Credit Acceptance Q4 2024 Earnings Report

Credit Acceptance EPS Results

• Actual EPS: $10.17
• Consensus EPS: $7.70
• Beat/Miss: Beat by +$2.47
• One Year Ago EPS: N/A

Credit Acceptance Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $564.70 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Credit Acceptance Announcement Details

• Quarter: Q4 2024
• Date: 1/30/2025
• Time: After Market Closes
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 5:00PM ET

Credit Acceptance (NASDAQ:CACC) (NASDAQ:CACC) is a specialty finance company focused on providing auto loans to consumers with limited credit histories or past credit challenges. Through a nationwide network of independent franchised and non-franchised automotive dealers, the company offers a proprietary credit program that enables dealers to sell vehicles to subprime borrowers. Credit Acceptance purchases retail installment sale contracts from dealers and assumes the credit risk, while providing a predictable stream of principal and interest payments.

Founded in 1972 by Donald T. Foss and headquartered in Southfield, Michigan, Credit Acceptance has grown into one of the largest subprime auto finance companies in the United States. The firm’s loan origination, underwriting and servicing operations are supported by a centralized technology platform, which collects borrower data, manages risk-based pricing and automates contract funding. Over its history, Credit Acceptance has refined its credit scoring model to improve predictive accuracy and portfolio performance.

Credit Acceptance serves customers in all 50 states through more than 3,000 participating auto dealers. In addition to contract purchase, the company offers dealer support services such as marketing assistance, compliance training and customer service tools. By aligning dealer incentives with consumer repayment performance, Credit Acceptance aims to foster long-term partnerships with dealers and borrowers alike. The company’s management team brings extensive expertise in consumer finance, risk management and automotive retail operations.

Credit Acceptance Q4 2024 Earnings Call Transcript

Key Takeaways

• Record portfolio growth: Adjusted loan portfolio reached a new high of $8.9 billion—up 15% year-over-year—and market share in the subprime used‐vehicle segment rose to 6.1% from 4.8%.
• Growth slowed significantly in Q4, with a 0.3% ($31 million) decline in forecasted net cash flows and lower advance rates due to the Q3 scorecard change.
• 2022 vintage underperformance: The 2022 cohort continues to fall below collection forecasts, though 2023 and 2024 vintages remained stable for the quarter.
• Operational highlights include financing 78,911 contracts, collecting $1.3 billion, paying $65 million in portfolio profit, and adding 902 dealers to reach 10,149 active dealers.
• The company is investing in product innovation and technology modernization and earned 13 workplace awards in 2024—the most ever in a single year.

Presentation

[Operator]

Good day, everyone, and welcome to the Credit Acceptance Corporation 4th 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 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, Chief Financial Officer at Credit Acceptance]

Thank you. Good afternoon and welcome to the Credit Acceptance Corporation 4th quarter 2024 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.

[Jay Martin, Chief Financial Officer at Credit Acceptance]

These risks and uncertainties include those spelled out in the cautionary statement regarding forward looking information included in the news release. Consider all forward looking statements in light of those and other risks and uncertainties. Additionally, I should mention that to comply with the SEC's Regulation G, please 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 over to our Chief Executive Officer, Ken Boothe to discuss our Q4 results.

[Ken Booth, Chief Executive Officer at Credit Acceptance]

Thanks, Jay. Overall, we had another mixed quarter as it related to collections and originations, 2 key drivers of our business. Collections improved sequentially this quarter with only our 2022 vintage continuing to underperform our expectations, while our other vintages were stable during the quarter. Overall, a small decline of 0.3% or $31,000,000 in forecasted net cash flows. During the quarter, our growth slowed significantly.

[Ken Booth, Chief Executive Officer at Credit Acceptance]

However, this was still our 2nd highest Q4 unit and dollar volume ever. Our loan portfolio is now at a new record high of $8,900,000,000 on an adjusted basis, up 15% from last year. Our market share in our core segment of used vehicles financed by subprime consumers was 6.1% year to date through November, compared to 4.8% for the same period in 2023. Our slower growth was likely impacted by our Q3 scorecard change that has resulted in lower advance rates. 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 5 key constituents dealers, consumers, team members, investors and the communities we operate in.

[Ken Booth, Chief Executive Officer at Credit Acceptance]

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 the roughly 55 percent of adults with other than prime credit. For these adults, it enables them to obtain a vehicle to get their jobs, take their kids to school, etcetera. It also gives them the opportunity to improve or build their credit. Our customers are couples like Marita and Steven, who experienced financial challenges after they moved from the Midwest to the South for a fresh start.

[Ken Booth, Chief Executive Officer at Credit Acceptance]

Their financial challenges took a toll on their credit and their transportation. Steven's car broke down during his long commute to work. They tried to finance a new vehicle, but dealerships turned them away due to their credit. They had to rent cars at high costs, so Steven could get to work. Discouraged but not defeated, they found a dealership who approved them for a vehicle through Credit Acceptance.

[Ken Booth, Chief Executive Officer at Credit Acceptance]

It was a moment of relief and a turning point in their lives with a reliable vehicle to regain stability, improve their credit and self support along the way. For Marita and Steven, Credit Acceptance is more than a lender. We are a jump start in their new life journey. As Marita and Steven discovered, the benefits of our program don't end once the contract is signed. We strive to support our consumers throughout the life of the contract.

[Ken Booth, Chief Executive Officer at Credit Acceptance]

As we have for many years, we are working with consumers impacted by hurricanes and more recently the wildfires, including suspending some of our collection efforts to allow those customers to prioritize their safety and most urgent needs. During the quarter, we financed 78,911 contracts for our dealers and consumers. We collected $1,300,000,000 overall and paid $65,000,000,000 in portfolio profit and portfolio profit expressed for our dealers. We added 902 new dealers for the quarter and now have our largest number of active dealers ever for our Q4 with 10,149 dealers. From an initiative perspective, we've made progress towards improving product innovation and our go to market approach with the goal of supporting our dealers faster and more effectively than ever before.

[Ken Booth, Chief Executive Officer at Credit Acceptance]

This requires teamwork, attention to detail and an interim process that attempts to make improvement every step of the way. We also continue to invest in our technology team. We remain focused on modernizing both our key technology architecture and how our teams perform work to support this goal. During the quarter, we received 5 awards from Newsweek, Monster, Fortune, the Detroit Free Press and Computer World recognizing us as a great place to work. We continue to focus on making our amazing workplace even better.

[Ken Booth, Chief Executive Officer at Credit Acceptance]

This makes 13 workplace awards for 2024, which is the most we've ever received. We support our team members in making a difference to what makes a difference to them. During Q4, we raised money and collected food for Stone Soup Food Bank and our team members also came together over the holiday season to pack 106,000 meals for local food banks. Now, Jay Martin and I will take your questions along with Doug Buss, our Chief Treasury Officer Jay Brinkley, our Senior Vice President and Treasurer and Jeff Suttar, our Vice President and Assistant Treasurer.

[Operator]

Thank you. Our first question for today will be coming from the line of Moshe Orenbuch of TD Cowen. Your line is open.

[Moshe Orenbuch, Managing Director at TD Cowen]

Great, thanks. Team, I'm hoping that you could expand just a little bit on the comments about the slowing growth and how much of that you think is a result of the changes that you made and is any of it a result of changes in the environment, competition? Maybe just flesh that out for us, if you would.

[Ken Booth, Chief Executive Officer at Credit Acceptance]

Yes. Good question. It's hard to tell exactly. Obviously, our volume per dealer declined about 3.7% versus Q4 of 2023. And that's a good indicator of maybe the competitive environment.

[Ken Booth, Chief Executive Officer at Credit Acceptance]

But we also have the complication this time where we have changed our scorecard. So it's hard to attribute to which of the 2, but I will say that Q4 of 2024 was our 2nd highest in used dollar prime ever. So we do feel good about where we're at.

[Moshe Orenbuch, Managing Director at TD Cowen]

Got you. And one of the things I always use as a guide to think about the adjusted yield is how you've performed kind of in the previous period. And usually there's a pretty good correlation and you did have like roughly I think $60,000,000 reduction in collections last quarter and yet the adjusted yield went up. Anything that we should kind of be aware of? Like what drives that adjusted yield up in a period when collections levels are down?

[Jay Martin, Chief Financial Officer at Credit Acceptance]

Yes. So all things being equal, that decline last quarter, you would think would have a negative impact on the floating yield, the adjusted revenue as a percentage of average capital going forward. But what impacts the ultimate yield is the business we write in the subsequent period in our overall composition of the portfolio. So the yield that we recognize on the business we wrote in the 4th quarter increased our overall yield. So that more than offset the decline in forecasted collections we saw in the Q3.

[Moshe Orenbuch, Managing Director at TD Cowen]

Okay. Thank you.

[Operator]

Thank you. One moment for the next question. And our next question will be coming from the line of John Rowan of Janney Montgomery and Scott. Please go ahead.

[John Rowan, Managing Director at Janney Montgomery Scott]

Good afternoon, guys. When did you make the change to the scorecards?

[Ken Booth, Chief Executive Officer at Credit Acceptance]

The scorecard change was made during Q3. It when it first goes in, it takes a little while to take them back. So it probably wasn't having full effect until sometime in September.

[John Rowan, Managing Director at Janney Montgomery Scott]

Okay. I don't remember discussing that on the last quarter conference call. Was that something that I guess came in after, I don't know, was that something you disclosed at the time of the call last quarter?

[Ken Booth, Chief Executive Officer at Credit Acceptance]

I don't know if we did or not. I would thought we did, but I don't know. It probably didn't have much impact on Q3.

[John Rowan, Managing Director at Janney Montgomery Scott]

Okay.

[Jay Martin, Chief Financial Officer at Credit Acceptance]

I mean, we John, we've talked about that we always adjust our forecast both with the credit scorecard and our ongoing forecast to reflect recent trends in loan performance. Whether we specifically discussed this change or not, I don't recall. But it's a common practice.

[John Rowan, Managing Director at Janney Montgomery Scott]

Okay. Well, I mean, obviously, unit volume was down was flat relatively year over year. It looks like subsequent to the quarter end, you're down about 4%, or no, 3% relative to the prior quarter. And obviously, dollar volumes off more than that because of the increase in the advance rate, I mean, or the decrease in the advance rate. I guess I'm just trying to hone in on whether or not you're this is a reaction to kind of the chronic underperformance of the vintages over the last several years and whether you're, I don't know, kind of rightsizing your buy box in light of the current environment, which has been challenging to get the forecasting models correct.

[John Rowan, Managing Director at Janney Montgomery Scott]

I'm just trying to, I guess, understand if those are related that you basically go out and you cut the advance rate and you let a bunch of volume trade off?

[Ken Booth, Chief Executive Officer at Credit Acceptance]

Yes. I mean, I think we adjusted the scorecard to reflect trends that we've seen in the forecast. So that's part of it. I think there's also a chance that the competitive environment is a little more difficult than it was before too. And then we're coming off our highest year ever, so we got harder comparables.

[John Rowan, Managing Director at Janney Montgomery Scott]

Okay. And then just last question for me. Obviously, there was a relatively large sequential decline in G and A expense. Is that just because of the weaker volume growth? Or is that there's just something more time in that item?

[Jay Martin, Chief Financial Officer at Credit Acceptance]

Yes. So the decline in G and A expense is primarily related to legal expense. We do see a fair amount of volatility in legal expense quarter to quarter just based on where ongoing regulatory matters and legal matters are. We don't comment on those matters specifically. We don't go into any more detail than what we included in our file and our filings that decline is primarily related to legal expenses.

[John Rowan, Managing Director at Janney Montgomery Scott]

Okay. All right. Thank you.

[Operator]

Thank you. And our next question will be coming from the line of Rob Wildhack of Autonomous Research. Your line is open.

[Robert Wildhack, Equity Research Analyst - Director at Autonomous Research]

Hi, guys. A couple of quarters in a row where the revisions to forecasted collections, they're still negative, but they're smaller negative. Absent any changes in the broader economy and things like that, does that is that a signal that you think the worst is behind you in terms of downward revisions to the forecast?

[Jay Martin, Chief Financial Officer at Credit Acceptance]

Well, our forecast at any point in time reflects our best estimate. So we do factor in other performance we've seen in the past. With point out for the quarter, we did see a smaller decline this quarter than we have in more recent quarters. Like what you said, it was down $31,000,000 or 0.3%. If you start digging into it by cohort, you'll see that most of the decline was on the 2022 business.

[Jay Martin, Chief Financial Officer at Credit Acceptance]

Hard to say why that continues to keep declining, but we do know our forecasting models performed best during relatively stable economic periods and are less accurate during periods of volatility like we experienced in the pandemic with this cohort. We also know others in our industry have experienced similar or worse performance on the 22 cohort. So we don't believe the trend is unique to credit acceptance. But I would point out at this point, the 2022 business is less material to our financial results. We originated a lower volume that year and we've collected about 66% of what we ultimately expect to collect.

[Jay Martin, Chief Financial Officer at Credit Acceptance]

Going forward, our financial results are going to be more heavily weighted on the 23 24 cohorts. We wrote more businesses those years and they're less seasoned and we were happy to report this quarter that our forecast was stable on those 2 cohorts.

[Robert Wildhack, Equity Research Analyst - Director at Autonomous Research]

Okay. And you've also been pretty active in capital markets, raised a lot of new capital in the past several quarters. I mean, when you did that, did you have a specific level of origination growth in mind? I guess I'm wondering if origination growth is going to be a lot slower for a while given the scorecard changes or competitive dynamics. What's the possibility that you're in a really meaningful excess capital position today?

[Jay Brinkley, Senior Vice President & Treasurer at Credit Acceptance]

Well, hey, Rob, this is Jay Brinkley. We know that tax time is always our busy season, right? And so we'd rather miss it on that side of it. So we I think we stated on last quarter's call that we were going to be fairly conservative going into the unknowns related to the election and what impact that might have on the capital markets. So you know, with a solid cash position, but that's this is the right time of year to be in that position and we feel good about that going into our busy time when originations really pick up.

[Robert Wildhack, Equity Research Analyst - Director at Autonomous Research]

Okay. Thank you.

[Operator]

Thank you. There are no more questions in the queue. And I would like to go ahead and turn the call back over to Mr. Martin for closing remarks. Please go ahead.

[Jay Martin, Chief Financial Officer at Credit Acceptance]

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 ircreditacceptance.com. We look forward to talking to you again next quarter. Thank you.

[Operator]

Once again, this does conclude today's conference. Thank you for your participation. You may all disconnect.

Participants

Executives

• Jay Martin, Chief Financial Officer
• Ken Booth, Chief Executive Officer
• Jay Brinkley, Senior Vice President & Treasurer

Analysts

• Moshe Orenbuch, Managing Director at TD Cowen
• John Rowan, Managing Director at Janney Montgomery Scott
• Robert Wildhack, Equity Research Analyst - Director at Autonomous Research