Credit Acceptance Corporation

Good day, everyone, and welcome to the Credit Acceptance Corporation second quarter 2024 earnings call. Today's call is being recorded. A webcast and transcript of today's earning call will be made available on Credit Acceptance website. At this time, I'd like to turn the call over to Credit Acceptance Chief Financial Officer Jay Martin.

Thank you. Good afternoon, and welcome to the Credit Acceptance Corporation second 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 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. 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 the GAAP measures. At this time, Ken Booth to discuss our second quarter results.

Thanks, Jay. We had a mixed quarter as it related to collections and originations, two key drivers of our business. Our 2022 vintage continued to underperform our expectations, and our 2023 vintage began to slip as well. We made an additional $147 million adjustment to forecasted net cash flows on top of our normal loan forecast model, but just our loans originated in 2022, 2023, and the first half of 2024, what we believe the ultimate collection rate will be based upon trending data over the last several years. Historically, our model has been very good at predicting loan performance in aggregate, but our models worked out during less volatile times. The pandemic and its ripple effects created volatile conditions, federal stimulus, enhanced unemployment benefits, and supply chain disruptions, led to vehicle shortages, inflation, et cetera, all of which impacted competitive conditions. We have had larger-than-average forecast misses, both high and low, during this volatile period. But because we understand forecasting collection rates is challenging, our business model is designed to produce acceptable returns, even if loan performance is less than forecasted. Even with our reduction in forecasted collections this quarter, we believe we will continue to produce substantial economic profit per share in the future. As I've explained in the past, we are less reactive to changes in competitive and economic cycles than others in the industry because we take a long view on the industry, we price to maximize economic profit over the long term, and we seek the best position in the company if access to capital becomes limited. Ultimately, we are happy we have the discipline to maintain underwriting standards during the easy money times of 2021 and especially 2022. As well, our market share was lower during those years, We believe it has put us in a better position to take advantage of more favorable market conditions today. During the quarter, we experienced strong growth and had our highest Q2 unit and dollar volume ever, growing our loan unit and dollar volume by 20.9% and 16.3% respectively. Our loan portfolio is now at new record highs at $8.6 billion on an adjusted basis. Our market share in our core segment continues to increase, being 6.6% as of May 31st, 2024. Beyond these two key drivers, we continue making progress during the quarter towards our mission of creating intrinsic value and positively changing the lives of our Phi 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 to consumers regardless of their credit history, Dealers make incremental sales for the roughly 55% of adults with other than prime credit So these adults that enables them to obtain a truck vehicle to get to their jobs take the kids to school, etc It also gives them the opportunity to improve or build their credit During the quarter we originated one hundred thousand and fifty seven contracts for our viewers and consumers We collected 1.3 billion overall and paid 84 million in portfolio profit from portfolio profit Express to our dealers We added 1,080 new dealers to the quarter and now have our largest number of active dealers ever for a second quarter with 10,736 active dealers. From an initiative perspective, we continue trying new go-to-market approaches using a test and learn approach. We believe some of these have been successful and have contributed to our growth. We also continued investing in our technology team. We have ramped up personnel and are focusing on modernizing how our team performed work with the goal of increasing the speed in which we enhance our product for our viewers and consumers. Around the corner, we received three awards from Fortune, U.S. News, and the Best Practices Institute. We recognize this is a great place to work. We continue to focus on making our amazing workplace even better. We support our team members in making a difference that would make the difference to them in connection with their efforts. We contributed to organizations such as Make-A-Wish Foundation, St. Jude Children's Research Hospital, the Shades of Pink Foundation, and VERSITY, Blood Center of Michigan, among others. Now, Doug Busk, our Chief Charity Officer, Jay, and I will take your questions.