. Thank you.
And what's remaining on any current authorization.
And going forward that's it for me. Thank you.
Jay Brinkley: Sure. Yeah. We've got, under the latest authorization, we've got 391,000 shares left. I imagine based on that, we'll be reviewing that and going back to the board for additional capacity should the buying opportunity arise.
Sure Yeah, we've got under the the latest authorization we've got.
391000 shares left.
Imagine based on that will be.
Reviewing that and going back to the board for additional capacity should the buying opportunity arise.
John Rowan: All right. Thank you.
Alright, thank you.
Operator: Thank you. As a reminder, if you would like to ask a question, please press star one-one on your telephone. One moment for the next question. And the next question will be coming from the line of Kyle Joseph of Stephens. Your line is open.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone.
One moment for the next questions.
And the next question will be coming from the line of Kyle Joseph of Stephens. Your line is open.
Kyle Joseph: Hey, good afternoon. Thanks for taking my questions. I just wanted to talk about the competitive environment. I think in your prepared remarks, you mentioned that competition either heated up or remains intense. You know, just given the macro outlook and, you know, expectations with tariffs for used car prices to continue to increase and, you know, the industry kind of reeling from the 2022 vintage, I mean, is your expectation that you'd see a little bit of a pullback from traditional providers of credit, or, you know, did you actually see them kind of get more aggressive kind of post-Liberation Day? Just kind of want to get your sense for the pulse of the competitive environment. You know.
Hey, good afternoon, thanks for taking my questions.
Just wanted to talk about the competitive environment I think in your compared remarks, you mentioned that.
Competition, either heated up remains intense.
And just given the macro outlook and our expectations with tariffs for used car prices continue to increase.
The industry kind of reeling from the.
The 2022 vintage.
Is your expectation that you'd see some a little bit of a pullback from traditional providers of credit or did you actually see them kind of get more aggressive.
Kind of post Liberation day, just kind of wanted to get your sense for the pulse on the competitive environment.
Jay Brinkley: The competitive environment is always hard to kind of forecast how it's going to be going forward. Obviously, like our volume per dealer went down, so it does seem like the environment is more competitive in the first half of this year. You know, tariffs and things that drive up costs for our consumers tend to be a negative for us, both, you know, whether it's related to vehicles or just other things that they spend money on. But it's really too early to tell what the impact will be on our business. I do think from a volume standpoint, you know, we had a pretty tough comparable. You know, last year was our highest volume year ever. So when we compare it year-over-year, it's a tough comparable. We made our scorecard change last year in the middle of the third quarter.
The competitive environment is always hard to to kind of forecast how it is going to be going forward, obviously like our volume per dealer went down.
Does seem like the environment is more competitive.
In the first half of this year.
Tariffs and things that drive up drive up cost for our consumers tend to be a negative for us.
Whether it's related to vehicles or just other things that they spend money on but it's really too early to tell what the impact will be on our business.
I do think from a volume standpoint, we had a pretty tough comparable last year was our highest volume youre ever so when I compare it year over year. It was a tough comparable.
We made our scorecard change last year in the middle of the third quarter.
Jay Brinkley: Once we kind of get past that, we'll have an easier comparable. You know, so I think that those would be some things that might be a positive going forward.
Once we kind of get past that we'll have an easier comparable.
I think that.
Those would be some things that might be a positive going forward.
Kyle Joseph: Oh, no. That's a good call. Good reminder on the tough comps. Thanks for taking my questions.
Oh, no that's asking kind of a good reminder, on tough comps thanks for taking my questions.
Operator: 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. Go ahead, please.
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 go ahead. Please.
Jay Martin: 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.
We'd like to thank everyone for their support 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 at credit acceptance Dot Com, 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. You may disconnect.
Once again this does conclude today's conference. We thank you for your participation you may disconnect.
Okay.
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