Credit Acceptance Corporation

Good afternoon and welcome to the Credit Acceptance Corporation 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, 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 to GAAP measures. At this time, I'd like to introduce our Chief Executive Officer, Vinayak Hegde.

Good afternoon, everyone. I'm honored to join you today for my first quarterly earnings call as CEO. While I have only recently stepped into this role, it has been my privilege to serve as Credit Acceptance's board of directors for nearly five years. That experience gave me a front row seat to the tremendous passion, talent, and resilience that define our organization. Prior to joining Credit Acceptance, I led teams at founder-led companies where success came down to three things, a clear mission and purpose, an owner's mindset, and an obsession with the front line, staying close to customers and those who execute the work every day. Those same attributes drew me to credit acceptance. They were instilled by our founder, Don Foss, who led the company from our founding in 1972 until 2017 when he retired as the chairman of the board. Let me share a quick reminder of his story and our enduring mission. Don, a car dealer himself, started credit acceptance based on a simple but powerful belief. Many hardworking individuals were being unfairly denied the opportunity to finance a vehicle they needed simply because of their past credit challenges or limited credit history. Don believed traditional lenders too often misjudged people with less than prime credit, assuming they weren't worthy of a second chance. He built credit acceptance to change that by empowering dealers to serve those individuals through access to financing. These individuals in turn gained reliable transportation and the ability to build or rebuild their credit, a path forward in life. I intend to lead credit acceptance in exactly that spirit, embracing the owner's mindset, being driven by the bold mission to help every American buy a car through dealers and obsessing over the front line, understanding dealers' needs intimately and empowering them. to serve credit challenged and credit invisible consumers. If we serve our dealers and consumers well, I believe our business will thrive. Since assuming the role of CEO nearly 90 days ago, I focused on listening, learning, and charting a purposeful path forward. First, I connected with team members throughout the company to better understand the dealer and consumer experience. I also met the dealers to learn first hand how our services and products support their businesses and consumers and potential points of friction. Next, I developed a growth plan with clear priorities and established highly disciplined operating rhythms. These operating rhythms include weekly business reviews to track performance and address issues in real time and a quarterly game plan with a consolidated roadmap across all functions of the company to stay tightly aligned with our annual objectives. I believe this type of structured approach creates accountability, agility, and consistent progress towards goals. As I move forward, my leadership will be guided by several core operating principles. Be obsessed with and remove friction for our customers, both the dealer and the consumer. Make data-driven decisions, explore ways to enhance our servicing and processing capabilities through artificial intelligence, prioritize a digital-first approach in our initiatives, and continue to provide a culture that attracts and retains talented people and enables them to excel. Consistent with those core operating principles, I believe we can position credit acceptance for growth by continuing to prioritize three strategic objectives. One, generating dealer and consumer demand by deepening relationships within our dealer network. support dealers in acquiring new consumers, and leveraging data-driven insights to better understand and serve our markets. Two, empowering dealers to fulfill their demand through preferred channels, such as our proprietary origination system, or through aggregators like RouteOne and DealerTrack. Three, delivering world-class servicing and processing. We are continuing to invest in artificial intelligence, which is already supporting our customer service calls and helping to improve efficiency. It also includes making ongoing enhancements to our app, prioritizing customer experience, and nurturing long-term loyalty among dealers and consumers. I've been impressed by the strong foundation and dedication across our teams to execute on these priorities. For example, in the fourth quarter, we rolled out the new contract origination experience, specifically built for the way franchise and large independent dealers operate in today's market. Increasingly, these dealers originate contracts through aggregator platforms and integrated dealer systems rather than standalone lender portals. Our experience meets them where they are. It includes seamless Route 1 e-contracting integration, enhanced deal structuring and optimization tools, and expanded support for financial and insurance products, all designed to eliminate friction and make working with credit acceptance faster and more intuitive. inside the systems dealers already use every day. This launch is particularly timely. The percentage declines in loan unit volume we have seen were most significant among franchise dealers. Notably, we have observed that consumer loans originated through franchise dealers also continue to exhibit slightly better credit performance than those from independent dealers. We expect to continue to expand the number of dealers using the new contract origination experience in the first quarter of 2026. I'm encouraged by real dealer stories that show our mission in action, like the one from Town & Country Ford, a family-owned franchise dealership in Alabama. The community in which Town & Country Ford is located faced economic headwinds, including factory closures that left retired steel and iron workers with credit challenges. When their new general sales manager joined, bringing prior positive experience with credit acceptance, she recognized an opportunity to empower her team to serve those credit challenge buyers. She led the dealership to enroll with us, which boosted repeat and referral business while strengthening their local reputation in tough times. This collaboration echoes the very reason Credit Acceptance was founded. Our company was built to provide second chances, help individuals finance reliable transportation, rebuild credit, and move their lives forward. At Town & Country, we are seeing that mission come alive. Consumers gain access to vehicles that change their daily lives. while the dealership staff finds renewed purpose in making a difference in their community. When we enable franchise and independent dealers to serve a wider market, everyone wins. Consumers get opportunities, dealers build sustainable businesses, and communities benefit from greater economic mobility. Importantly, we delivered our mission while maintaining a great workplace. During the quarter, we were named one of America's top 100 most loved workplaces for the second consecutive year. with a number six ranking. I'm deeply impressed by the culture and the excitement to execute our mission and drive credit acceptance forward. A special thank you to Ken Booth, who helped build this strong foundation through his leadership and continues to serve our board. Before I hand it to Jay to provide an overview of our Q4 performance, I want to leave you with one final message. I'm a builder by trade. In my past leadership roles, I've built and scaled innovative, customer-centric businesses that transformed how people shop, travel, and connect. I believe credit acceptance has a very strong foundation, one built on purpose and performance. I'll strive to layer technology, a deeply data-informed approach, and a highly structured operating rhythm on top of that foundation to create a dynamic, durable, and even more customer-obsessed company. You can expect me to report progress on our initiatives, be transparent about our challenges, and be disciplined with capital allocation. will maintain our focus on maximizing economic profit and the company's long-term intrinsic value. I'm genuinely excited to partner with all of you, our team, our dealers, our consumers, and our investors, as we build this next phase together.

Thank you. As to the fourth quarter results, we were pleased to announce growth in adjusted earnings per share, despite declines in loan performance and loan volume. We financed nearly 72,000 contracts for our dealers and consumers and collected $1.3 billion overall and paid $48 million in dealer holdback and accelerated dealer holdback. Additionally, we enrolled over 1,200 new dealers and had over 9,800 active dealers during the quarter. Loan performance, measured by variances in forecasted collection rates from the last quarter, moderately declined. More specifically, our 2023 and 2024 vintages declined 0.4% and 0.2% respectively, while our other vintages were stable during the quarter. Importantly, the underperformance of our 2024 vintage was primarily related to loans originated prior to the scorecard change during the third quarter of 2024. We believe the underperformance was largely the result of the continued impact of high inflation on the subprime consumer. Changes to our forecast of future net cash flows sequentially improved this quarter with the rate of decline narrowing from a decrease of 58.6 million or 0.5% during the third quarter of 2025 to a decrease of 34.2 million or 0.3% during the fourth quarter of 2025. Loan volumes also sequentially improved this quarter with year-over-year declines narrowing Loan unit volume improved to a decline of 9.1% this quarter versus a decline of 16.5% last quarter. Likewise, loan dollar volume improved to a decline of 11.3% this quarter versus a decline of 19.4% last quarter. Our market share in a core segment of used vehicles financed by subprime consumers was 4.5% for the first two months of the fourth quarter. down from 5.4% for the same period in 2024. The number of active dealers declined 2.8% year-over-year, and the average unit volume per active dealer declined 6.4% year-over-year. Our loan portfolio, however, increased 1% year-over-year on an adjusted basis. At this time, Vanak and I will take your questions along with Jay Brinkley, our Senior Vice President and Treasurer, And Jeff Sutar, our Vice President and Assistant Treasurer.