Credit Acceptance Corporation

Q4 2021 Earnings Conference Call


spk_0: everyone and welcome to the credit acceptance corporation fourth quarter twenty twenty one earning a conference call that is cause report it a webcast and trump group of today's earnings call will be made available on credit theft and flipside at this fun element to the local over to quote acceptance of drugs or officer douglas
spk_1: thank you
spk_2: good afternoon and welcome the recorded acceptance corporation fourth quarter two thousand and twenty one earnings call as you read a news release post on the investor relations section of our website and i are that credit acceptance dot com and as you mustn't lose coverage for please recognize the both contain forward looking statements within the meaning of federal security flaw the 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 differ materially from such state these risks and uncertainties include those spelled out on a 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 comply with the as he sees regulation tea please refer to the financial results section of our news release which provides table showing how nine gap measures reconcile the gap majors our results for the quarter include euro dollar volumes decline twenty two point six percent and twelve point seven percent respectively compared to the fourth quarter of two thousand and twenty and increase in forecasting collection rates for loans originated in two thousand and nineteen two thousand and twenty this resulted in a thirty one point nine million dollar increase in the forecast of that cash flows marlon for oil adjusted net income increased twelve percent from the fourth quarter of two thousand and twenty to two hundred and twelve point six million dollars adjusted earnings per share increased thirty three percent the fourth quarter of two thousand and twenty to forty dollars and twenty six cents and stack repurchases of approximately six hundred and six thousand shares four point one percent of the shares outstanding at the beginning of the quarter at this time can both our chief executive officer james harden our senior vice president finance and accounting and i will take your questions
spk_0: ladies and gentlemen from act as a question at this time you want you to press the side under one key on your touchdown dolphin to the giant question press the pound key they stand by while the compound kenny last time and i first question coming from the line of much orange by with credit suisse feel on a cellphone
spk_3: great thanks and couple of things i guess pat first first off and in the really she talk about the january volumes has been down bastard six point six percent i'm site and stamp thirty six point eight percent a but you also mention that dad january twenty twenty one was was particularly strong like how should we think about the you know that commentary was the was that just january was that the rest of the quarter like nuked you talk about that a little bit
spk_2: i'm in a january was in in a relative son was a pretty strong month last year i think we were down on you know six percent for the month of january versus the january of the prior year ah i'm the quarter was ah not that strong arm but still better than the quarters with experience recently and again i believe that the strength in january of last year was outta stimulus
spk_3: okay and am
spk_2: you mentioned this that this thirty one point nine million from cat who cannot write ups on the twenty nineteen and twenty twenty has i left here it says that they're said has zero point three percent reduction in your expected cash for the loans originated most recently have yeah the typical leave if you look at the most recent quarter disclosed ah i'm there will be a decline from our initial estimate off as you point out or quarter of this year the decline with three tenths of a person or a lot of that just due to the fact that we don't remove cancelled consumer loans from the denominator in calculating the ratio ah that's disclosed and what not one to the table
spk_3: ah i'm on page two ah ben generally what you see i'm in the loan camp for the per early in the life with alone and then it all after that what is the store employee happened is in all the loans outperform and and all that becomes a positive numbers on that's what's happened is store employee whether that
spk_4: we the case and queue for will have to see
spk_2: thanks and then and you mention their six hundred thousand and change shares that the repurchase to be talk a little bit about you know kind of how you're looking at your leverage and what that my mean for the your your ability to buy back shares in the future hi in a world where continued to think about the stock buybacks the same way we have in the past and i want to make sure we have ample quality on and we have ample equality and believe that purchasing shares is a good use of shareholders money i'm in l will continue to invest in stock repurchases i'm in a relative the financial
spk_3: leverage ah i'm
spk_0: in up historically we repurchase more sap one were lowly leveraged ah them were i leveraged i'm so i would expect that arm
spk_5: you know that repurchases perhaps may not be as strong in the next couple of quarters as they were love laugh half of this past year
spk_6: thanks for much
spk_7: nine next question coming from the my not be the chocolate champion security feel and something
spk_5: hello work good afternoon and
spk_6: thanks for taking like my questions
spk_8: now this maybe get a difficult
spk_6: you know pinpoint that that is we just think about you know the value
spk_8: pressure's on the entire industry
spk_6: is is well as yours specifically
spk_5: yeah no driven by to these excessive use car prices
spk_6: through the wondering is there any
spk_5: sort of metric or percentage decline
spk_6: benchmarks like the manheimer and eighty eight index is is there any sort of
spk_5: figure that we could potentially look to that would signal a
spk_8: sort of turn around it and consumer demand in your mind you know for example i'm looking six quarters back here
spk_6: average contracts as was eleven percent lower than it is now
spk_2: i'm in i'm just wondering if if they're sort of if not a silver bullet you know is is there a decline in the manheimer decline in average car prices for today's level that you would feel comfortable would probably be signaling a turnaround to positive year over year growth volume you know about you any industry now i don't think you can say that there's a magic number are out there with the manheimer any other arm used car index ah i think if i used car prices remain stable or increase
spk_5: in i think that's a bad thing to move all your perspective in an you know use car price the decline i think that the a positive and the more they decline in of the butter what i don't think it's the there's no magic number there's no cliff would magically things
spk_8: we're gonna go back to normal i think it's just it's a gradual right right yeah no clearly directly
spk_6: we're kind of waiting for that turn around and i get it sorted just to venture into your crystal all him he did he have any commentary
spk_2: you're you're able to provide your outlook for rom he was car volumes and a dealer health fandom you know
spk_9: it's a prime demand throughout throughout twenty twenty two
spk_6: i don't think the we have any you dig inside their i think i'm you know
spk_0: your guess is as good as ours david
spk_10: got it got it
spk_11: okay thank you very much
spk_12: our next question coming from the line rock i have when i don't know much research hi guys oh hello can you can you just highlight or update us on what you're seeing competitively in the market
spk_2: and out if he goes thereby of her down if you think about our marketplace of the get the way to look at it is looking to thereby and for dealer arm
spk_13: and owners and as be data shows that primes down
spk_0: i'm a good rule of email thought of the alibi for dealer anastos the strength of the competitive market
spk_14: when i think historically any time the industry as had it all adds up for live the capital and the cost for that capital is cheap
spk_15: i'm in
spk_16: amphetamine yeah i'm sorta speak a line as disconnected
spk_17: i'll give it a moment and today we cannot
spk_2: a fumble we come from a thicker the last response we live yes sir now backlight
spk_11: oh this was this is doug but we've
spk_18: were disconnected there
spk_11: i'm i'm not sure of at if
spk_2: my last response was completely urge or not but holidays for that hey doug this is rob can you hear me i'm not sure if i'm live either
spk_11: yeah i can hear hear okay great i you you cut off right around you were going into the you know when competitors have lots of access to capital the cost of capital is cheap and then it down and that's how i dropped off of it
spk_2: ah like so refreshing me on yeah for generally with those conditions exist the marketplace tends to be a pretty competitive and ah you know that the current environment is no exception there's you know lot of companies out there with access lot the capital and very low cost
spk_11: got it and then distributed to stick with that comment and do you think that add a rising interest rates here through twenty twenty two would be enough to den competition or de need you know prevailing interest rates to be considerably higher than they are right now
spk_19: you know i think it's kind of like the used car price of question it's ah you know every little bit helps
spk_2: ah but yeah i think there would have to be you know substantially higher are they have have a meaningful impact got it and if i could ask one more i'm on the consumer side it just wondering if he could come in and bet on the potential impact that inflation could have on consumers ability to repay know if inflation running is either was does that factor into your i'm expecting collections and anyway
spk_20: i'm no it doesn't arm
spk_2: we base our forecasted collections on how long's with them or attributes ah have performed historically ah we don't have a map or economic component that we overlay on lap
spk_21: i'm so you know we have a a period of
spk_0: you know significantly higher than normal inflation
spk_22: you know that has the potential to impact customers ability to pay
spk_12: look at thank you nine next question coming from blind now john had with jeffrey feltman yeah thanks very much
spk_23: i'm a key just thinking about volume and evil touched on pricing and competition but at how much of your volume is impacted by just overall inventory levels yo and other industry factors read added as a significant thing that impact in this right now
spk_12: yeah i think honestly young last couple question or that as about when there might be a turnaround i think that the most likely time of the of a around for buying for also be when vehicles are more readily available and prices ill and stabilize and maybe go back to normal weather become a depreciating asset em and you have any thoughts for based on what you're hearing some if industry sources when
spk_24: whether it's awfully supply or some fleet sales or a repossessions any sense for when that might start to occur
spk_12: it out of it he was spent a lot time kind of scour and information sources the learn about that but it's the ib on it at length as a wide range of possibilities there you know i've seen
spk_23: within reasonable sources a to be later this year and as in reason was sources say it won't be too early to a twenty four so
spk_25: hum
spk_22: and on the
spk_2: as a lot of uncertainty are ya related or downstream impact of the pandemic and
spk_26: and don't tell cars are available or not which her when they'll be able it nearly with dollywood le grand scheme of those are a temporary situation that a permanent one
spk_2: okay mm at yeah i figure yields yeah your yields benefited this quarter of a you from strong performance it it it and it out yeah i'll see if you may have strong formats all the time and you you may not but like what what it's like if we excluding that call it the incrementally strong performances some of the recent been it is what are you guys think the yield on your feet what is with the right yielding it for for your things normalize
spk_23: are you are you talking about the gap the elder the adjust the ideal director a yeah just the gap yield which isn't effectively finance charges divided by the average loan balance
spk_0: yeah i mean the
spk_27: you know the get a gap yield is based off a contractual cash flows what we know we're never gonna make that yields we don't spend a lot of time focusing on it but you know i think that you know
spk_28: gap yield we're we're like today is you know pretty much reflect the pretty close to a contractual yield on loans were writing for that but again we you know because of because of see full and the fact that are gap yields the basement contract for careful as we don't spend a lot of time focusing on that
spk_2: okay a man died that that covers my questions pressure thanks very much
spk_28: yup
spk_29: one question coming online our town well what's in my comment on something
spk_12: get in
spk_29: doug it talk a lot about and car prices impacting volume i'm wondering what if any impact bomb there was in the duration or adoption in the fourth quarter for volume perspective in whether or not you know you were at fifty a month again in january
spk_30: if there was another duration cotton january affecting that your we are performance
spk_0: i don't know what the duration is going to be in in january i'm in of the reduction from fifty nine to fifty eight games has to function of car prices and affordability issues for consumers i would
spk_21: ah expect that that probably continued in january but don't know for sure
spk_31: okay then just lastly for me i'm a fingers are relatively big increase in other income was only thing one time in nature an narrow what what was driving at eighteen point three million other income line
spk_21: gazprom will primarily related to our ads way product profit sharing a lot of that is driven by claims raids we did zoo lower grade a lower claims raids and a fourth quarter
spk_11: can't really see it has been volatile historically
spk_29: so it's not necessarily a permanent change advocates as normal volatility within the profits or him that are thank you and as a minor leagues and gentlemen that the question please pass fall on and our next question coming on the line up since month and keep up with the been so on a cellphone
spk_31: i beg you decide who quick once a one is a follow up on that damn
spk_11: that other income line with the air and the an increase in and an athlete profit sharing
spk_31: is that something bad because credit the better we should expect to continue or is that sort of a one time true up for this quarter
spk_2: yeah would say it is is not related to credit i'm is is that the cellar one time to up is somehow clambered group claims rates of come in i'm primarily related to our gap product so i would say i disagree or helped out with some higher vehicle prices they're probably had some impact on claims rates but historically ads oh we've seen a fair amount of fluctuation our claims rates over time so it's a again i would just consider to be normal volatility
spk_32: that's it
spk_11: and a second one it's on expenses so the
spk_31: just wondering how to think about that going forward i thought that the salaries and wages dallas or forty six percent year over year by year out your gene a financial data eleven percent of how to kind of think about how you're managing
spk_2: expenses for thank you well a lot of the increases in the expenses as were you know as we point out the release to rape to like the stock compensation expense ah i'm you know relating to ah stock options the were granted to or the executive team is part of a new pay plan
spk_33: that's really what's driving the vast majority of the or increase in expanse in the last couple quarters
spk_32: of got it so that would be
spk_0: well for about the thought i guess that would be salary and wages
spk_2: but the t of out on the other hand went down so that delyth neither did the teenage that down just wandering up what we should be fighting glencore for in terms of efficiency i'm i mean it get a big picture arm
spk_0: you know our expenses as a percent of revenue or expenses as per cent of ambridge capital or have declined over a long term as we've grown the business because we benefited from operating leverage ah as were you know in this period

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