Good day, everyone, and welcome to the Credit Acceptance Corporation Third Quarter 2025 Earnings Call. A webcast recording 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 Chief Financial Officer, Jay Martin.

Thank you. Good afternoon, and welcome to the Credit Acceptance Corporation Third Quarter 2025 Earnings Call. As you read our news release posted on the Investor Relations section of our website 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 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 our Chief Executive Officer, Ken Booth, to discuss our third quarter results.

Thanks, Jay. Our results for this quarter reflected steady execution with declines in loan performance and year-over-year originations volume, balanced by a portfolio that remains at a record high. Loan performance declined this quarter with our 2022, 2023 and 2024 vintages underperforming our expectations and our 2025 vintage exceeding our expectations, while our other vintages were stable during the quarter. Overall, forecasted net cash flows declined by 0.5% or $59 million. During the quarter, we experienced a decline in unit and dollar volumes, though our loan portfolio remained at its record high of $9.1 billion on an adjusted basis, up 2% from last Q3. Our market share in our core segment of used vehicles financed by subprime consumers was 5.1% for the first 8 months of the year, down from 6.5% from the same period in 2024. Our unit volume was impacted by our third quarter 2024 scorecard change that has resulted in lower advance rates and is also likely impacted by increased competition. Beyond these 2 key drivers, we continued making progress during the quarter towards our mission of maximizing intrinsic value and positively changing the lives for our 5 key constituents: dealers, consumers, team members, investors and the communities we operate in. We do this by providing a valuable product that enables dealers to sell vehicles to consumers regardless of their credit history. This allows dealers to make incremental sales to the 55% of adults with other than prime credit. For these adults, it enables them to obtain a vehicle to get to their jobs, take their kids to school, etc. It also gives them the opportunity to improve or build their credit. Our customers are people like Becky, a single mother who has faced significant financial challenges. Her career as a chef meant that her hours and her paycheck were unpredictable. Between this and needing frequent car repairs, she was living paycheck to paycheck and struggling with poor credit after falling behind on her bills. Determined to turn things around, she was eventually able to finance a dependable vehicle through Credit Acceptance, which gave her stability and relief despite continuing to face financial hurdles. Credit Acceptance worked with Becky to come up with a realistic payment plan and provide her the flexibility she needed to get back on track. Becky hopes to be able to purchase a home in the near future and urges others with similar struggles to look to Credit Acceptance. During the quarter, we financed almost 80,000 contracts for our dealers and consumers. We collected $1.4 billion overall and paid $52 million in dealer holdback and accelerated dealer holdback to our dealers. We enrolled over 1,300 new dealers and had 10,180 active dealers during the quarter. We continue to invest in our engineering team, which is focused on modernizing both our key technology architecture and how our teams perform work. The engineering team has made significant strides in modernizing our loan origination system. This modernization has laid a strong foundation for innovation, frictionless dealer experiences, and we've increased the speed that we deliver enhancements to our dealers by almost 70% compared to a year ago. This allows us to innovate faster and accelerate value to our business and customers. During the quarter, we received 4 awards for our amazing workplace, including being named one of the Best Workplaces in Financial Services and Insurance by the Great Place to Work and Fortune Magazine for the 11th year in a row. We're proud to be one of the few companies in our industry that offers remote-first work. We work hard to ensure that every team member feels supported and connected, keeping our culture strong. In July, team members from around the country gathered in Detroit to celebrate the company's 53rd anniversary. During this celebration, we recognized 8 of our team members, each of whom have been with the company for more than 30 years. Additionally, on a personal note, this will be my last quarterly earnings call. After starting my career over 34 years ago, including the last 22 years at Credit Acceptance, I've decided to retire and embark on the next chapter of my life. My decision wasn't easy. I will miss working with our amazing team members, and I'm so proud of everything we've accomplished together. But I believe the company is in a great position for the future. During his 4.5-year tenure on the Board, Vinayak has been an invaluable partner as we modernized our approach to the business. His strong mix of experience in technology, marketing, engineering, and product, along with a proven track record of driving transformation and growth will be an excellent complement to our experienced management team. I look forward to both working alongside Vinayak as he transitions into his new role and continuing to serve the company as a Board member going forward.

Our first question comes from John Rowan with Janney Montgomery Scott.

Your asset-backed securities previously included a covenant that triggered early amortization if there was a 10% forecast shortfall. Does the current ABS still include that clause? Are you nearing any situations related to this? Considering the 2022 vintage, which is down 8% compared to the original forecast, is this the correct perspective? Please explain the ABS covenants in this context.

Yes, absolutely. We still have that covenant in our both our warehouse facilities and our ABS securitization debt. As you know our business well with the pooling concept, we tend to contribute loans to a securitization for our portfolio program, a lot of which are uncapped. So as additional loans are originated, they belong to the securitization. So if you were to look at the actual performance from a collection rate standpoint, they tend to run above 100%. So we have no outstanding securitizations that are close to the 90% trigger.

Okay. And then G&A was still higher than I expected. Obviously, last quarter, you had a contingent loss in there, but it didn't go back to like the run rate to prior quarters. Can you give us an idea if there's any kind of onetime items in the $36 million G&A expense?

I would suggest looking at the adjusted results, which eliminate the onetime charges related to the contingent losses. If you examine that, you'll find that G&A has remained relatively consistent over the past few quarters as a percentage of average capital. However, if you focus solely on the GAAP results, we recorded a $23.4 million contingent loss in Q2 and an additional $15 million contingent loss this quarter.

Okay. Can you let us know what your repurchase authorization is?

Yes. We've got just over 2 million shares currently under the Board authorization.

Okay. And then just last question for me. I was a little bit surprised to see the advance rate was actually up a little bit in the quarter relative to the first half of the year, but unit volume still continues to decline. Obviously, the advance rate is not back to where it was. But can you just talk us through that a little bit? Are you still having trouble competitively speaking, even at a higher advance rate?

Yes. I think it's really a little bit of a change in the mix in our business. I think there's a higher percentage of purchase loans. And I also think there's a higher percentage of our product that is designed for people with a little bit better credit, and those tend to have higher advance rates.

Our next question comes from Robert Wildhack with Autonomous Research.

Are you seeing any of your peers pull back at all in the industry? I just would love to get sort of the boots on the ground view of what's happening at the industry level in the wake of some of the headlines we've seen around subprime auto in the last couple of weeks.

Yes. I think overall, while there have been some that have had struggles and have pulled back, in general, the environment is very competitive right now. So we're seeing a lot of competition out there. I mean, you can look at our volume per dealer, and it's down, and it's a competitive market.

Why do you think the competitive intensity hasn't really reacted to like the poor credit results that we've seen for the last few vintages? I would have expected people to pull back a little bit more with the delinquencies and losses as high as they are.

It's always hard to tell what our competitors are doing. The market is fragmented. But oftentimes, at the beginning of downturns, it is a competitive environment. We've lived through this before. 2021 was super competitive, and those vintages ultimately didn't turn out very well. 2016, 2007. I mean, so there have been times where it's been like this. But I will say this has been a long time where it's been competitive, and we're seeing underperformance. I will say we build our business for the long run. Our goal is always to have a large margin of safety in the aggregate in our pricing. And we're at a point where our loan portfolio is kind of at the highest it's been. And we'd rather do less volume at solid margins than chase volume. So that's where we're at on that.

Okay. And then just quickly, we noticed that attrition had been increasing in the last few quarters. I mean could you comment on some of the drivers there? Is there a chance that dealers are pushing back on the scorecard change or anything like that?

It could be a factor. We measure attrition based on deals made during the reported period. With our lower volume, some dealers are currently not doing business with us. This likely contributes to the situation, and it's also important to consider our performance in comparison to others in the market. As I've mentioned before, it's a large and fragmented industry with many options available. However, despite this year being challenging for growth at Credit Acceptance, we are coming off a record year last year, and we are on track to have our fifth best year ever. So while we haven't regressed significantly, we are facing tough comparisons.

Our next question comes from Ryan Shelley with Bank of America.

I wanted to ask around the impact of tariffs. I mean, obviously, it's kind of on again, off again. But have you guys seen any profound impacts, whether it's in the marketplace or to your own business from federal policy? And just going into next year, how do you guys kind of handicap that?

Anything that impacts affordability for our consumer is a negative for us generally. Our consumer already has affordability issues and anything that tends to impact affordability will be a negative. It's hard to say how much the tariffs are impacting things. They seem like they change quite a bit. But anything that puts pressure on our consumers from an affordability standpoint, ultimately, is generally not good for us and good for people in our industry.

Got it. And then just one more, if I could, on the scorecard change. Forgive me if you've already clarified this. But going forward, is there a potential for any loosening or change back maybe come next year or the year after? Or is that a permanent change going forward?

We always try to price to maximize the amount of economic profit we originate. So we consider recent trends in loan performance and capital market conditions, and we adjust our scorecard and our pricing based upon what we think we're going to collect and how we think we can maximize that economic profit originated. So I don't know what the future will hold, but it's not like this is probably a permanent scorecard from now until the end of time. As the situation changes, we make updates to it. And again, we always try to maximize economic profit originated.

Our next question comes from Moshe Orenbuch with TD Cowen.

Could you elaborate on the volume situation and market share? Do you think the decrease is due to a reduction in vehicle supply, or are cars being sold but being financed by other competitors? By October, you had fully adjusted to the scorecard changes, yet you are still experiencing a significant decline, even if it's not as severe as in Q3. How can we interpret this situation?

Your question is a great one. I mean we are, I would say, anniversaried on the scorecard change for sure by October. I mean while it happened in Q3, there's a little bit of a lag. But by October, it's more apples-to-apples. I will say that Q4 last year was one of our better quarters. It was the second best Q4 in the history of the company. So it's still a little bit of a tougher comparable, but you're right, you wouldn't have expected it to be down as much as it is other than the fact that the intensity of the competitive environment is probably higher. I do think, as you mentioned, affordability of vehicles has been a detriment to us. Our consumer is challenged by prices and they kind of get squeezed out. If you were to look at the size of the subprime market, it has declined over the last 4 or 5 years. It seems like it's kind of stabilized somewhat right now, but our consumer has a lot of pressure on them in order to try to make purchases, which I think is impacting us negatively because we tend to be a little bit deeper in the subprime space than some other companies.

I understand. From a competitive perspective, another issue this year, particularly in the last three quarters, has been that your prepays have decreased. You still have a full quarter of the '22 vintage on the books as of the end of September. Wouldn’t it make sense that if there were more competition, there would be more prepays instead of fewer?

Can you say the question again? I didn't quite understand what you asked.

Sure. Yes. I mean one of the phenomena that you've observed this year has been that the loans are staying on the books longer. And I think you had said in the second quarter call that, that was an issue that there were just fewer people who were able to either refinance or trade into another vehicle. But I guess, wouldn't a competitive environment be easier to do that in as opposed to harder?

Yes. I think generally, over time, what you've seen is sort of a lag effect of when competition heats up, prepays tend to speed up because obligors have other options. And I think what you're pointing out here, Moshe, is that we're not really seeing that. It's tough to say. There is always a natural lag. I just think we're in a unique environment right now.

Got it. In terms of leverage...

I was just to say if history holds true, then we should see prepays tick up if competition continues.

Got it. Could you clarify the $15 million contingent loss that you mentioned? It seems to be related to previously disclosed legal matters, and it appears the amount is increasing due to settlement offers in the lawsuit. This is noted in the 10-Q, which I believe is the first reference to this. Is there any way we can understand if there are other terms we should be aware of that could be part of that settlement?

You're correct. This is the first time that we've mentioned that. I would tell you, since it is an ongoing legal matter, though, we can't comment on it beyond the disclosures we've included in the 10-Q and the earnings release. So I can't provide any more detail than what's out there.

Got you. Appreciate that. And then just last one for me. Maybe just can you talk about your leverage and your kind of outlook given what you're seeing both from a growth and how that impacts your thoughts on share repurchase?

Yes. Our current leverage on an adjusted basis is at the high end of our historical range. We've typically operated in a 2 to 3 times debt to adjusted debt-to-equity range. As we've mentioned, generally, we tend to repurchase more shares when our leverage or growth rates are lower. Additionally, our leverage is modest compared to other industry participants. Therefore, there hasn't been a significant change in our perspective on the leverage of our balance sheet. However, as we consider repurchasing shares, leverage remains an important factor in that discussion.

Our next question comes from Kyle Joseph with Stephens.

Just wanted to get an update from you guys on kind of capital markets activity given the things that have gone on in the auto space. And I just want to get a sense for what credit markets are doing? Are they really differentiating between quality operators and whatnot and kind of the investor appetite in the fixed income market?

Sure. Yes, happy to take that one. It's generally been a fairly favorable environment for ABS issuers this year. And I'd say ABS issuers, those of our peers, including ourselves in the subprime auto ABS market where aside really from a couple of weeks around Liberation Day where everything kind of froze, spreads have been pretty tight. I will note that in recent weeks, we have seen some widening in spreads really on the back of the Tricolor bankruptcy, but that's mostly been deeper in the capital structure than where we issue. We actually have an ABS deal in the market right now. We began marketing this morning, and we're seeing a lot of demand at levels that I think you'll see comparable to our recent deals. So we feel good about our access there. And would just point out as well that we think we're pretty well positioned regardless with the amount of liquidity that we keep on the books. So right now, as of quarter end, we had $1.6 billion of unused availability on our revolving credit facilities.

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

We would like to thank everyone for their support and for joining us on the conference call today. If you have any additional follow-up questions, please direct them to our Investor Relations mailbox. We look forward to talking to you again next quarter. Thank you.

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