Credit Acceptance(CACC) - 2025 Q2 - Quarterly Report

PART I. — FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and management's discussion and analysis ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and related notes Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 (Millions) | Dec 31, 2024 (Millions) | Change (Millions) | | :----------------------------- | :----------------------- | :---------------------- | :---------------- | | Cash and cash equivalents | $70.0 | $343.7 | $(273.7) | | Restricted cash and cash equivalents | $493.8 | $501.3 | $(7.5) | | Loans receivable, net | $8,001.9 | $7,850.3 | $151.6 | | Total assets | $8,724.6 | $8,854.6 | $(130.0) | | Total liabilities | $7,169.9 | $7,105.0 | $64.9 | | Total shareholders' equity | $1,554.7 | $1,749.6 | $(194.9) | Consolidated Statements of Income This section presents the company's financial performance, detailing revenues, expenses, and net income for the three and six months ended June 30 Consolidated Statements of Income (Three Months Ended June 30) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Change (Millions) | % Change | | :------------------------------------ | :----------------- | :----------------- | :---------------- | :------- | | Total revenue | $583.8 | $538.2 | $45.6 | 8.5% | | Total operating expenses | $155.5 | $124.4 | $31.1 | 25.0% | | Total provision for credit losses | $172.6 | $320.6 | $(148.0) | -46.2% | | Interest expense | $118.1 | $104.5 | $13.6 | 13.0% | | Net income (loss) | $87.4 | $(47.1) | $134.5 | 285.6% | | Basic EPS | $7.55 | $(3.83) | $11.38 | 297.1% | | Diluted EPS | $7.42 | $(3.83) | $11.25 | 293.7% | Consolidated Statements of Income (Six Months Ended June 30) | Metric | H1 2025 (Millions) | H1 2024 (Millions) | Change (Millions) | % Change | | :------------------------------------ | :----------------- | :----------------- | :---------------- | :------- | | Total revenue | $1,154.9 | $1,046.2 | $108.7 | 10.4% | | Total operating expenses | $291.0 | $250.5 | $40.5 | 16.2% | | Total provision for credit losses | $334.5 | $506.6 | $(172.1) | -34.0% | | Interest expense | $232.8 | $197.0 | $35.8 | 18.2% | | Net income | $193.7 | $17.2 | $176.5 | 1026.2% | | Basic EPS | $16.37 | $1.39 | $14.98 | 1077.7% | | Diluted EPS | $16.11 | $1.37 | $14.74 | 1075.9% | Consolidated Statements of Comprehensive Income This section presents the company's comprehensive income, including net income and other comprehensive income, for the three and six months ended June 30 Consolidated Statements of Comprehensive Income (Three and Six Months Ended June 30) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | H1 2025 (Millions) | H1 2024 (Millions) | | :-------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Net income (loss) | $87.4 | $(47.1) | $193.7 | $17.2 | | Other comprehensive income (loss), net of tax | $0.4 | $0.0 | $1.3 | $(0.2) | | Comprehensive income (loss) | $87.8 | $(47.1) | $195.0 | $17.0 | Consolidated Statements of Shareholders' Equity This section details changes in shareholders' equity, reflecting net income, stock repurchases, and stock-based compensation for the periods ended June 30 - Total shareholders' equity decreased from $1,749.6 million as of December 31, 2024, to $1,554.7 million as of June 30, 2025, primarily due to $426.6 million in common stock repurchases, partially offset by $193.7 million in net income and $25.6 million in stock-based compensation[9][17] Consolidated Statements of Cash Flows This section presents the company's cash flows from operating, investing, and financing activities for the six months ended June 30 Consolidated Statements of Cash Flows (Six Months Ended June 30) | Metric | H1 2025 (Millions) | H1 2024 (Millions) | Change (Millions) | | :------------------------------------ | :----------------- | :----------------- | :---------------- | | Net cash provided by operating activities | $485.9 | $514.0 | $(28.1) | | Net cash used in investing activities | $(485.8) | $(1,109.9) | $624.1 | | Net cash provided by (used in) financing activities | $(281.3) | $642.6 | $(923.9) | | Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents | $(281.2) | $46.7 | $(327.9) | | Cash and cash equivalents and restricted cash and cash equivalents end of period | $563.8 | $517.6 | $46.2 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies and key financial items 1. BASIS OF PRESENTATION The unaudited consolidated financial statements are prepared under GAAP for interim reporting, relying on management's estimates and assumptions - The financial statements are unaudited and prepared in accordance with GAAP for interim reporting, not including all footnotes required for complete annual statements[21] - Management's estimates and assumptions are critical to the financial statements, and actual results could vary[22] 2. DESCRIPTION OF BUSINESS The company provides auto financing solutions to dealers for consumers with impaired credit, operating Portfolio and Purchase Programs - The company facilitates vehicle ownership by providing financing solutions to dealers for consumers with impaired or limited credit histories, helping consumers improve their credit scores[24][25] - The majority of Consumer Loans (78.5% in Q2 2025) are assigned to consumers with FICO scores below 650 or no FICO scores[27] Consumer Loan Assignment Volume by Program | Program Type | Q2 2025 (Unit Volume) | Q2 2025 (Dollar Volume) | Q2 2024 (Unit Volume) | Q2 2024 (Dollar Volume) | | :------------- | :-------------------- | :---------------------- | :-------------------- | :---------------------- | | Dealer Loans | 71.6% | 68.3% | 78.5% | 77.3% | | Purchased Loans | 28.4% | 31.7% | 21.5% | 22.7% | - In 2025, the company expanded Dealer access to the Purchase Program for consumers with higher credit ratings, leading to an increase in Purchased Loans volume[30] 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The company operates as a single auto financing segment, detailing policies for cash, securities, and loans, including the CECL model and seasonal impacts - The company operates in a single reportable segment, providing financing solutions to auto dealers[41] - The business is seasonal, with peak Consumer Loan assignments and collections in the first quarter, leading to a significant provision for credit losses expense at the time of assignment[40] - The company adopted the CECL model on January 1, 2020, requiring an initial allowance for credit losses at the time of loan assignment[51][52] - New accounting updates (ASU 2023-06, 2023-09, 2024-03) are being evaluated for their impact on financial statements and disclosures[73][74][75] 4. FAIR VALUE OF FINANCIAL INSTRUMENTS The company estimates fair values for financial instruments using market-based measurements, with loans receivable showing a higher fair value than carrying amount Carrying Amount vs. Estimated Fair Value (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 Carrying Amount (Millions) | June 30, 2025 Estimated Fair Value (Millions) | Dec 31, 2024 Carrying Amount (Millions) | Dec 31, 2024 Estimated Fair Value (Millions) | | :----------------------------- | :--------------------------------------- | :-------------------------------------- | :--------------------------------------- | :-------------------------------------- | | Loans receivable, net | $8,001.9 | $9,098.3 | $7,850.3 | $8,922.7 | | Secured financing | $5,383.3 | $5,448.5 | $5,361.5 | $5,431.9 | | Senior notes | $1,086.4 | $1,141.0 | $991.3 | $1,035.3 | - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs); Loans receivable, net, are valued using Level 3 inputs[85][86][88] 5. RESTRICTED SECURITIES AVAILABLE FOR SALE Restricted securities available for sale, primarily corporate and government bonds, totaled $107.1 million as of June 30, 2025, showing a net unrealized gain Restricted Securities Available for Sale (June 30, 2025 vs. Dec 31, 2024) | Category | June 30, 2025 Amortized Cost (Millions) | June 30, 2025 Estimated Fair Value (Millions) | June 30, 2025 Gross Unrealized Gains (Millions) | June 30, 2025 Gross Unrealized Losses (Millions) | | :------------------------------ | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :---------------------------------------- | | Corporate bonds | $52.6 | $53.2 | $0.7 | $(0.1) | | U.S. Government and agency securities | $33.3 | $33.7 | $0.4 | $0.0 | | Asset-backed securities | $18.3 | $18.5 | $0.2 | $0.0 | | Mortgage-backed securities | $1.7 | $1.7 | $0.0 | $0.0 | | Total | $105.9 | $107.1 | $1.3 | $(0.1) | - The majority of restricted securities have contractual maturities between one and five years[93] 6. LOANS RECEIVABLE Net loans receivable increased to $8,001.9 million as of June 30, 2025, with a significant decrease in credit loss provision due to smaller loan performance decline Loans Receivable and Allowance for Credit Losses (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 (Millions) | Dec 31, 2024 (Millions) | | :-------------------------- | :----------------------- | :---------------------- | | Loans receivable | $11,563.0 | $11,289.1 | | Allowance for credit losses | $(3,561.1) | $(3,438.8) | | Loans receivable, net | $8,001.9 | $7,850.3 | Total Provision for Credit Losses | Period | 2025 (Millions) | 2024 (Millions) | Change (Millions) | % Change | | :------------------------------------ | :---------------- | :---------------- | :---------------- | :------- | | Three Months Ended June 30 | $172.6 | $320.6 | $(148.0) | -46.2% | | Six Months Ended June 30 | $334.5 | $506.6 | $(172.1) | -34.0% | - In Q2 2025, the company adjusted its forecasting methodology, reducing forecasted net cash flows by $18.6 million (0.2%) and increasing provision for credit losses by $16.5 million, primarily for 2024 Consumer Loans that underperformed[122] - In Q2 2024, a larger adjustment was made, reducing forecasted net cash flows by $147.2 million (1.4%) and increasing provision for credit losses by $127.5 million, affecting 2022-2024 Consumer Loans due to underperformance[123] Forecasted Collection Percentage (Total Loans) | Assignment Year | June 30, 2025 | March 31, 2025 | Dec 31, 2024 | Initial Forecast | Variance from Initial Forecast | | :-------------- | :------------ | :------------- | :----------- | :--------------- | :----------------------------- | | 2022 | 59.7% | 60.0% | 60.2% | 67.5% | -7.8% | | 2023 | 64.1% | 64.3% | 64.3% | 67.5% | -3.4% | | 2024 | 65.7% | 66.3% | 66.5% | 67.2% | -1.5% | | 2025 | 66.9% | 66.0% | — | 66.9% | 0.0% | 7. REINSURANCE VSC Re, the company's subsidiary, reinsures vehicle service contracts, reporting $24.1 million in net premiums earned for Q2 2025 and $47.6 million for H1 2025 Reinsurance Activity (Three and Six Months Ended June 30, 2025 vs. 2024) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | H1 2025 (Millions) | H1 2024 (Millions) | | :-------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Net assumed written premiums | $23.7 | $27.3 | $49.3 | $58.5 | | Net premiums earned | $24.1 | $24.3 | $47.6 | $46.2 | | Provision for claims | $19.8 | $20.3 | $35.9 | $37.3 | - VSC Re's trust assets include $0.8 million in restricted cash and $107.1 million in restricted securities as of June 30, 2025[126] 8. OTHER INCOME Other income increased to $19.0 million for Q2 2025 and $39.9 million for H1 2025, driven by ancillary product profit sharing and interest income Other Income (Three and Six Months Ended June 30, 2025 vs. 2024) | Source | Q2 2025 (Millions) | Q2 2024 (Millions) | H1 2025 (Millions) | H1 2024 (Millions) | | :-------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Ancillary product profit sharing | $7.5 | $6.4 | $16.2 | $13.7 | | Interest | $7.8 | $6.4 | $16.2 | $12.2 | | Remarketing fees | $3.3 | $2.9 | $6.7 | $6.2 | | Total | $19.0 | $16.2 | $39.9 | $33.1 | - Ancillary product profit sharing and interest income are recognized over time, while remarketing fees are recognized at the point of sale[130] 9. DEBT Total debt increased to $6,471.2 million as of June 30, 2025, utilizing diverse financing, and the company remained in compliance with debt covenants Debt Overview (June 30, 2025 vs. Dec 31, 2024) | Debt Type | June 30, 2025 Carrying Amount (Millions) | Dec 31, 2024 Carrying Amount (Millions) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | | Revolving secured lines of credit | $1.5 | $0.1 | | Secured financing | $5,383.3 | $5,361.5 | | Senior notes | $1,086.4 | $991.3 | | Total debt | $6,471.2 | $6,352.9 | - The company issued $500.0 million of 6.625% senior notes due 2030 in February 2025, using a portion to redeem $400.0 million of 2026 senior notes, incurring a $1.2 million pre-tax loss on extinguishment[156][157] - Warehouse Facility VI's revolving period was extended to September 30, 2028, with a reduced interest rate (SOFR + 185 bps) and servicing fee (4.0%); Warehouse Facility IV's revolving period was extended to July 30, 2028, with a reduced interest rate (SOFR + 205 bps)[194][195] - As of June 30, 2025, the company was in compliance with all debt covenants[162] 10. INCOME TAXES The effective income tax rate for Q2 2025 increased to 25.8% due to state tax changes, while H1 2025 decreased to 25.4% due to higher pre-tax income Effective Income Tax Rate Reconciliation | Factor | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | U.S. federal statutory income tax rate | 21.0% | 21.0% | 21.0% | 21.0% | | State and local income taxes | 3.6% | -3.7% | 3.2% | 16.9% | | Non-deductible executive compensation expense | 1.0% | -2.6% | 1.0% | 8.2% | | Tax deficiency (excess tax benefit) from stock-based compensation | 0.1% | 0.0% | 0.1% | -1.7% | | Other | 0.1% | 0.1% | 0.1% | 0.3% | | Effective income tax rate | 25.8% | 14.8% | 25.4% | 44.7% | - Changes in state tax laws enacted in Q2 2024, effective retroactively, significantly impacted the Q2 2024 effective tax rate due to a pre-tax loss in that period[167] 11. NET INCOME PER SHARE Basic net income per share for Q2 2025 was $7.55 and diluted EPS was $7.42, significantly improving from prior year Weighted Average Shares Outstanding | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------------ | :---------- | :---------- | :---------- | :---------- | | Basic number of weighted average shares outstanding | 11,574,018 | 12,282,174 | 11,831,094 | 12,381,656 | | Diluted number of weighted average shares outstanding | 11,771,525 | 12,282,174 | 12,023,903 | 12,533,246 | - Certain stock options and restricted stock units were excluded from diluted EPS calculation as their inclusion would have been anti-dilutive, particularly in Q2 2024 due to a net loss[172] 12. STOCK REPURCHASES The company repurchased 529,605 shares for $262.2 million in Q2 2025 and 858,669 shares for $426.6 million in H1 2025 Stock Repurchases | Period | Number of Shares Repurchased (Q2 2025) | Cost (Q2 2025, Millions) | Number of Shares Repurchased (H1 2025) | Cost (H1 2025, Millions) | | :-------------------------- | :--------------------------------------- | :----------------------- | :--------------------------------------- | :----------------------- | | Open Market | 528,462 | $261.6 | 853,960 | $424.2 | | Other | 1,143 | $0.6 | 4,709 | $2.4 | | Total | 529,605 | $262.2 | 858,669 | $426.6 | - As of June 30, 2025, the company had authorization to repurchase an additional 391,131 shares of common stock[174] 13. STOCK-BASED COMPENSATION PLANS Stock-based compensation expense for Q2 2025 was $12.7 million and $25.6 million for H1 2025, driven by new equity awards Stock-Based Compensation Expense | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | H1 2025 (Millions) | H1 2024 (Millions) | | :-------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Restricted stock units | $11.3 | $2.4 | $21.9 | $5.1 | | Stock options | $1.4 | $8.2 | $3.7 | $16.4 | | Total | $12.7 | $10.6 | $25.6 | $21.5 | - The company expects to recognize $219.5 million in total projected stock-based compensation expense from the remainder of 2025 through thereafter, with $24.1 million in the remainder of 2025[177] 14. BUSINESS SEGMENT AND OTHER INFORMATION The company operates as a single reportable operating segment, providing auto financing solutions in the United States, with all revenues and assets domestic - The Chief Executive Officer (CODM) reviews consolidated financial statements to assess performance and allocate resources, confirming a single reportable operating segment[179][180] - All revenues and long-lived assets are exclusively within the United States[181] - No single dealer represents 10% or more of the company's revenue or total loans receivable[183] 15. COMMITMENTS AND CONTINGENCIES The company faces ongoing consumer claims, litigation, and regulatory investigations, with a $31.8 million accrual, posing potential material financial impacts - The company is frequently subject to consumer claims, litigation, and regulatory investigations alleging violations of various consumer-oriented laws[185] - Potential outcomes include substantial damages, fines, statutory penalties, and injunctive relief, with possible material adverse impacts on financial position, liquidity, and results of operations[182] - A putative class action was filed on April 7, 2025, alleging TCPA violations for unsolicited calls using artificial or prerecorded voices[187] - The lawsuit jointly filed by the Office of the New York State Attorney General and the CFPB on January 4, 2023, is ongoing, with the CFPB withdrawing as a plaintiff on April 29, 2025[192] - Multi-state investigations by the Attorneys General of Maryland and New Jersey into origination and collection policies, expanding to 41 other states and D.C., are ongoing, though Kansas, Texas, and Iowa have withdrawn[193] 16. SUBSEQUENT EVENTS Subsequent to June 30, 2025, the company extended revolving periods and adjusted terms for Warehouse Facilities VI and IV, enhancing financing - On July 11, 2025, Warehouse Facility VI's revolving period was extended to September 30, 2028, with interest rate reduced from SOFR + 210 bps to SOFR + 185 bps, and servicing fee decreased from 6.0% to 4.0%[194] - On July 30, 2025, Warehouse Facility IV's revolving period was extended to July 30, 2028, with interest rate reduced from SOFR + 221.4 bps to SOFR + 205 bps[195] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on financial condition and operational results, highlighting increased net income from lower credit loss provisions and higher finance charges Overview This section provides a high-level summary of the company's financial performance, noting significant increases in net income for Q2 and H1 2025 - Q2 2025 net income was $87.4 million, a substantial increase from a $47.1 million net loss in Q2 2024, primarily due to lower credit loss provision and higher finance charges[199] - H1 2025 net income was $193.7 million, up from $17.2 million in H1 2024, driven by decreased credit loss provision and increased finance charges[200] - Forecasted collection rates declined by 0.5% in Q2 2025 and 0.7% in H1 2025, with slower forecasted net cash flow timing[201] - The average balance of the Loan portfolio increased by 6.8% in Q2 2025 (to $8.0 billion) and 8.9% in H1 2025 (to $7.9 billion) compared to the prior year periods[201] - Consumer Loan assignment unit and dollar volumes declined by 14.6% and 18.8% respectively in Q2 2025, and by 12.2% and 17.1% in H1 2025, compared to the prior year periods[201] Critical Success Factors Key success factors include accurate Consumer Loan performance forecasts, access to capital, and growing loan volume to maximize economic profit - Key to success are accurate Consumer Loan performance forecasts, access to capital, and maintaining/growing loan volume to maximize economic profit[202] - Economic profit is a non-GAAP measure used to evaluate financial results, determine profit-sharing, and guide business decisions, focusing on return on capital in excess of cost of capital[202] Consumer Loan Metrics This section details key Consumer Loan metrics, including forecasted collection percentages and the spread between collection and advance rates Forecasted Collection Percentage (Total Loans) | Assignment Year | June 30, 2025 | Initial Forecast | Variance from Initial Forecast | | :-------------- | :------------ | :--------------- | :----------------------------- | | 2021 | 63.8% | 66.3% | -2.5% | | 2022 | 59.7% | 67.5% | -7.8% | | 2023 | 64.1% | 67.5% | -3.4% | | 2024 | 65.7% | 67.2% | -1.5% | | 2025 | 66.9% | 66.9% | 0.0% | - Forecasted collection rates for 2025 Consumer Loans improved in Q2 2025, while those for 2022-2024 declined[205] - The spread between forecasted collection rate and advance rate for 2025 Consumer Loans (22.0%) is higher than for 2024 (20.6%), primarily due to underperformance of 2024 loans[211][214] - The risk of material change in forecasted collection rates decreases as Consumer Loans age, with over 90% of expected collections realized for 2020 and prior assignments[212] Access to Capital The company's funded debt to equity ratio was 4.2 to 1 as of June 30, 2025, supported by multiple funding sources - The company's funded debt to equity ratio was 4.2 to 1 as of June 30, 2025[221] - Multiple funding sources include revolving secured lines of credit, Warehouse facilities, Term ABS financings, and senior notes[221] Consumer Loan Volume Consumer Loan assignment unit and dollar volumes declined in Q2 2025, with an increase in Purchased Loans due to expanded dealer access Consumer Loan Assignment Volume (YoY % Change) | Period | Unit Volume | Dollar Volume | | :---------------- | :---------- | :------------ | | Q3 2023 | 13.0% | 10.5% | | Q4 2023 | 26.7% | 21.3% | | Q1 2024 | 24.1% | 20.2% | | Q2 2024 | 20.9% | 16.3% | | Q3 2024 | 17.7% | 12.2% | | Q4 2024 | 0.3% | -4.9% | | Q1 2025 | -10.1% | -15.5% | | Q2 2025 | -14.6% | -18.8% | - Active Dealers declined by 0.8% in Q2 2025, and average unit volume per active Dealer decreased by 14.0%[224] - The percentage of Purchased Loans in total assignment volume increased in 2025 due to expanded dealer access for consumers with higher credit ratings[229] Results of Operations This section analyzes the company's financial performance, detailing changes in revenue, expenses, and net income for the three and six months ended June 30 Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 Net income for Q2 2025 was $87.4 million, a significant improvement from a $47.1 million net loss in Q2 2024, driven by finance charges and lower credit loss provisions Key Financial Changes (Q2 2025 vs. Q2 2024) | Metric | Change (Millions) | % Change | Primary Driver | | :------------------------------------ | :---------------- | :------- | :------------- | | Finance charges | $43.0 | 8.6% | Increase in average net Loans receivable balance and average yield. | | Total operating expenses | $31.1 | 25.0% | Increase in legal expenses ($23.4M contingent loss) and salaries/wages (team members, stock-based comp). | | Total provision for credit losses | $(148.0) | -46.2% | Smaller decline in Consumer Loan performance and decrease in new Consumer Loan assignments. | | Interest expense | $13.6 | 13.0% | Increase in average outstanding debt balance. | | Loss on sale of building | $(23.7) | — | Non-recurring loss in Q2 2024. | | Net income (loss) | $134.5 | 285.6% | Combined impact of above. | - The effective income tax rate increased to 25.8% in Q2 2025 from 14.8% in Q2 2024, mainly due to state tax law changes and the shift from a pre-tax loss to pre-tax income[243] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 Net income for H1 2025 was $193.7 million, a substantial increase from $17.2 million in H1 2024, driven by finance charges and lower credit loss provisions Key Financial Changes (H1 2025 vs. H1 2024) | Metric | Change (Millions) | % Change | Primary Driver | | :------------------------------------ | :---------------- | :------- | :------------- | | Finance charges | $100.5 | 10.4% | Increase in average net Loans receivable balance and average yield. | | Other income | $6.8 | 20.5% | Increase in interest income and ancillary product profit sharing. | | Total operating expenses | $40.5 | 16.2% | Increase in legal expenses ($23.4M contingent loss) and salaries/wages (team members, stock-based comp, fringe benefits). | | Total provision for credit losses | $(172.1) | -34.0% | Smaller decline in Consumer Loan performance and decrease in new Consumer Loan assignments. | | Interest expense | $35.8 | 18.2% | Increase in average outstanding debt balance. | | Loss on sale of building | $(23.7) | — | Non-recurring loss in H1 2024. | | Net income | $176.5 | 1026.2% | Combined impact of above. | - The effective income tax rate decreased to 25.4% in H1 2025 from 44.7% in H1 2024, primarily due to a significant increase in pre-tax income in H1 2025[256] - The CECL model requires a significant provision for credit losses at loan assignment for contractual net cash flows not expected to be realized, and finance charge revenue in subsequent periods that exceeds expected yield[233] - The company believes the GAAP methodology does not fully reflect the economics of its business due to the timing of expense and revenue recognition[231] Liquidity and Capital Resources This section discusses the company's cash position, available credit, and debt structure, highlighting financing activities and debt maturities - Cash and cash equivalents were $70.0 million as of June 30, 2025, down from $343.7 million at December 31, 2024[264] - Unused and available revolving lines of credit totaled $1,733.5 million as of June 30, 2025[264] - Total balance sheet indebtedness increased to $6,471.2 million as of June 30, 2025, from $6,352.9 million at December 31, 2024, primarily funding loan portfolio growth and stock repurchases[264] - Key financing activities in H1 2025 included issuing $500.0 million in 2030 senior notes, completing a $400.0 million Term ABS financing, and extending the revolving secured line of credit facility[259][260][261] Scheduled Principal Debt Maturities (as of June 30, 2025) | Year | Scheduled Principal Debt Maturities (Millions) | | :---------------- | :--------------------------------------- | | Remainder of 2025 | $745.2 | | 2026 | $2,266.5 | | 2027 | $2,136.5 | | 2028 | $860.3 | | 2029 | $0.0 | | Over five years | $500.0 | | Total | $6,508.5 | Critical Accounting Estimates Management's estimates are crucial for financial statements, especially for forecasting net cash flows from the Loan portfolio, with recent adjustments - Management's estimates and judgments are crucial for financial statements, especially for forecasting future net cash flows from the Loan portfolio[268] - A Q2 2025 methodology adjustment reduced forecasted collection rates for 2024 Consumer Loans by $18.6 million (0.2%), increasing provision for credit losses by $16.5 million[269] Forward-Looking Statements This section identifies forward-looking statements, outlining key risk categories including industry, operational, macroeconomic, capital, liquidity, technology, cybersecurity, legal, and regulatory - Forward-looking statements are identified by words like "may," "will," "should," "believe," "expect," and are subject to risks and uncertainties[270][271] - Key risk categories include industry, operational, macroeconomic, capital, liquidity, technology, cybersecurity, legal, and regulatory risks[272][273][274][275] - The company disclaims any obligation to update forward-looking statements unless required by law[275] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No material changes to market risk information have occurred since the December 31, 2024 Annual Report on Form 10-K - No material changes to market risk information since the December 31, 2024 Annual Report on Form 10-K[277] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control - Disclosure controls and procedures were deemed effective as of June 30, 2025[278] - No material changes to internal control over financial reporting occurred during the fiscal quarter[279] PART II. — OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity security sales, other disclosures, and exhibits ITEM 1. LEGAL PROCEEDINGS The company faces routine consumer claims, litigation, and regulatory investigations, with potential for substantial damages and material financial impacts - The company is frequently subject to consumer claims, litigation, and regulatory investigations alleging violations of various consumer-oriented laws[282] - Potential outcomes include substantial damages, fines, statutory penalties, and injunctive relief, with possible material adverse impacts on financial position, liquidity, and results of operations[282] - For a detailed description of significant litigation, refer to Note 15 of the consolidated financial statements[283] ITEM 1A. RISK FACTORS This section updates risk factors related to adverse economic conditions and introduces new risks associated with artificial intelligence, including implementation, regulatory, and output challenges - The risk factor regarding adverse economic conditions and industry changes has been updated, emphasizing increased delinquencies, defaults, and losses during economic slowdowns, and the impact of inflation, high gasoline prices, and declining auto values[285][286] - New risks associated with artificial intelligence (AI) include significant investment requirements, challenges in integration, rapid technological evolution, and potential for competitive disadvantage[291] - The evolving legal and regulatory environment for AI poses compliance costs and risks, while AI models themselves may produce incorrect, biased, or harmful output, or infringe on intellectual property[292][293] - Reliance on third-party AI models and potential failures by third parties to adhere to AI policies could lead to legal/regulatory violations, intellectual property issues, or cybersecurity threats[293][294] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company repurchased 529,605 shares of common stock for $490.21 per share during Q2 2025, primarily through open market transactions Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------------------------------------------------------- | :----------------------------------------------------------------------------- | | April 1 to April 30, 2025 | 145,468 | $482.35 | 144,987 | 774,606 | | May 1 to May 31, 2025 | 284,332 | $492.03 | 284,024 | 490,582 | | June 1 to June 30, 2025 | 99,805 | $496.49 | 99,451 | 391,131 | | Total | 529,605 | $490.21 | 528,462 | 391,131 | - The repurchases were made under an August 2023 authorization for up to two million shares, with 391,131 shares remaining authorized as of June 30, 2025[298] ITEM 5. OTHER INFORMATION No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during Q2 2025 - No changes in Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers during Q2 2025[301] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including amendments to credit agreements and certifications - Key exhibits include the Fourteenth Amendment to Sixth Amended and Restated Credit Agreement (June 24, 2025) and the Seventh Amendment to Loan and Security Agreement (July 11, 2025)[302] - Certifications from the principal executive and financial officers (Sarbanes-Oxley Act Sections 302 and 906) are included[302] SIGNATURES The report was signed by Jay D. Martin, Chief Financial Officer, on behalf of Credit Acceptance Corporation on July 31, 2025 - The report was signed by Jay D. Martin, Chief Financial Officer, on July 31, 2025[305]