Credit Acceptance Corp

NASDAQ:CACC

Earnings Call Transcript 2021-Q1

[Operator]

Good day, everyone, and welcome to the Credit Acceptance Corporation First Quarter 2021 Earnings Call. Today's call is being recorded. A webcast and transcript of today's earnings call will be made available on Credit Acceptance's website.

At this time, I would like to turn the call over to Credit Acceptance's, Chief Treasury Officer, Doug Busk.

[Doug Busk, Chief Treasury Officer]

Thank you. Good afternoon, and welcome to the Credit Acceptance Corporation First Quarter 2021 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 to GAAP measures.

At this time, I'll turn the call over to Brett Roberts.

[Brett Roberts, Chief Executive Officer]

Thanks, Doug. Today, we announced my retirement. I'm retiring for personal reasons and I'm leaving with a tremendous sense of gratitude for the opportunity I had and for all the people to help me along the way. The Board has decided that Ken Booth will replace me as CEO. Ken is a great choice. He's talented, has high integrity, and he's well-respected inside the company. If anyone is worried about my retirement creating a void, I think you should understand that, this has never been a one-man band. We've run the company in a very collaborative manner for at least the last 15 years. The leadership team meets on a weekly basis, and every decision, every challenge, every opportunity has been discussed and decisions have been made in a collaborative manner.

We have an unusually experienced team. Charlie Pearce; Daniel Ulatowski have been with the company for more than 25 years; Arth Smith and Doug Busk more than 24 years; Jon Lum our Chief Operating Officer more than 19 years; and Ken has worked for me for the last 17 years. So I leave behind the talented and experienced team, and I'm confident they will do a great job.

I would like to use this opportunity to thank all the people that have supported me over the years. We have an amazing board. We have great leaders throughout the company. We have what I think is a unique culture filled with an unusual amount of trust and goodwill, and I'm proud of what we accomplished together over the last 29.5 years.

With that, I will say goodbye and turn it over to Doug and Ken to answer your questions about the quarter.

[Operator]

[Operator Instructions] Your first question comes from the line of Moshe Orenbuch from Credit Suisse. Your line is open.

[Moshe Orenbuch, Credit Suisse]

Great. Thanks. And Ken – and – I guess, I understand that the agreement with the Commonwealth of Massachusetts is an agreement in principle. But the press release mentions a contingent loss. Are there any other elements of that that you could kind of tell us about in terms of anything that you're going to have to do that's different as you go forward?

[Doug Busk, Chief Treasury Officer]

No, I can't really discuss the agreement in principle what we have with the Commonwealth of Massachusetts beyond what's disclosed in the press release in the 10-Q.

[Moshe Orenbuch, Credit Suisse]

Okay. The 10-Q mentions also an additional CID from the CFPB that was in March you had kind of back and forth over the back half of last year. Is there any kind of updates that you can give us there?

[Doug Busk, Chief Treasury Officer]

Can't really provide any commentary beyond what we've disclosed in the 10-Q.

[Moshe Orenbuch, Credit Suisse]

Okay. In terms of the collection percentages your -- you said that in the quarter that your expectations for 2018 through '20 actually improved during the first part of 2021. But the collection expectations for the first quarter of the year actually deteriorated. Is there any way to kind of explain how that happens? Like what would cause the most recent expectations to deteriorate while the slightly older ones improve?

[Ken Booth, Chief Financial Officer]

I mean for the first quarter, it's down a tenth of percent, which is pretty much flat. So it doesn't surprise me, it'd be flat with our expectations. If you're referring to the fact that it's lower than previous quarters, our initial expectation it really just depends on what kind of business we're pricing. That initial expectation is not really relevant except for the fact on how we do compared to it.

[Moshe Orenbuch, Credit Suisse]

Right. I guess, I'm sorry.

[Doug Busk, Chief Treasury Officer]

One thing that I'd like to point out is, I think if you look in the footnote, you'll note that we say that forecasted collection rates are negatively impacted by canceled consumer loans because we don't take the contractual amount out from the denominator for purposes of computing forecasted collection rates. So I think you'll generally see in the first quarter following originations that collection results are either down a little bit or up a little bit. But in any event they're depressed by the impact of canceled loans.

[Moshe Orenbuch, Credit Suisse]

Got it. Thanks, Doug. I actually didn't know that. Similar sort of thing on the -- as you discussed kind of the spread between your forecasted collection rates. And that I think Ken that's what you were referring to the forecast collection rates are a bit lower in 2021 and the advance is a bit higher. In the explanation you say that that's because of the better collections. Does that mean that the better collections that you've experienced have cause that -- I guess I didn't quite understand that so I don't know if there's a way to kind of help us understand that?

[Ken Booth, Chief Financial Officer]

Initially we have an expectation of what we're going to collect. And as we gather more information from month-to-month, our forecast goes up or down generally based upon what we learn. But what we're talking about there is our past business has performed a little better than we initially thought which has made the spread seem like a little bit bigger.

[Moshe Orenbuch, Credit Suisse]

Okay. Got it. Thank you.

[Operator]

[Operator Instructions] Your next question comes from the line of Randy Heck from Goodnow Investment. Your line is open.

[Randy Heck, Goodnow Investment]

Well, first I just want to congratulate Brett for just a tremendous run and a tremendous job creating value -- tremendous value for shareholders. And a real pleasure being a shareholder for the last 23 years. Secondly, it was noted in the press release the collections were much better in the month of March and they're up another 20 -- I think 25% in the month of April.

And you said that the -- because of the way the accounting works, the earnings you didn't get the full benefit in the earnings release or the P&L because the collections were back in the quarter skewed. So can you give us a general idea of what adjusted earnings would have been roughly in the first quarter if we take into account the stronger collections in March if the accounting was different?

[Ken Booth, Chief Financial Officer]

Randy, that's a hard question to answer. I mean it's -- we really can't calculate that or quantify that. Clearly, if the collections had come in higher ratably through the quarter, we would have done better. But collections continue to come better that will help us next quarter.

[Randy Heck, Goodnow Investment]

Okay. And then finally the press release noted that unit volume and originations were up 25% in the month of April through, I guess, yesterday or something. And that's against a negative 7% comp. What would you attribute that strength to?

[Ken Booth, Chief Financial Officer]

A lot of that really has to do with the comparable we have to last year. The first part of April last year was a pretty easy comparable basically due to stimulus. So while it was a good run for the first 28 days, it's really an easier comparable. That's why we included the comparable to 2019 in the release.

[Randy Heck, Goodnow Investment]

Yes. Okay.

[Doug Busk, Chief Treasury Officer]

If you go back and look, I think that unit volume were down approximately 20% last year in both March and April and then up quite a bit in May and June.

[Randy Heck, Goodnow Investment]

Okay. All right. Well, thank you very much.

[Ken Booth, Chief Financial Officer]

Thanks.

[Doug Busk, Chief Treasury Officer]

Thanks, Randy.

[Operator]

[Operator Instructions] Your next question comes from the line of Rob Wildhack from Autonomous Research. Your line is open.

[Rob Wildhack, Autonomous Research]

Hi, everyone. You've mentioned in the past that stimulus programs have helped originations and active dealers in a given quarter. Can you give any color as to the degree that the most recent stimulus package helped this quarter's results? And I'm wondering if you're also still feeling a benefit from that stimulus package through April?

[Ken Booth, Chief Financial Officer]

It's hard to quantify the impact of that. But the -- it's very likely that stimulus is having positive impact on both collections and originations. If you look at our experience over the last 13 months, we've done better when there's stimulus and not as well and there's not. So I -- we don't have a quantification of that though.

[Rob Wildhack, Autonomous Research]

Okay. Thank you.

[Operator]

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

[Doug Busk, Chief Treasury Officer]

We'd 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 at [e-mail]. We look forward to talking to you again next quarter. Thank you.

[Operator]

Once again, this does conclude today's conference. We thank you for your participation.