Southfield, Michigan, Jan. 30, 2025 (GLOBE NEWSWIRE) -- Credit Acceptance Corporation (Nasdaq: CACC) (referred to as the "Company”, "Credit Acceptance”, "we”, "our”, or "us”) today announced consolidated net income of $151.9 million, or $12.26 per diluted share, for the three months ended December 31, 2024 compared to consolidated net income of $93.6 million, or $7.29 per diluted share, for the same period in 2023. Adjusted net income, a non-GAAP financial measure, for the three months ended December 31, 2024 was $126.0 million, or $10.17 per diluted share, compared to $129.1 million, or $10.06 per diluted share, for the same period in 2023. The following table summarizes our financial results:
| (In millions, except per share data) | For the Three Months Ended | For the Years Ended | |||||||||||||
| December 31, 2024 | September 30, 2024 | December 31, 2023 | December 31, 2024 | December 31, 2023 | |||||||||||
| GAAP net income | $ | 151.9 | $ | 78.8 | $ | 93.6 | $ | 247.9 | $ | 286.1 | |||||
| GAAP net income per diluted share | $ | 12.26 | $ | 6.35 | $ | 7.29 | $ | 19.88 | $ | 21.99 | |||||
| Adjusted net income | $ | 126.0 | $ | 109.1 | $ | 129.1 | $ | 478.9 | $ | 535.6 | |||||
| Adjusted net income per diluted share | $ | 10.17 | $ | 8.79 | $ | 10.06 | $ | 38.41 | $ | 41.17 | |||||
- A smaller decline in forecasted collection rates
A decline in forecasted collection rates decreased forecasted net cash flows from our loan portfolio by $31.1 million, or 0.3%, compared to a decrease in forecasted collection rates during the fourth quarter of 2023 that decreased forecasted net cash flows from our loan portfolio by $57.0 million, or 0.6%.
- A decrease in forecasted profitability for Consumer Loans assigned in 2021 through 2024
Forecasted profitability was lower than our estimates at December 31, 2023, due to both a decline in forecasted collection rates and slower forecasted net cash flow timing since the fourth quarter of 2023. The slower forecasted net cash flow timing was primarily a result of a decrease in Consumer Loan prepayments, which remain below historical averages.
- Slower growth in Consumer Loan assignment unit volume and an increase in the average balance of our loan portfolio
Unit volume growth slowed significantly year-over-year, growing 0.3% as compared to 26.7% in the fourth quarter of 2023. The average balance of our loan portfolio, which is our largest-ever, increased 14.0% and 16.5% on a GAAP and adjusted basis, respectively, as compared to the fourth quarter of 2023.
- An increase in the initial spread on Consumer Loan assignments
The initial spread increased to 22.4% compared to 21.7% on Consumer Loans assigned in the fourth quarter of 2023.
- An increase in our average cost of debt
Our average cost of debt increased from 6.3% to 7.2%, primarily as a result of higher interest rates on recently completed or extended secured financings and recently issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.
- A decrease in common shares outstanding due to stock repurchases
Since the fourth quarter of 2023, we have repurchased approximately 590,000 shares, or 4.7% of the shares outstanding as of December 31, 2023.
- A smaller decline in forecasted collection rates
A decline in forecasted collection rates decreased forecasted net cash flows from our loan portfolio by $31.1 million, or 0.3%, compared to a decrease in forecasted collection rates during the third quarter of 2024 that decreased forecasted net cash flows from our loan portfolio by $62.8 million, or 0.6%.
- A decrease in forecasted profitability for Consumer Loans assigned in 2022
Forecasted profitability was lower than our estimates at September 30, 2024, due to the decline in forecasted collection rates.
- Slower growth in Consumer Loan assignment unit volume and an increase in the average balance of our loan portfolio
Unit volume growth slowed significantly year-over-year, growing 0.3% as compared to 17.7% in the third quarter of 2024. The average balance of our loan portfolio, which is our largest-ever, increased 1.8% and 1.6% on a GAAP and adjusted basis, respectively, as compared to the third quarter of 2024.
- An increase in the initial spread on Consumer Loan assignments
The initial spread increased to 22.4% compared to 21.9% on Consumer Loans assigned in the third quarter of 2024.
Dealers assign retail installment contracts (referred to as "Consumer Loans”) to Credit Acceptance. At the time a Consumer Loan is submitted to us for assignment, we forecast future expected cash flows from the Consumer Loan. Based on the amount and timing of these forecasts and expected expense levels, an advance or one-time purchase payment is made to the related dealer at a price designed to maximize economic profit, a non-GAAP financial measure that considers our return on capital, our cost of capital, and the amount of capital invested.
We use a statistical model to estimate the expected collection rate for each Consumer Loan at the time of assignment. We continue to evaluate the expected collection rate for each Consumer Loan subsequent to assignment. Our evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our forecast. By comparing our current expected collection rate for each Consumer Loan with the rate we projected at the time of assignment, we are able to assess the accuracy of our initial forecast. The following table compares our aggregated forecast of Consumer Loan collection rates as of December 31, 2024, with the aggregated forecasts as of September 30, 2024, as of December 31, 2023, and at the time of assignment, segmented by year of assignment:
| Forecasted Collection Percentage as of (1) | Current Forecast Variance from | ||||||||||||||||||||
| Consumer Loan Assignment Year | December 31, 2024 | September 30, 2024 | December 31, 2023 | Initial Forecast | September 30, 2024 | December 31, 2023 | Initial Forecast | ||||||||||||||
| 2015 | 65.3 | % | 65.3 | % | 65.2 | % | 67.7 | % | 0.0 | % | 0.1 | % | -2.4 | % | |||||||
| 2016 | 63.9 | % | 63.9 | % | 63.8 | % | 65.4 | % | 0.0 | % | 0.1 | % | -1.5 | % | |||||||
| 2017 | 64.7 | % | 64.7 | % | 64.7 | % | 64.0 | % | 0.0 | % | 0.0 | % | 0.7 | % | |||||||
| 2018 | 65.5 | % | 65.5 | % | 65.5 | % | 63.6 | % | 0.0 | % | 0.0 | % | 1.9 | % | |||||||
| 2019 | 67.2 | % | 67.2 | % | 66.9 | % | 64.0 | % | 0.0 | % | 0.3 | % | 3.2 | % | |||||||
| 2020 | 67.7 | % | 67.6 | % | 67.6 | % | 63.4 | % | 0.1 | % | 0.1 | % | 4.3 | % | |||||||
| 2021 | 63.8 | % | 63.8 | % | 64.5 | % | 66.3 | % | 0.0 | % | -0.7 | % | -2.5 | % | |||||||
| 2022 | 60.2 | % | 60.6 | % | 62.7 | % | 67.5 | % | -0.4 | % | -2.5 | % | -7.3 | % | |||||||
| 2023 | 64.3 | % | 64.3 | % | 67.4 | % | 67.5 | % | 0.0 | % | -3.1 | % | -3.2 | % | |||||||
| 2024 (2) | 66.5 | % | 66.6 | % | - | 67.2 | % | -0.1 | % | - | -0.7 | % | |||||||||
(2) The forecasted collection rate for 2024 Consumer Loans as of December 31, 2024 includes both Consumer Loans that were in our portfolio as of September 30, 2024 and Consumer Loans assigned during the most recent quarter. The following table provides forecasted collection rates for each of these segments:
| Forecasted Collection Percentage as of | Current Forecast Variance from | ||||||||||||||
| 2024 Consumer Loan Assignment Period | December 31, 2024 | September 30, 2024 | Initial Forecast | September 30, 2024 | Initial Forecast | ||||||||||
| January 1, 2024 through September 30, 2024 | 66.4 | % | 66.6 | % | 67.3 | % | -0.2 | % | -0.9 | % | |||||
| October 1, 2024 through December 31, 2024 | 66.8 | % | - | 66.9 | % | - | -0.1 | % | |||||||
The changes in forecasted collection rates for the three months and years ended December 31, 2024 and 2023 impacted forecasted net cash flows (forecasted collections less forecasted dealer holdback payments) as follows:
| (Dollars in millions) | For the Three Months Ended December 31, | For the Years Ended December 31, | ||||||||||||||
| Increase (Decrease) in Forecasted Net Cash Flows | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Dealer loans | $ | (31.6) | $ | (36.0) | $ | (204.6) | $ | (125.3) | ||||||||
| Purchased loans | 0.5 | (21.0) | (109.4) | (81.0) | ||||||||||||
| Total | $ | (31.1) | $ | (57.0) | $ | (314.0) | $ | (206.3) | ||||||||
| % change from forecast at beginning of period | -0.3 | % | -0.6 | % | -3.1 | % | -2.3 | % | ||||||||
During the second quarter of 2023, we adjusted our methodology for forecasting the amount and timing of future net cash flows from our loan portfolio through the utilization of more recent Consumer Loan performance and Consumer Loan prepayment data. We had experienced a decrease in Consumer Loan prepayments to below-average levels and as a result, slowed our forecasted net cash flow timing. Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit. Changes in the amount and timing of forecasted net cash flows are recognized in the period of change as a provision for credit losses. The implementation of the adjustment to our forecasting methodology during the second quarter of 2023 reduced forecasted net cash flows by $44.5 million, or 0.5%, and increased provision for credit losses by $71.3 million.
We have experienced increased levels of uncertainty associated with our estimate of the amount and timing of future net cash flows from our loan portfolio since the beginning of 2020, with realized collections underperforming our expectations during the early stages of the COVID-19 pandemic, outperforming our expectations following the distribution of federal stimulus payments and enhanced unemployment benefits, and underperforming our expectations during the current economic environment. The quarterly changes to our forecast of future net cash flows from our loan portfolio from January 1, 2020 through December 31, 2024 are shown in the following table:
| (Dollars in millions) | Increase (Decrease) in Forecasted Net Cash Flows | ||||||
| Three Months Ended | Total Loans | % Change from Forecast at Beginning of Period | |||||
| March 31, 2020 | $ | (206.5) | -2.3 | % | |||
| June 30, 2020 | 24.4 | 0.3 | % | ||||
| September 30, 2020 | 138.5 | 1.5 | % | ||||
| December 31, 2020 | (2.7) | 0.0 | % | ||||
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