On Tuesday, Credit Acceptance (NASDAQ:CACC) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Credit Acceptance reported year-over-year growth in earnings for the first quarter, with GAAP net income at $135.8 million or $12.40 per diluted share, and adjusted net income at $117.3 million or $10.71 per diluted share.

The company is focused on improving pricing and decision-making models, leveraging data for deeper analysis to address areas where market share is being lost, and enhancing scorecard systems to align with current market conditions.

Loan volume declines have moderated, with unit volume declining 4.3% this quarter compared to 9.1% last quarter, indicating reduced volatility.

Credit Acceptance reported a record 10,977 active dealers during the quarter, enrolling over 1500 new dealers, but noted a decrease in market share for subprime used vehicle financing.

The company completed an ABS transaction raising $450 million of capital at a cost of 5.2%, with support from a diverse investor base.

Full Transcript

OPERATOR

Are designed to lower the marginal cost of high quality decision making across the business. We are still in early stages of this journey and we'll continue to make disciplined investments focused on high impact use cases that drive efficiency and create long term value. We continue to focus intensely on improving our pricing and decision making models through deeper use of data and more granular analysis. Over the past quarter we took a critical look at where we are losing market share and work to diagnose the underlying drivers rather than simply reacting to outcomes. This included deeper analysis of performance vector segmentation by dealer segment, credit band geography and vehicle characteristics. It is critical to understand where our economics are strongest and where refinement is needed. We are actively fine tuning our advanced models and testing targeted opportunities to improve conversion while maintaining appropriate margins of safety. At the same time, we are evaluating scorecard enhancements to ensure our underwriting and pricing models remain aligned with current market conditions. This disciplined, data driven approach is designed to sharpen decision quality, improve consistency and support sustainable risk adjusted growth over the long term. To close, I want to reiterate the purpose that drives us. Our mission is to change lives by providing access to credit that enables people to obtain reliable transportation and create opportunities for financial progress. We believe all consumers deserve respect and that dignity should never depend on a credit score. This principle is the foundation upon which we are building Credit Acceptance with the goal of compounding intrinsic value over time. This will require discipline, transparency and a willingness to make difficult decisions when needed. It also requires continuous improvement in how we operate, how we serve our dealers and consumers, and how we allocate resources. Progress will not always be linear, but the operational changes we are making today across credit cost structure, operating discipline, customer experience and technology are designed to make Credit Acceptance more durable, more agile and better positioned for the future. With that, I'll turn it over to Jay to walk through the financial results in more detail.

Jay

Thank you. We reported year over year growth in earnings for the first quarter with GAAP net income of 135.8 million or $12.40 per diluted share and adjusted net income of 117.3 million or $10.71 per diluted share. From a loan performance standpoint, forecasted net cash flows from our loan portfolio declined 9.1 million or 0.1% during the quarter versus a decline of 34.2 million or 0.3% last quarter, reflecting reduced volatility and forecast changes. As Vinayak mentioned, this was the lowest quarterly decline we've seen in the past three years. Loan volume declines continued to moderate this quarter, with unit volume declining 4.3% this quarter, versus a decline of 9.1% last quarter. Likewise, loan dollar volume declined 4% this quarter versus a decline of 11.3%. In Q4, we financed nearly 96,000 contracts for our dealers and consumers, collected nearly 1.5 billion overall, and paid 47 million in dealer holdback and accelerated dealer holdback. Additionally, we enrolled over 1500 new dealers and had a record 10,977 active dealers during the quarter, reflecting continued engagement across our dealer network. Our market share in our core segment of used vehicles financed by subprime consumers. For the first two months of the quarter, the period for which data is currently available was 4.5%, down from 5.2% for the same period in 2025. The average unit volume per active dealer declined 6.5% year over year, while our average loan portfolio remains steady at 8.9 billion on an adjusted basis year over year. From a capital standpoint, we closed our first ABS transaction of the year earlier today, raising $450 million of capital. The all in cost was 5.2% compared to 5.1% on our most recent securitization in Q4, with the modest increase driven by higher treasury rates. Despite a volatile macroeconomic backdrop, the transaction was supported by a broad and diversified investor base and achieved our lowest credit spread since late 2021. At this time, Vinayak and I will take your questions, along with Jay Brinkley, our senior vice president and treasurer, and Jeff Suttar, our vice president and assistant treasurer.

OPERATOR

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press Star 11 on your telephone and wait for your hand to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from Moshe Orenbach of TD Cowan. Your line is open.

Moshe Orenbach

Great, thanks. The data that you show for collections shows some, you know, improvement in performance in prior vintages, but, you know, some deterioration in 2025. And in the footnote, it attributes it to canceled loans. I mean, I know you've. Could you just maybe explain what that, you know, what that is and whether that's something that either will continue or was one time in nature.

Jay

Yeah, so it's something we see just about every quarter when we originate loans. We don't have enough loan performance experience yet for the loan performance to impact the collection rate. But our numerator, when a loan cancels, our collection rate drops to zero on that loan. But our denominator still has the original contract amount in that. So in the quarter something's originated, generally the change you see there is driven by these cancellations. So if you go back to first quarter last year, you'd see the 202025 loans were down 20 basis points in Q1. And that, that's driven by these cancellations. And it's nothing just one time. It's something that impacts all our origination years. It's just more, you see it more in Q1 because those are the loans you originated. You don't have multiple quarters of originations in a year where loan performance offsetting that cancellation.

Moshe Orenbach

Great, thanks. And I did notice an increase in the percentage of originations on the purchase loans and sort of when you look at the spread on the portfolio loans versus the purchase loans, the spread was roughly flat on the portfolio loans, but down on the purchase loans. Is that like what it is taking, you know, that's what it takes to get that volume. Like maybe could you just describe, you know, what's going on from your perspective in terms of those two pieces of the portfolio?

Jay

Sure. I'll start. I think in 25 we expanded the dealer access to the purchase program to include all contracts from consumers with higher credit ratings. So the dealers have the option to use both portfolio and purchase. You kind of still price them with the same focus, minimizing economic profit. For perspective, the loan mix purchase is 28% and it is well within the historical range of 20 to 40% over the last six years. On the spread. Taking comment on the spread? Yeah, yeah, yeah. So part of that, when you're looking at the spread table and the earnings release, you're looking at what the spread is now based on the current forecast. So if you look at the table above that, you'll. If you look at purchase loans, the 2025 loans have outperformed our initial forecast by 20 basis points. The 2026 loans have underperformed. So that, that leads to a little bit of that, that difference in the spread, just the impact of the loan performance there where the dealer loans in 25 have been generally consistent with their initial expectation.

Moshe Orenbach

Got it. Thanks. I'll get back in the queue.

OPERATOR

Thank you. Our next question comes from Rob Wildhack of Autonomous Research. Your line is open.

Rob Wildhack

Hey guys. I wanted to ask about the revision to forecasted collection and how that flows through to the provision and the income statement. You got the negative 9 million this quarter, but a provision expense of 54 million for forecast changes. And I contrast that with Last quarter, you revised collections down by a lot more, 34 million. But the provision for forecast changes was close. It was 57 million. So I guess the question is, why doesn't the lower forecast change this quarter, the 9 million, flow through to a lower provision expense in the. In the income statement?

Jay

So I'll take that. First I point out the provision for forecast changes in December was actually 57 million. So, you know. So some of that difference is due to the change of forecast in net cash flows being down 9 million this year versus 34 million last quarter. But when you look at. When you think about our provision for credit losses on forecast changes, it's driven by a change in the net present value of future cash flows. So that considers both the decreases in undiscounted cash flows that we referenced there and then also the overall cash flow timing of the approximately 12 billion in future net cash flows that we're considering. So in both of those periods, a large contributor of the provision for credit losses was the overall slowing of forecasted cash flows. And that's primarily related to prepayments. We're seeing a lower level of prepayments than what our forecast would expect. Historically, when the environment's competitive, we've seen more consumers prepay their loans. We're not seeing that in this current cycle. Difficult to say exactly what's driving that. We think probably a couple things. Consumers are holding on their cars longer could be related to the prices of new cars. Could also be consumers having more negative equity making them hard to refinance. So our forecasts assume that prepayments are going to normalize at some point in the future. They haven't yet. We'll continue to evaluate our forecasts and make revisions as we find opportunities to do so.

Rob Wildhack

You know, all told, that the negative 9 million is still quite a bit better. I'm curious if there's anything that you'd want to highlight as a main driver there. Do you think there's something specific to the consumer tax refunds or lower tax withholdings this year? Or do you think it's more natural, like vintage remixing away from 22 and towards some better vintages? Yeah. Thank you. Yeah. It's both the fact the vintage remix of the 2223 code shrinking and in the real performance of the newer vintages than the 24 and 25 vintages. Right. The 24 vintage is performing at or above the level. 25 is definitely tracking ahead. And what happens is every quarter goes by, the relative mix of 22, 23 becomes lesser as compared to the 24, 25. And that confidence from that portfolio improving helps us kind of improve that on an ongoing period.

OPERATOR

Thank you for your question. As a reminder to ask a question during your session, you will need to press Star 11 on your telephone and wait for a name to be announced. To withdraw your question, please press star 11 again. Our next question comes from Jordan Hemowitz of Philadelphia Financial. Your line is open.

Dan Furtado

Hey everybody, this is Dan Furtado in for Jordan. I just tried to recall my question because Rob from Autonomous just asked it. Thank you very much.

OPERATOR

Thank you. Our next question comes from Moshe Orenbach of TD Cowan. Your line is open.

Moshe Orenbach

Great. Thanks for taking the follow up. Maybe just to understand, you know, how you're thinking about the market share and you know, I know it's just the first two months of the quarter, but, you know, is there, you know, are there specific things that you're doing to regain that market share or things that you're, you know, that you think are factors in it and what would cause those to change to your benefit?

Jay

Yeah, Moshe, thanks for the question. Yeah, I mean, the latest data obviously shows February stable from Q4 at 4.5%. I mean, we are not trying to gain share at any cost. Right. We are being very deliberate about the trade offs. We didn't price aggressively to get to the previous thresholds. Our focus is continuing to be having good economics. But what we are trying to do is to understand it by segment, by price point, by credit band, by geography, and see if we can get sharper in pricing without compromising return on investment. And it's very early, but that's what we're starting to do so that we can actually understand whether it's over advance or pricing. How do we understand this at a more segmented level? What is the competition in those particular areas, be it be independent of franchise and selectively go after pockets of opportunity. So that's what we are trying to do. We don't want to get shared just for the sake of getting share.

Moshe Orenbach

Got it. And maybe just a housekeeping question. I noticed the claims expense was down pretty sharply, you know, which, you know, is a good thing. Is that the new level or is there something one time in there?

Jay

This is related to the provision for claims. Provision for claims, sorry. Yes. Yeah, yeah. So, yeah, I would say, you know, the profitability on his contracts there has been fairly consistent. You do see some volatility quarter to quarter. So I wouldn't read too much into just the impact this quarter. So nothing unusual there or a new trend.

Moshe Orenbach

Okay, thanks.

OPERATOR

Thank you. With no further questions in the queue, I would now like to turn the conference back over to Mr. Martin for any additional or closing remarks.

Martin

We would like to thank everyone for their support and for joining us on our conference call today. If you have any additional follow up questions, please direct them to our Investor relations mailbox@[email protected] we look forward to talking to you again next quarter. Thank you.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.