Credit Acceptance Corporation

At this time, I would like to turn the call over to Credit Acceptance Chief Financial Officer, Jay Martin.

Thank you. Good morning and welcome to the Credit Acceptance Corporation third 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, I will turn the call over to our Chief Executive Officer, Ken Booth, to discuss the third quarter results. Thanks, Jay. Overall, we had another mixed quarter as it relates to collections and originations, two key drivers of our business. Our 2022 vintage continued to underperform our expectations, and 2021, 2023, and 2024 also declined. Overall, a modest decline of 0.6% for $62.8 million in forecasted net cash flows. As we have previously communicated, historically our models have been very good at predicting loan performance in aggregate, but our models work best during less volatile times. The pandemic and its ripple effects created volatile conditions, federal stimulus, enhanced unemployment benefits, and supply chain disruptions like the vehicle shortages, inflation, etc., all of which impacted competitive conditions. We've had larger-than-average forecast misses, both high and low, during this volatile period. But because we understand forecasting and collection rates is challenging, our business model is designed to produce acceptable returns on the aggregate, even if loan performance is less than forecast. Despite the decline in forecasted collections this quarter, we believe we will continue to produce substantial economic profit per share in the future. Even our worst vintage, 2022, is still forecasted to produce economic profit. 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 deal in the industry. We price to maximize economic profit over the long term, and seek the best position in the company if access to capital becomes limited. Ultimately, we are happy with the discipline to maintain underwriting standards during the easy money times of 2021 and especially 2022. While our market share was lower during those years, we believe this was a better position to take advantage of more favorable market conditions today. During the quarter, we experienced strong growth and had our highest Q3 unit and dollar buying ever, growing our loan unit and dollar volume by 17.7% and 12.2% respectively. This is our ninth quarter in a row with double-digit unit volume growth. Our loan portfolio is now at a new record high of $8.9 billion on an adjusted basis, up 18.6% from Q3 2023. Our market share in our core segment was 6.2%, as of August 31st, 2024. Our growth did slow during the quarter, likely impacted by our Q2 forecast changes that resulted in lower advance rates during Q3. Beyond these two key drivers, we continued making progress during the quarter towards our mission of creating intrinsic value and positively changing the lives of our five key constituents, dealers, consumers, team members, investors, in 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. This allows dealers to make incremental sales with roughly 55% of adults with other than prime credit. For these adults, it enables them to obtain a vehicle to get to their jobs, take their kids to school, et cetera. It also gives them the opportunity to improve or build their credit. We recognize that it has been a challenging time for our consumers impacted by recent hurricanes. As we have for many years, we are working with these consumers, including suspending some of our collection efforts, to allow these customers to prioritize their safety and most urgent needs. During the quarter, we financed 95,670 contracts for our dealers and consumers. We collected $1.3 billion overall and paid $71 million in portfolio profit to our dealers. We added 1,038 new dealers for the quarter and now have our largest number of active dealers ever for our third quarter with 10,678 dealers. From an initiative perspective, we are committed to improvement through our go-to-market approach aimed at providing product innovation and support to our dealers faster and more effectively than ever before. This requires teamwork, attention to detail, and an iterative process that attempts to make improvement every step of the way. This is a work in progress, but we are getting better. We are also continued investing in our technology team. We've improved our team's capabilities and are focused on modernizing both our key technology architecture and how our teams perform work, with the goal of increasing the speed at which we enhance our product for dealers and consumers. During the quarter, we received four awards from Fortune, USA Today, and People Magazine, recognizing us as 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 to what makes a difference to them. In connection with their efforts, we contributed to organizations such as 42 Strong, American Foundation for Suicide Prevention, Atlanta Area School District, Children's Hospital of Michigan, and Pure Heart Foundation. Now, Jay Martin and I will take your questions along with Doug Busk, our Chief Treasury Officer, Jay Brinkley, our Senior Vice President and Treasurer, and Jeff Sutar, our Vice President and Assistant Treasurer.

If you'd like to ask a question at this time, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Moshe Orenbook with TD Cowan.