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CREDIT ACCEPTANCE CORP (CACC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 delivered strong GAAP earnings with revenue growth and a much smaller sequential decline in forecasted net cash flows: Revenue rose to $565.9M, GAAP net income hit $151.9M ($12.26 diluted EPS), and forecasted net cash flows declined by $31.1M (-0.3%), an improvement vs Q3’s -$62.8M (-0.6%) .
  • Origination growth slowed sharply (unit volume +0.3% YoY), but initial spread improved to 22.4% (vs 21.9% in Q3), reflecting lower advance rates and better mix; portfolio average balance reached a record and increased 14.0% YoY on GAAP basis .
  • Interest expense remained elevated with average cost of debt at 7.2%; G&A fell QoQ due to lower legal expenses; adjusted return on capital improved sequentially to 9.8% (from 9.3%) as operating expenses declined .
  • Management cited continued underperformance in the 2022 cohort but stability in 2023/2024 vintages; they noted competitive dynamics and Q3 scorecard changes impacted unit growth, yet market share in subprime used auto financing rose to 6.1% YTD through November .

What Went Well and What Went Wrong

  • What Went Well

    • “Another mixed quarter” with improved collections vs recent periods; “a small decline of 0.3% or $31 million in forecasted net cash flows,” better than Q3’s decline .
    • Initial spread on assignments increased to 22.4% (Q4), up from 21.9% in Q3, aided by lower advance rates; 2024 dealer and purchased loan spreads each improved vs 2023 .
    • G&A fell QoQ driven by lower legal expense; adjusted return on capital rose to 9.8% as operating expenses declined 6.0% QoQ (as a percent of adjusted average capital fell to 5.6%) .

  • What Went Wrong

    • 2022 cohort continued to underperform and drove most of the quarter’s downward forecast revision; management noted forecasting models are less accurate amid volatility .
    • Origination growth slowed significantly: unit volume grew only 0.3% YoY; average volume per active dealer fell 3.7% YoY; 28-day unit volume through Jan 28, 2025 decreased 3.2% YoY .
    • Cost of debt rose to 7.2%, with higher rates on recent secured financings and senior notes plus repayment of older lower-rate debt, pressuring interest expense (Q4 interest $111.3M) .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Total Revenue ($MM)$538.2 $550.3 $565.9
GAAP Net Income ($MM)$(47.1) $78.8 $151.9
Diluted EPS ($)$(3.83) $6.35 $12.26
Interest Expense ($MM)$92.5 $111.2 $111.3

Loan mix (Dealer vs Purchased)

Mix (% of assignments)Q2 2024Q3 2024Q4 2024
Dealer Loans – Unit Volume78.5% 79.5% 78.7%
Purchased Loans – Unit Volume21.5% 20.5% 21.3%
Dealer Loans – Dollar Volume77.3% 78.4% 77.7%
Purchased Loans – Dollar Volume22.7% 21.6% 22.3%

Selected KPIs and credit/forecast metrics

KPIQ3 2024Q4 2024
Consumer Loan Unit Volume (units)95,670 78,911
Active Dealers10,678 10,149
Avg Volume per Active Dealer9.0 7.8
Forecasted Collection % – 2024 Assignments66.6% 66.5%
Initial Spread on Consumer Loan Assignments21.9% 22.4%
Change in Forecasted Net Cash Flows ($MM)-$62.8 (-0.6%) -$31.1 (-0.3%)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal quantitative financial guidanceN/ANot providedNot providedMaintained (no formal guidance)

Note: Management did not issue numeric revenue/EPS or margin guidance; commentary focused on trends (collections, spreads, capital costs) rather than specific targets .

Earnings Call Themes & Trends

TopicQ2 2024 (Prior)Q3 2024 (Prior)Q4 2024 (Current)Trend
Collections/forecast revisionsExtra -$147.2M forecast adjustment in Q2 to 2022–2024 vintages; emphasized model volatility post-pandemic Smaller decline: -$62.8M (-0.6%); 2022 cohort still pressured Further smaller decline: -$31.1M (-0.3%); 2022 cohort drives most of decline; 2023/2024 stable Improving sequentially
Origination growth & pricingRecord Q2 growth (units +20.9% YoY; dollars +16.3% YoY) Strong growth, but decelerating; initial spread 21.9% Unit volume +0.3% YoY; initial spread 22.4%; lower advance rates post scorecard change Growth decelerating; spreads rising
Cost of debt/interest expenseHigher rates; methodology changes to net income definitions in facilities Avg pre-tax cost ~7.3%; interest expense up YoY Avg cost 7.2%; Q4 interest $111.3M Elevated; broadly stable
Legal expense volatility—Higher legal drove G&A in Q3 G&A declined QoQ due to lower legal expense Easing QoQ
Market share—6.2% through Aug 2024 6.1% YTD through Nov 2024 Higher YoY; slightly lower vs Q3 snapshot
Capital/liquidity actionsRevolver/warehouse amendments in Q2 ABS executed late Q3 (mgmt commentary) Post-Q4: priced and closed $500M 2030 notes; redeemed $400M 2026 notes (Feb 2025) Proactive refinancing

Management Commentary

  • “Overall, we had another mixed quarter… Collections improved sequentially this quarter with only our 2022 vintage continuing to underperform… Overall, a small decline of 0.3% or $31 million in forecasted net cash flows” – CEO, Ken Booth .
  • On slower growth vs prior year: “Our volume per dealer declined about 3.7% versus Q4 2023… we changed our scorecard… it’s hard to attribute (slowing) to which of the two (competition vs scorecard)” .
  • On adjusted yield rising despite prior-quarter forecast cuts: “The yield we recognize on the business we wrote in the fourth quarter increased our overall yield and more than offset the decline in forecasted collections we saw in Q3” .
  • On 2022 cohort and model accuracy: “Most of the decline was on the 2022 business… our forecasting models perform best during relatively stable economic periods and are less accurate during periods of volatility… 2022 is less material now” .

Q&A Highlights

  • Slowing growth drivers: scorecard changes lowered advance rates and competition likely tightened; management views Q4 as the second-highest Q4 ever despite deceleration .
  • Adjusted yield dynamics: stronger yields on new originations offset prior forecast reductions, lifting adjusted yield despite earlier declines in collections .
  • Legal/G&A: QoQ decline in G&A primarily from lower legal expense; legal costs can be volatile and are not discussed in detail .
  • Cohort outlook: 2022 remains weak; 2023/2024 vintages labeled stable in Q4; 2022 less material given seasoning and lower volume; forecasting still inherently challenging .
  • Capital positioning: strong liquidity heading into tax season; willing to be conservative amid macro/election-related capital market uncertainty .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 revenue and EPS was not available at the time of preparation due to data access limits. As a result, explicit “vs. consensus” comparisons are not provided. If consensus becomes available, we would benchmark the reported $565.9M revenue and $12.26 GAAP diluted EPS to S&P Global estimates for Q4 2024 .

Key Takeaways for Investors

  • Sequential improvement in credit forecasting: forecasted net cash flow decline narrowed to -$31.1M (-0.3%) from -$62.8M (-0.6%) in Q3, with underperformance now concentrated in the smaller 2022 cohort .
  • Spread tailwind vs growth headwind: initial spread rose to 22.4% even as unit volume growth was just +0.3% YoY and average volume per active dealer fell 3.7% YoY; scorecard changes reduced advance rates and likely weighed on growth .
  • Elevated, but stable funding costs: average cost of debt at 7.2% sustained pressure on interest expense ($111.3M Q4), underscoring the importance of spread discipline and credit execution .
  • Expense relief: reduced legal costs lowered G&A QoQ and helped lift adjusted return on capital to 9.8%, creating some operating leverage despite top-line deceleration .
  • Portfolio scale remains a support: average loan portfolio balance at record levels (GAAP +14.0% YoY; adjusted +16.5%) provides earnings capacity as credit trends normalize .
  • Market share gains continue: subprime used auto financing share reached 6.1% YTD through November, suggesting competitive positioning remains intact despite tighter pricing .
  • Balance sheet actions de-risk funding: post-quarter pricing/closing of $500M 2030 notes and redemption of 2026 notes reflect ongoing optimization of tenor and cost of capital .

Supporting Detail and Additional Disclosures

  • Q4 2024 press release 8-K (financials, portfolio/forecast tables) .
  • Q4 2024 earnings call transcript (prepared remarks and Q&A) .
  • Q3 2024 press release 8-K (comparatives, revenue/EPS, forecast changes) .
  • Q3 2024 earnings call transcript (trend context) .
  • Q2 2024 transcript (methodology, origination growth) ; Q2 8-K facility amendments .
  • Other Q4-period press releases: earnings timing (Jan 23, 2025) ; subsequent financing/notes actions (Feb 13/28, 2025) .