CREDIT ACCEPTANCE CORP Q1 FY2025 earnings call

• Collections improved sequentially with some vintages underperforming but others stable; forecasted net cash flows declined 0.2% or $21 million, the smallest decline in 8 quarters.
• Loan portfolio reached $9.1 billion adjusted, up 10% from Q1 last year; market share in core segment for first 2 months of 2025 was 5.2% vs 6% in 2024.
• Financed over 100,000 contracts, collected $1.4 billion, paid $68 million in dealer holdback; enrolled 1,617 dealers with 10,789 active dealers.
• Made progress with go-to-market approach, invested in technology, named Top Workplace USA for fifth year, supported team members in charitable activities.

The loan portfolio reached a new record high of $9.1 billion on an adjusted basis, up 10% from Q1 last year. Market share in the core segment of used vehicles financed by sub-prime consumers was 5.2% for the first 2 months of 2025 compared to 6% for the same period in 2024. The absolute value of the loan portfolio is $9.1 billion adjusted, and the market share in the core segment for the first 2 months of 2025 is 5.2% while it was 6% in 2024.

• Forecasted net cash flows declined by 0.2% or $21 million, the smallest decline in 8 quarters.
• Provision for forecast changes was $76 million due to increase in project value of future cash flows, including slower cash flow timing on $2 billion forecasted net cash flows.
• Adjusted yield saw increase from prior quarter due to expected yields on new originations offsetting decline from portfolio underperformance; adjusted revenue as a percentage of adjusted capital decreased slightly due to higher cash and cash equivalents.

• Risks include inflation, which has declined but still impacts costs; potential tariffs affecting inflation; possible recession negatively impacting costs; these factors could affect forecasted cash flows and provisions.

Q: Could you talk about forecast changes and the GAAP provision and adjusted yield?

A: The $76 million provision for forecast changes was due to change in undiscounted cash flows ($21 million decrease) and slower cash flow timing on $2 billion forecasted net cash flows. Adjusted yield increased slightly from Q4 as expected yields on new originations offset decline from portfolio underperformance.

Q: Should we expect more volatility around forecasted collections given broader market volatility?

A: Current forecast is best estimate, but inflation, tariffs, potential recession could impact; difficult to predict, but loans are priced with margin of safety.

Q: Why did you accelerate dealer holdback and about salaries and wages?

A: Accelerated dealer holdback to link dealer behavior to origination and collection-related profit. Salaries and wages in Q1 higher due to seasonal events like payroll taxes and higher volume affecting sales commissions and fringe benefits.

Q: CFPB lawsuit and legal fees, and IT investment?

A: Won't comment on legal costs beyond filings; IT investment has been elevated for foundational changes, not expecting near-term decline but hope for return once foundational stage passed