Earnings call transcript Q4 2022

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Operator

Good day, everyone, and welcome to the Credit Acceptance Corporation Fourth Quarter 2022 Earnings Call. Today's call is being recorded. A webcast and transcript of today's earnings call will be made available on Credit Acceptance’s website.

At this time, I would like to turn the call over to Credit Acceptance, Chief Treasurer Officer, Doug Busk.

Doug Busk

Thank you. to Acceptance welcome XXXX fourth and call. earnings afternoon, the Corporation Credit quarter Good

our posted federal as news Relations read within recognize you As release forward-looking contain our this call, statements at that to both section meaning on website ir.creditacceptance.com, law. listen and of you the conference please securities of Investor the

include and materially control cautionary statements other forward-looking risks from Consider the out results of statement and which many statements and regarding risks those uncertainties, actual These uncertainties. forward-looking are These statements. cause beyond such subject and uncertainties our spelled of to news in forward-looking in all in those could and the to differ light of information a number included which risks release. are

comply measures mention which the measures. to refer of should G, please results to non-GAAP the release, our news I how Regulation reconcile that to showing SEC's financial section GAAP tables with provides Additionally,

quarter XX.X% million cash GAAP include X.X%. fourth XXXX; Our for forecasted net dollar a and to loans in our XXXX, decrease forecasted XX.X%, portfolio collection quarter loan XXXX as and volumes decreased which the of originated in from and $XX compared and unit for respectively, rates flows adjusted by results the grew or

X,XXX fourth income of quarter. quarter XXXX million. the net which share Adjusted of at the decreased to X.X% from XX.X% repurchases the represented shares the fourth outstanding to approximately quarter $XXX decreased of XXXX of shares, from of Adjusted beginning Stock XX.X% earnings the per $XX.XX.

Finance will President, Executive Ken Martin, time, Senior Jay take and Vice and this our Accounting, Chief I Officer; At Booth, your questions. our

Operator

is call, Moshe first The Suisse. of from Instructions] coming Orenbuch [Operator questions I Credit you. have Thank

is open. Your line

Moshe Orenbuch

a last of could of of write-ups cash your I'm give been of, quarters you've the understanding of the down this in about three little Thanks. kind about Great. flow kind we had after they've now we sitting several and where you bit that and hoping help expectations, how earnings yield is a the again. should like How basis? you're process? adjusted and XX that Like do on XXs think affects think how mid-XXs, how us

Doug Busk

update have primarily performance with loan based historically. attributes performed the loans our we same Well, and forecasts on how

I was seen that caused future our a worse three than little we've last that's At of quarters to of quarter, little what is for bit. cash loan believe the the net decline a actually So expected. flows the end performance preceding forecast bit

really to in at, our we're forecasting say, on impossible I what happens adjusted collections yield where portfolio that dependent So is think, to long our how performance therefore the is is future. and the

Moshe Orenbuch

I don't And right? think for in Right. that, update any like January release you or anything the gave

Doug Busk

we But did that.

month, have the there first for anything the We in but XX volume of we don't particularly. have days

Moshe Orenbuch

of you up is Doug, kind flattish I was the little just it they little sort terms bit originations spreads you level characterize the competitive the and quarter. mean, to of like the where environments. better. then don't bit other a of a look down kind fourth it the And but in for was of of Can slightly was in January that got it And any in element mentioned, us units,

that some see of I that away competitive to expected shift balance now there have some would are from think originators. by people kind other

talk seeing that about So of I can kind you little guess where are you a and bit?

Doug Busk

origination think XX originations quarter as first through from had an And days we had strong I perspective. Well, a well. of strong we January, the I mean, fourth

improved. really from up that the origination and competitive So quarter the thus I put numbers think perspective, we and fourth indicates third has far in the that January environment

Moshe Orenbuch

loans? was able your you're the [indiscernible] what -- what pay And collections to the the achieve between that you you. in for for and difference your Got that spreads --

Doug Busk

XX%. year this -- spread is spread to a the initial The we what the you you And has and spread spread than primarily performance December as release modified or you've really approximately initial XXXX. the seen variability based in approximately show expected. forecast the was this since XX, loan quarter The been on XXXX, to of -- due spread to press what has show there being been has been different table the

that ‘XX performance, In positive a the with will expected better -- spread. of that's pressure on bit was than ‘XX, had the and probably XXXX, is And it well the a in loan that spread. on than then worse performance impact expected put

But of quarters in Our what three a performance. spread We'll certainly in to book the happens relatively have was year. that's unseasoned QX see loan just than of business. better the first initial it was to

Moshe Orenbuch

three Got while longer. it. filed first quarters Thanks. you a earnings of along release with in one quarter, takes the the a mean, me. every the fourth little year for Q obviously I XX-K Then the last

regulatory activity before situation any the we'll is quarter, the all of this kind an K Given the chance update that get and out? legal on

Doug Busk

lawsuit consumer approach. the companies the were in was regulatory the time enforcement was a clear generally can bit I about don't little more to then There with on we (ph) now, my a comment I'll didn't compliance opinion pending talk for intend We take the expectations defend right strongly but litigation, complaint. different with and seriously. that and access reflects allegations lawsuit. on we a This disagree And say, ourselves

what's the extensive industry to company, strive to work do comply to the we with and primary laws, regulations, right. we always hard governor For

of credit score approximately enable is adults XX provide options and that that of credit miserable. impaired. of opportunities that million below are When and kind credit you industry are nationwide more our of about financing There's millions dealers consumers There's which or who XX% consumers, are is XXX, which we visible. to millions dealers all often think impaired kind

impact the all credited, would of across industry on Now consumers if allegations significant the the the lawsuit finance are and be these country. a there

we the to defend be with course of court intend and ourselves. So disagree vigorously again, litigation. allegations them addressing we we'll the the during But with

Moshe Orenbuch

much. Okay. Thanks very

Operator

question. One of And you. the Rowan be coming Thank we next will question John for from moment our while Janney. next prepare

Your open. line is

John Rowan

Good afternoon guys.

Doug Busk

Hey, John.

John Rowan

Well, or sure about just maybe -- take bit. would little get to can complaint, make just want you settled that it. that can Massachusetts, the speak and ask see the maintenance make anything you're since it to sure there everyone lawsuit just understands you to with your had on I willing to settlement I laws, a Obviously, just what I the nothing with that When of read user are. we was do right? in figured

was clear, totally Massachusetts some looked about specific resale the in but was that from settled you for, it was posting issues two one mistaken. that you There charge The our on user main that I'm Massachusetts like settlement is isn't And value another a one technical it of if requirement. settled nothing repossession. not

Doug Busk

issues mentioned that principally. settlement agreement The the revolved Yeah. two you around

John Rowan

Okay.

just So bit to expenses? do little with past anything Obviously, legal jump was that. of a in up there there that moving G&A Was a expense.

Doug Busk

in G&A in increased expenses the area expense to technology legal. due increased and

John Rowan

provision based to in putting the Okay. is it's run on assume growth the changes million that safe The expense, forecast you're rate it $XX that excluding that on?

Doug Busk

a again, that less are low. was unit The fourth It provision in loan that than it the million, than -- quarter $XX the was new was volumes the a of in seasonal but mind keep in that typically in kind quarter. fourth in less

John Rowan

late the to are or higher subprime a at again, wide, lower for deals most fourth just year. in the ABS retrenchment spreads then lot January. really, bit obviously, environment, disarray to the markets but go back least last than a quarter And in were ABS Spreads here were we've seen a little Okay. really There have come competitive they funding of of bit out. a are subprime quite that are --

I with guys that mean, funding anything that to some any markets? in we think a cycle fits is us brings guys this environment? -- more Thank spread the help risk do back competition you can read competitive how through less indication you this you. of you if with And more would how of be adverse there there to

Doug Busk

I potentially, bit more right, I causes you're be Yeah. tone more little this market mean, market that has the year constructive. the competitive. been mean, to a

they not as years. rates in higher high as were credit are still QX situation You elevated and are than base of have number a spreads, where a were for though they certainly

competitive So, if funding to be see a the become that how see have we'll just it's it plays could We'll have but the to constructive. to bit intense what more conceivable continue markets little happens, environment out.

John Rowan

right. you. All Thank

Operator

for question. Thank next while prepare we the you. One moment

be question Wildhack Next coming will of from Autonomous Research. Rob

Your is open. line

Rob Wildhack

guys. Hi,

Just one more on the funding market.

spreads Given yourselves? why your origination not and now, tap the growth market better ABS the

Doug Busk

$X.X But Well, of we billion in the we certainly the credit committed at about facilities. had availability revolving unused our intend to. year, at end

I do something strong that's appropriate a the mean position. So time. very at liquidity But we'll

Rob Wildhack

Okay.

market, that from right? nothing would back So to it continuing New tap safe the to ABS assume that to and in to you preclude lawsuit York State, there's tie

Doug Busk

Correct. market. would complaint, accessing us securitization there's The prohibit complaints from in a nothing that but the there

Rob Wildhack

it. only on lower a press then vintages. the I'm us? be profitability but In significantly over. X point collections release, few why called for then to 'XX forecasted wondering lower, like forecasted define different kind And profitability And Can that Got switch of the for vintage you than would the out you percentage forecasted are initial.

Doug Busk

but is the press the percent mean were forecasted it's rate It's that's non-GAAP arguable way to tenth collection a it for economic or of not, we've and defining X%. we standard just I whether is use. to -- that's the in it The XXXX, there profit. chosen standard I'm pretty release. was significantly. to significant forecast financial low we're really basically a profitability, in which the measure Yeah. sorry, the referred it Relative

Rob Wildhack

Okay.

So in X% on lower 'XX. significantly collections is

that then stock. back And it. Got originations, when you Okay. more. growing On buy said calls, past you're you've one probably less

kind were how grow quarter, think if What's And about do both. 'XX? we This you to on repurchases continue going share do you of in to should there? able

Doug Busk

we’ve capital is priority originations. to and always we we As the need that to the make sure fund have anticipated said levels before, first

priority. to first going be that’s the So

things terms I of to on originations. markets function, priority In the rates what like how funds always just of capital repurchases, growth our and depends But the will be think first are levels the loan it that. share

Rob Wildhack

you. Thank Okay.

Operator

question. prepare Thank while you. moment One we the for next

of from Our next John question Jefferies. coming is Hecht

open. is line Your

John Hecht

guys. questions. afternoon, Thanks taking Good my for

it you loans because to declining? you with in over mean, attribution values Is what of is tied it quarters, the a asset You that are quarters? for flows. touched an that? tied like I'm recently? cash causation the Do about I of it about do the a three earlier have sense the questions recent think structural inflation? for wondering, to guys write-downs Is on you set on do factors -- last just

Doug Busk

eight It's tough vehicle last to a six, values the it's primarily consumer and say for precisely, but on seven, the inflation subprime likely impact of I months. then think declining

John Hecht

of there's the your mean, comments are your kind meaning you mean, prices? obviously, communications it don't reduction I worst of is I And do But of think this. your of think dealer starting inventory guys what's do How come in willing that in on is or with and about know the this you perspective? partners all to more perspective Is the forward in to I then, kind behind that volumes. stabilize if terms the part levels time about you you're kind purchase demand system reduction of do and dealers, your to guys probably

Doug Busk

affordability car and Where address anyone's the prices was, the still don't it future. I price guess. We here, helped Used from it pre-pandemic is where than to think used is ability was predict it better situation it's elevated. the has inventory but have is a goes which not decline, car are issues

to see. have -- So we'll we'll just

John Hecht

it Would of or is is it with in and or for day-to-day yourself open I sort like picture. just given more to you wide eyes selective a a a tighten ways So is just maybe mean, uncertainty consider thing? there that more keep mind, you that seems confusing

Doug Busk

whole I into a mean very recognize there's do. margin build do, loans. you prices will we volume, always of months. host car over what occur our things if significant will will the predict that XX-month you're that used can't do, next XX what a we of safety What unemployment way price inflation a We the writing will

our We're way the that that margin those still all uncertainties returns, loans we we price significant way likely price. are if by the expected, business very writing and of produces a high safety profitable. loan business highly So is worse is to generally that performance that our and address be we building than so

John Hecht

guys Okay. I much. you Thank color. the appreciate very

Operator

prepare next moment One for question. while we the you. Thank

Capital. Next be Anfield Cheesman of from Ray question will coming

line Your open. is

Ray Cheesman

Thank on John's you. question. up Doug, following just

will be that that or year be you would you of what you model? of to the have forward think As the like I'm you do expect of be of now, you end things you look at year, assumptions at model think the guessing unemployment the where do. would wondering, if world where end your to modeling CECL the will a drive share willing XX-year I'm any do the

Doug Busk

mean, whole are in a said that I question, of there's like the unforecastable. things just I bunch last

attempt are pricing uncertainties our forecast we just those loans So margin of by unforecastable. to big don't the the of that We things safety. address

forecast loan historically actual put future of cash similar accurate. flows, pretty loans forecasts of historical and have performance performance based So the when together been our those we on and they're attributes with

Ray Cheesman

just over your As maintaining adjusting water is and sure I XXXX, the read want way. say – press quarters, So lot your out to talking that that Is you're lower highly you confident the we way, I'm just we want are it into the risk that profitability profitable a and on protect maintaining seems as the the sure that terms tax of margins pricing of to and to CACC the stays to historically, I'm adjustments your of rebates about greedy and and it's various make going exhaustion economy. proceed the heads last course you're expectation that to I that and from you're company, And underway couple fly tide but guys savings. are and make you? the -- sorry the of just on a

Doug Busk

we're we we about how are considering price performance Yeah. when our loan perspective. from what I a we loans, decisions making are experiencing mean -- to certainly

Ray Cheesman

XX% dropping, and car just between saw I for of people for that that's more, not vintages, Ally other prior and expects XX% future then should market fact actually XX% good recently, expect one (ph) the And great but news I it vintages, guess the is right? used growth be

Doug Busk

that. with agree would I

Ray Cheesman

you very Then Okay. thank much.

some you. Doug. me given confidence, You’ve Thank

Operator

One of next moment [indiscernible] [Operator Our question you. from Thank the will prepare America. we question. of be while coming Instructions] for Bank next

is open. Your line

Unidentified Participant

Thanks of this taking is Doug, America. question. from Bank for Shane (ph) my

or you I allocation So the in XXXX? trading the think I capital And your in just But addressing they maybe next due kind investing of you bonds on volumes to the enough to some focus low-XXs. a maintaining could with with your -- now year and are low-XXs, be about maturities talked in this bonds before opportunistically growth year. come in the look of originate

Doug Busk

Conceivably, look to far, some of to invest that. loans. the weigh And we've but with do early. have anything we'll thus bonds explored alternative we've taken Obviously, a in have attractiveness retiring that of elected need new at to just the the

Unidentified Participant

lawsuit. Thanks. or any And new -- moving X-K really forward anything or yet? are that states I then with filed have suggesting I they had any other guess, previously, of the seen guess, had you anything from expecting you the lawsuits across haven't seen the New come York potentially you

Doug Busk

what We're the going Ken to in about not other existing earlier anything than mentioned the call. say lawsuit

Unidentified Participant

Okay. Thank you.

Operator

question. Thank while moment next you. One for prepare we the

Our next question is of coming from Radcliffe. Christopher Ryan

open. line is Your

Christopher Ryan

my question. taking Thanks for Hi.

give lawsuit Just any is us? New can there about right known CFPB York the timeline now they

Doug Busk

one, no. that answer can't I

Christopher Ryan

then for repurchase Okay. the paid in what And price share was quarter? the average

Doug Busk

$XXX of, average so -- Was I that's XXX XXX,XXX around believe, million. price at shares an

Christopher Ryan

Thank it. my all questions. That’s Got you.

Operator

session. you. to turn Busk to That Thank any I today's concludes would over closing Mr. the additional further remarks. for Q&A call or comments like back

Doug Busk

like for call their and We'd joining our everyone to for us thank support conference on today.

again mailbox you. next have questions, you follow-up them to look any forward you quarter. to please our Relations to talking additional We ir@creditacceptance.com. Investor at If direct Thank

Operator

your concludes participation. Once Everyone thank may conference. again, this you today's We for disconnect.

Credit Acceptance (CACC) 31 Jan 232022 Q4 Earnings call transcript