Credit Acceptance Q1 2025 Earnings Report

Credit Acceptance EPS Results

• Actual EPS: $9.35
• Consensus EPS: $10.31
• Beat/Miss: Missed by -$0.96
• One Year Ago EPS: $9.28

Credit Acceptance Revenue Results

• Actual Revenue: $571.10 million
• Expected Revenue: $570.25 million
• Beat/Miss: Beat by +$852.00 thousand
• YoY Revenue Growth: +12.40%

Credit Acceptance Announcement Details

• Quarter: Q1 2025
• Date: 4/30/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, April 30, 2025
• Conference Call Time: 5:00PM ET

Credit Acceptance (NASDAQ:CACC) engages in the provision of financing programs, and related products and services in the United States. The company advances money to automobile dealers in exchange for the right to service the underlying consumer loans; and buys the consumer loans from the dealers and keeps the amount collected from the consumers. It is also involved in the business of reinsuring coverage under vehicle service contracts sold to consumers by dealers on vehicles financed by the company. The company serves independent and franchised automobile dealers. Credit Acceptance Corporation was incorporated in 1972 and is headquartered in Southfield, Michigan.

Credit Acceptance Q1 2025 Earnings Call Transcript

Key Takeaways

• Mixed Q1 performance as collections improved sequentially but forecasted net cash flows dipped 0.2% ($21 M), marking the smallest decline in eight quarters, while the adjusted loan portfolio hit a record-high $9.1 B despite a drop in unit volume and core market share sliding to 5.2% from 6%.
• The quarter included a $76.3 M GAAP provision for forecast changes, reflecting both a lower present value of future cash flows and a slight slowing in cash flow timing.
• Originations remained strong with over 100,000 contracts financed, $1.4 B collected, $68 M paid in dealer holdback, and active dealers reaching 10,789, though unit volume was pressured by Q3 2024 scorecard changes that lowered advance rates.
• Management is accelerating investments in go-to-market processes and modernizing its technology architecture to support dealers more efficiently, while maintaining a leading workplace culture—recognized as a top workplace USA for the fifth consecutive year—and funding employee-selected charitable initiatives.

Presentation

[Operator]

Good day, everyone, and welcome to the Credit Acceptance Corporation First Quarter twenty twenty five Earnings call will be made available on Credit Acceptance's website. At this time, I would now like to turn the call over to Credit Acceptance's Chief Financial Officer, Jay Martin.

[Jay Martin, Chief Financial Officer at Credit Acceptance]

Thank you. Good afternoon, and welcome to the Credit Acceptance Corporation First Quarter twenty twenty five 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.

[Jay Martin, Chief Financial Officer at Credit Acceptance]

Consider all forward looking statements in light of those and other risks and uncertainties. Additionally, I should say 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 Booth, to discuss our first quarter results.

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

Thanks, Jay. Overall, we had another mixed quarter as it related to collections and originations, two key drivers of our business. Collections improved sequentially this quarter with only our 2022, '20 '20 '4 and 2025 vintages modestly underperforming our expectations, while our other vintages were stable during the quarter. Overall forecasted net cash flows declined by 0.2% or $21,000,000 which was our smallest decline of the last eight quarters. During the quarter, our loan portfolio reached a new record high of $9,100,000,000 on an adjusted basis, up 10% from Q1 last year, although we experienced a decline in unit dollar volume growth.

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

Our market share in our core segment of used vehicles financed by subprime consumers was 5.2% for the first two months of the year compared to 6% for the same period in 2024. Our unit volume was likely impacted by our Q3 twenty twenty four scorecard change that has resulted in lower advance rates and 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 to roughly 55% of adults with other than prime credit.

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

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 Vivien from Maryland. Vivien is an elementary school assistant, a role that requires her to consistently and timely show up for children with disabilities and special needs. After her vehicle was towed in an accident, she was left with out of reliable transportation.

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

She needed a new vehicle, but worried about her ability to secure financing due to her poor credit history. Her fears were confirmed when she was turned down for financing multiple times. Discouraged, but not defeated, she found a dealership who approved her to finance a vehicle through Credit Acceptance. Vivian described the moment she was approved for financing as a turning point in her life, with a reliable vehicle to regain her independence. Vivian plans to use credit acceptance again when it comes time to finance another vehicle, knowing she would be supported by a team that listens and puts her at ease.

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

During the quarter, we financed over 100,000 contracts for our dealers and consumers. We collected $1,400,000,000 overall and paid $68,000,000 in dealer holdback and accelerated dealer holdback to our dealers. We enrolled sixteen seventeen dealers and now have our second highest quarterly number of active dealers with 10,789 dealers. From an initiative perspective, we've made progress with our go to market approach with the goal of supporting our dealers faster more effectively than ever before. This requires teamwork, attention to detail, and an interim process that attempts to make improvement every step of the way.

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

We also continue to invest in the technology team. We remain focused on modernizing both our key technology architecture and how our teams work to support this goal. During the quarter, we were named the top workplace USA award winner for

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

the fifth year in a

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

row with the number two ranking among companies of our size. Last year, were recognized with a record 13 workplace awards, and we continue to focus on making our amazing workplace even better. We support our team members in making a difference to what makes a difference to them, raising money for five different charitable organizations that were selected by our team members. Now, Jay Martin and I will take your questions, along with Doug Foss, our Chief Treasury Officer Jay Brinkley, our Senior Vice President and Treasurer and Jeff Sutar, our Vice President and Assistant Treasurer.

[Operator]

Thank you. As a reminder, to ask a question, please press 11 on your telephone Our first question comes from Moshe Orenbuch with TD Cowen. You may proceed.

[Moshe Orenbuch, Managing Director & Senior Analyst at TD Cowen]

Great, thanks. I was sort of hoping that we could talk a little bit about these forecast changes. As you mentioned, this was the smallest one in a while and yet you still had a $76,000,000 portion of your GAAP provision related to it. And unlike last quarter when you had a larger forecast change, you had an increase in the adjusted yield and this quarter it went down. So maybe could you talk about how we should be thinking about those two items both in this quarter and going forward?

[Jay Martin, Chief Financial Officer at Credit Acceptance]

Sure. First, I'll talk about

[Jay Martin, Chief Financial Officer at Credit Acceptance]

your provision question, the $76,000,000 provision for forecast changes. So what that is, is the impact of of us decreasing the present value of future cash flows, and that has two components. There's the changes on discounted cash flows, which is the $21,000,000 decrease that you referenced and then there's also the slower cash flow timing on our total forecast net cash flows which is approximately $2,000,000,000 It doesn't take much of a slowing on the twelve day of the cash flows to increase that provision. So that's what drove the provision for forecast changes for the quarter. Now on your point on the adjusted yield, there's a couple of things going on there.

[Jay Martin, Chief Financial Officer at Credit Acceptance]

So if you look at page 10 of our earnings release, you'll notice we added a new metric there, which is adjusted finance charges as a percentage of our adjusted loans receivable. And what you'll see there is similar to last quarter, we did see an increase in the yield from the prior quarter and that's due to the yield on the current quarter origination, the expected yields on those new originations more than offsetting the decline due to the underperformance of the loans on the entire portfolio. So we did see the adjusted yield increase slightly from Q4. What you're seeing as adjusted revenue as a percentage of adjusted capital, that did decrease from 18.4% last quarter to 18% this quarter. What was driving that a decrease there where adjusted yield went off was due to the $500,000,000 of cash cash equivalents we have on our balance sheet, higher than what we normally have just due to the timing of some recent debt issuances coupled with slower loan growth.

[Jay Martin, Chief Financial Officer at Credit Acceptance]

So we don't expect to have cash and cash equivalents at that level, but that drove our adjusted capital growing faster than adjusted loans.

[Moshe Orenbuch, Managing Director & Senior Analyst at TD Cowen]

Got it. And just to clarify on the GAAP provision, you I guess that means the cash flows were slowing somewhat in addition to that $21,000,000 less in just nominal amounts, right?

[Jay Martin, Chief Financial Officer at Credit Acceptance]

That's correct. It continues to grow prepayments coming lower than historical levels or

[Jay Martin, Chief Financial Officer at Credit Acceptance]

at least

[Jay Martin, Chief Financial Officer at Credit Acceptance]

lower than what our forecast is expecting. We continue to see a slight decline in the timing or slowing the timing.

[Moshe Orenbuch, Managing Director & Senior Analyst at TD Cowen]

Yeah. And in the opening comments, you talked a little bit about the volume. I noticed that you also had a slightly higher percentage both purchased loans as opposed to portfolio loans. I mean, I guess that would sorta, I mean, I guess I'm not sure exactly what to make of that. Maybe you could kinda expand on that a little bit.

[Moshe Orenbuch, Managing Director & Senior Analyst at TD Cowen]

But I mean, it feels like, again, maybe at the dealer, more competition at the dealer. Is that what that would reflect?

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

I think it's pretty comparable. I think it's a modest change. You know, it was less than two percentage points difference. I I would say it's just a little more randomness

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

or mix alone, but I don't necessarily think it means

[Moshe Orenbuch, Managing Director & Senior Analyst at TD Cowen]

Gotcha.

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

Due to competition or anything necessarily.

[Moshe Orenbuch, Managing Director & Senior Analyst at TD Cowen]

Okay. Alright. Thanks very much.

[Operator]

Thank you. Our next question comes from Robert Wildhack with Autonomous Research. You may proceed.

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

In the past, you've talked a decent amount about how forecasting models can be less accurate in periods of volatility. And I think we could all agree that the broader environment today looks to be a volatile one. So I guess, should we expect more volatility around forecasted collections going forward? Or how are you thinking about the accuracy of forecasts moving through 'twenty five given all the volatility in the broader market today?

[Jay Martin, Chief Financial Officer at Credit Acceptance]

Yeah, so our current forecast right now represents our best estimate of how our loans are going to perform. So predicting global performance is difficult and can't predict the future any better than anyone else. So we feel like we have a pretty good track record.

[Jay Martin, Chief Financial Officer at Credit Acceptance]

But there are a few things that could make it more

[Jay Martin, Chief Financial Officer at Credit Acceptance]

challenging going forward. First would be the impact of inflation. It's declined some recently, but things still cost a

[Jay Martin, Chief Financial Officer at Credit Acceptance]

lot more than it did

[Jay Martin, Chief Financial Officer at Credit Acceptance]

three years ago, and then we don't know what the impact that tariffs could have on inflation, so that's likely to increase inflation. And we also know that vehicle prices could decline, that does seem like it's minimized by the impact of

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

Okay. And then kind of on a similar point, the 2022 vintage and performance there was marked by a period of elevated inflation, whether it's the 24, 20 five or even 26 inches, those are likely to be fined by tariffs and maybe a recession. Is the source of the volatility a big deal or is all volatility the same? Like is inflation different, inflation induced volatility different from a tariff related volatility?

[Jay Martin, Chief Financial Officer at Credit Acceptance]

Well, it's tough to say exactly. It all has an impact depends on the extent of the impact of inflation. Things like vehicle prices have less of an impact on our forecasted collection rates, so we just really don't know at this point, again what we have out there is our best estimates, I hope we know today. We also know the 'twenty two loans. Beyond just inflation, there are some other factors on why those have underperformed.

[Jay Martin, Chief Financial Officer at Credit Acceptance]

You know, it's a couple of those would be that the loans were originated in a very competitive period. It's generally just first loan performance, consumers purchase vehicle at peak valuations, vehicle prices subsequently declined, and then as you mentioned inflation. So we also know, we saw in the 'twenty two lows, not unusual compared to what we see others.

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

Okay.

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

Just to jump in there too,

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

you know, that's the reason we can't predict when the volatility is going to come or what's going to be more volatile, and that's why we price our loans with a big margin of safety so that they'll most likely still produce a good result regardless of those economic factors.

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

Got it. And then just quick, you touched on the cash and hear you that, this quarter was impacted by the recent debt issuance. But more broadly, like you used to run with a single digit million cash number and it's been up in the hundreds for the last three quarters. So why the longer term increase there?

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

Well, mean, this is Jay Brinkley. Similar to what we said last quarter, we took a fairly conservative stance going into q4 with the unknowns related to the election and what impact it would have on the capital markets. Really, we saw no reason to change that stance. There's a lot up in the air, obviously, We were pretty active during the quarter as you saw. We refi ed our 26 notes and upsized those by 100,000,000.

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

We also closed the securitization at the end of the quarter. I think in terms of timing, we feel pretty good about getting in and out of the market what we did. Things have gotten fairly volatile out there and feels feels good to be in the cash position that we are right now rather than having to issue it to a volatile capital market environment.

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

Okay. Thank you.

[Operator]

Thank you.

[Operator]

Our next question comes from John Rowan with Janney. You may proceed.

[John Rowan, Managing Director at Janney Montgomery Scott]

Good afternoon. Just curious, why did you guys decide to accelerate dealer holdback?

[Douglas Busk, Chief Treasury Officer at Credit Acceptance]

You know, this is Doug. I can handle this. You know, what we're trying to do with dealer holdback in general is incentivize dealer behavior primarily at the time of origination because they get part of their compensation is dealer holdback that is based over time on the performance of the loan. So you know, the problem you have with that is you're trying to incentivize dealer behavior today with additional profitability that will occur thirty, thirty six, forty two months from the point of origination. So we accelerated dealer holdback, and we've been doing this for many, many years to try to create a better linkage between dealer behavior at origination in that collection related profit or dealer holdback.

[John Rowan, Managing Director at Janney Montgomery Scott]

Okay. I guess just one accounting question. There's a pretty big jump in salaries and wages. Is that a good run rate going forward?

[Jay Martin, Chief Financial Officer at Credit Acceptance]

It depends. Are you are you comparing salaries and wages to q four of last year or q one of last year?

[John Rowan, Managing Director at Janney Montgomery Scott]

I'm just looking at the 88,600,000 reported.

[Jay Martin, Chief Financial Officer at Credit Acceptance]

Yeah. I would say there's some seasonal improvement. There's some seasonal events in q one that tends to have operating expenses higher, has to do with our our payroll taxes, volume that's seasonally higher loan unifying seasonally higher in Q1, which impacts sales commissions. We also have some higher fringe benefits in Q1. If look at Q1 versus last year, you will see we gained some operating leverage as this decline in the size of average capital.

[John Rowan, Managing Director at Janney Montgomery Scott]

Okay. And then you mentioned something earlier. I just want to make sure I heard it correctly. You said you had a 5.2% market share versus 6% last year, what time frame was that? And you gave, you talked about something about Advantage score, just can you kind of repeat what you said, so I have it.

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

Yeah, the 5.2% was for the first two months of the year, because we don't have data for March yet, and then the 6% for 2024 was also the same period. So and what was the second part of your question again?

[John Rowan, Managing Director at Janney Montgomery Scott]

And you mentioned something about advantage scores being the reason for that. Can you just go over that again?

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

I think maybe I didn't speak clearly or maybe you heard it wrong, but what I said was our unit volume was likely impacted by our Q3 twenty twenty four scorecard change that resulted in lower advance rates and also increased competition.

[John Rowan, Managing Director at Janney Montgomery Scott]

Okay. All right. Thank you very much.

[Operator]

Thank you. Our next question comes from Jordan Hemmelitz with Philadelphia Financial. You may proceed.

[Jordan Hymowitz, Portfolio Manager at Philadelphia Financial]

Thanks, guys. A couple of questions. One is the CFPB recently dropped its lawsuit against you guys. Can you give a sense of how much of legal fees were spent in the first quarter on that case that won't be repeated?

[Jay Martin, Chief Financial Officer at Credit Acceptance]

No, we don't comment on legal costs unless they're material to our financials. So we won't comment on that beyond what we've disclosed in our filings. What I would do though is just reiterate what we put in a release last week that we're pleased with the TFPB's decision to withdraw from the case as it should limit the scope to New York consumers only. As we've outlined in our motion to dismiss, this lawsuit seeks to create new law and litigation with certain legal theories in place with established statutes. But we won't count in legal reserves or legal expenses.

[Jordan Hymowitz, Portfolio Manager at Philadelphia Financial]

Whatever would be that would be coming down. My next question is, you came closer and closer to not providing or writing down older pools, and you spent $76,300,000 in the quarter. If I just tax effect that number, it's about 5 and a half dollars. So would I think about your earnings power being closer to, like, 13 and a half, 14 dollars today if there were no changes for write backs to older pools?

[Jay Martin, Chief Financial Officer at Credit Acceptance]

We think the best way to look

[Jay Martin, Chief Financial Officer at Credit Acceptance]

at our financial results is looking at our adjusted financial results. So I would use that as your proxy.

[Jordan Hymowitz, Portfolio Manager at Philadelphia Financial]

Okay. And were there any other one time things that you're not going to break out the legal fees? Like you've been spending a lot on IT and other things that may come down going forward?

[Kenneth Booth, CEO, President & Director at Credit Acceptance]

I mean, we have had elevated levels of investment in the business in recent years. You know, lot of these have been foundational, trying to get things like sufficient talent density, changing org design, modernizing our tech stack.

[Jay Martin, Chief Financial Officer at Credit Acceptance]

Yeah I

[Jay Martin, Chief Financial Officer at Credit Acceptance]

think maybe at some point they would come down,

[Jay Martin, Chief Financial Officer at Credit Acceptance]

but once we kind of modernize our tech stack we're then looking at making a lot of changes and trying to improve our products. So I don't foresee in the relatively near future the elevated levels coming down, although I will say we hope to start to see more of a

[Jay Martin, Chief Financial Officer at Credit Acceptance]

return on them once we get past the foundational stage.

[Jordan Hymowitz, Portfolio Manager at Philadelphia Financial]

Okay, thank you.

[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.

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

[Operator]

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

Participants

Executives

• Jay Martin, Chief Financial Officer
• Kenneth Booth, CEO, President & Director
• Jay Brinkley, Senior Vice President & Treasurer
• Douglas Busk, Chief Treasury Officer

Analysts

• Moshe Orenbuch, Managing Director & Senior Analyst at TD Cowen
• Robert Wildhack, Equity Research Analyst - Director at Autonomous Research
• John Rowan, Managing Director at Janney Montgomery Scott
• Jordan Hymowitz, Portfolio Manager at Philadelphia Financial