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Earnings call: Credit Acceptance Corp reports Q1 2024 results

EditorAhmed Abdulazez Abdulkadir
Published 05/01/2024, 10:42 PM
© Reuters.

Credit Acceptance (NASDAQ:CACC) Corporation (ticker: CACC), a provider of financing programs to automobile dealers, reported its first-quarter earnings for 2024, indicating a mixed financial performance. The company's adjusted net income saw an 8% decrease to $117 million, while adjusted earnings per share dropped by 4% to $9.28 compared to the same period last year. Despite a decline in forecasted collection rates and net cash flows from the loan portfolio, Credit Acceptance experienced significant growth in unit and dollar volumes, with portfolio size reaching an all-time high. The company also reported an increase in the initial spread in consumer loan assignments and a rise in the average cost of debt due to higher interest rates on recent financings and notes.

Key Takeaways

  • Adjusted net income decreased by 8% to $117 million, and adjusted earnings per share fell by 4% to $9.28.
  • Forecasted collection rates and net cash flows from the loan portfolio saw a decrease.
  • Unit and dollar volumes grew by 24.1% and 20.2%, respectively.
  • The average balance of the loan portfolio increased by 12% to 15% on a GAAP and adjusted basis.
  • Initial spread in consumer loan assignments rose to 22% from 21%.
  • Average cost of debt increased from 5% to 7% due to higher interest rates on financings and notes.
  • A decrease in common shares outstanding by 6% due to stock repurchases.

Company Outlook

  • Credit Acceptance's loan portfolio size is the largest in its history, suggesting growth potential.
  • The company continues to focus on internal operations despite the competitive environment.

Bearish Highlights

  • A decrease in forecasted collection rates has negatively impacted net cash flows from loans.
  • The forecasted profitability for consumer loans assigned between 2020 and 2022 was lower than estimates.

Bullish Highlights

  • The growth in unit and dollar volumes indicates a strong market presence and demand for Credit Acceptance's financing programs.
  • The company has successfully increased the initial spread in consumer loan assignments, improving profitability margins.


  • Adjusted net income and earnings per share both saw a decrease compared to the prior year's first quarter.
  • The 2022 loan vintage forecasted collection percentage declined by 5.4%, reflecting broader industry challenges.

Q&A Highlights

  • CEO Ken Booth noted no material change in the competitive environment and attributed the slowing April unit volume to more challenging accounts.
  • Booth also mentioned that competitors' withdrawal from the market is generally a significant decision, unlikely to be reversed quickly, which could be favorable for Credit Acceptance.
  • On the topic of stock repurchases, Booth explained that the company had raised a substantial amount of capital in late 2023, which allowed for the buybacks.
  • Concerning the 2022 loan vintage, Booth pointed to industry-wide phenomena affecting loan performance, including competitive lending periods, peak vehicle valuations, and the impact of inflation on subprime consumers.

Credit Acceptance Corporation's first-quarter results reflect the challenges and opportunities within the auto financing industry. While facing headwinds in collection rates and profitability estimates, the company's growth in loan volumes and strategic financial management signal resilience in its business model. Investors and stakeholders will continue to monitor Credit Acceptance's performance as it navigates the competitive and macroeconomic landscape.

InvestingPro Insights

Credit Acceptance Corporation's first-quarter earnings report for 2024 reveals a nuanced picture of the company's financial health and market position. To provide additional context to these results, let's consider some real-time metrics and InvestingPro Tips:

InvestingPro Data:

  • The Market Cap stands at $6.28 billion, indicating the company's size and presence in the market.
  • With a P/E Ratio (Adjusted) of 21.84, investors might find the stock's valuation reasonable in relation to its earnings over the last twelve months.
  • The Revenue Growth (Quarterly) for Q1 2024 shows a decrease of -10.81%, reflecting some of the challenges highlighted in the earnings report.

InvestingPro Tips:

1. Credit Acceptance's liquid assets surpass short-term obligations, suggesting a solid liquidity position that may provide some stability in uncertain market conditions.

2. Analysts predict the company will remain profitable this year, which aligns with the company's historical performance and could be reassuring to investors looking at long-term prospects.

These insights, drawn from InvestingPro, offer a snapshot of Credit Acceptance's financial standing and future outlook. The company's ability to maintain profitability and manage liquidity effectively are key factors that could influence investment decisions.

For those interested in deeper analysis and more InvestingPro Tips, you can explore additional insights on Credit Acceptance Corporation at https://www.investing.com/pro/CACC. There are 5 more InvestingPro Tips available to help you make informed decisions. Remember to use the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription, enhancing your investment research with valuable tools and data.

Full transcript - Credit Acceptance (CACC) Q1 2024:

Operator: Good day, everyone. And welcome to the Credit Acceptance Corporation First Quarter 2024 Earnings Call. Today’s call is being recorded. A webcast and transcript of today’s earnings call will be made available on Credit Acceptance website. At this time, I would like to turn the call over to Credit Acceptance Chief Financial Officer, Jay Martin.

Jay Martin: Thank you. Good afternoon. And welcome to the Credit Acceptance Corporation first 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 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. 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 Booth, to discuss our first quarter results.

Ken Booth: Thanks, Jay. Our GAAP and adjusted results for the quarter, as compared to the first quarter of 2023, include the following. First, related to earnings, adjusted net income of $117 million, which is an 8% decrease from the first quarter of last year and adjusted earnings per share of $9.28, which is a 4% decrease from the first quarter of last year. Secondly, the collections, a decrease in forecasted collection rates that decreased forecasted net cash flows from our loan portfolio by $31 million or 0.3%, compared to stable forecasted collection rates during the first quarter of last year that increased forecasted net cash flows from our loan portfolio by $9 million or 0.1%. Also, forecasted profitability for consumer loans assigned in 2020 through 2022, that was lower than our estimates at March 31, 2023, due to a decline in forecasted collection rates since the first quarter of 2023 and slower forecasted net cash flow timing during 2023 in the first quarter of 2024. This was primarily a result of a decrease in consumer loan prepayments, which remained at below average levels. Then related to volume, the unit and dollar volumes grew 24.1% and 20.2%, respectively, as compared to the first quarter of last year. And the average balance of our loan portfolio is now the largest it has ever been. On a GAAP and adjusted basis, it increased by 12% and 15%, respectively, as compared to the first quarter of last year. Additionally, an increase in the initial spread in consumer loan assignments to 22%, compared to 21% in consumer loans assigned in the first quarter of 2023. Also, an increase in our average cost of debt from 5% to 7%, which was primarily due to higher interest rates on recently completed or extended secured financings and recently issued senior notes, coupled with the repayment of older secured finances and senior notes with lower interest rates. Finally, a decrease in common shares outstanding since the first quarter of 2023, due to stock repurchases of approximately 728,000 shares or 6% of the shares outstanding as of March 31, 2023. At this time, Doug Busk, our Chief Treasury Officer, along with Jay and I, will take your questions.

Operator: [Operator Instructions] And our first question comes from Rob Wildhack from Autonomous Research. Your line is now open.

Rob Wildhack: Hi, guys. Maybe just start out. I just wanted to ask about April unit volume slowing from 11% or to 11% from 24% in the first quarter. Could you talk about what’s driving that or is it just difficult to compare or maybe something else that’s contributing?

Ken Booth: It’s a little difficult to say. There really hasn’t been a material change from our perspective in the competitive environment. We do think our accounts are a little bit tougher. So that could be why.

Rob Wildhack: Okay. And then on the competitive environment, and in your experience, once competitors have pulled back like they seem to have done or be doing now, what does it usually take to get them to re-enter the market?

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

Rob Wildhack: Okay. Thanks.

Operator: And thank you. [Operator Instructions] And one moment for our next question. And our next question comes from Tony Orange [ph] from S&P Global Market Intelligence. Your line is now open. Tony, if your line’s on mute, could you please unmute it? One moment for our next question. And we have a follow-up question. One moment, please. And our follow-up question is from Rob Wildhack from Autonomous Research. Your line is now open.

Rob Wildhack: Hey. Maybe just one more on the buyback in the quarter, which was pretty punchy. I think you said before the preferred use of capital is to originate loans and then to share repurchase. So just wondering if there’s anything to read into around the elevated buyback in the quarter and the origination growth you’re expecting going forward?

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

Rob Wildhack: Okay. Thanks.

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

Ryan Shelley: Hi, guys. Thanks for the question. Just one here on the forecasted collection percentage for the 2022 vintage. I noticed that’s down 5.4%. Do you guys have any color there? Is there anything with that specific vintage that you could point to? That’d be great. Thank you.

Ken Booth: Yeah. I mean, I think, the first thing I’d point out is, based on our understanding, that’s a subprime auto finance industry phenomenon. So nothing unique about our experience there. I think there are a variety of contributing factors there. Those loans originated in a very competitive period, which tends to hurt loan performance. Those consumers finance vehicles at pretty close to peak valuations. Vehicle prices have subsequently come down. And then, of course, there’s the impact of inflation on the subprime consumer. Inflation is lower than it was a couple of years ago. But the cumulative effect, means that, things cost a lot more today than they did a few years back. So, I think, it’s probably the combination of those factors.

Ryan Shelley: Got it. Thank you very much.

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

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

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

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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