Credit Acceptance(CACC) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents unaudited consolidated financial statements, detailed notes, and management's discussion and analysis ITEM 1. Financial Statements This section presents the unaudited consolidated balance sheets, income statements, comprehensive income, shareholders' equity, and cash flows Consolidated Balance Sheets This table provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific reporting dates | (Dollars in millions) | March 31, 2024 | December 31, 2023 | |:----------------------|:---------------|:------------------| | ASSETS: | | | | Cash and cash equivalents | $ 8.4 | $ 13.2 | | Restricted cash and cash equivalents | 559.2 | 457.7 | | Restricted securities available for sale | 99.9 | 93.2 | | Loans receivable, net | 7,345.6 | 6,955.3 | | Total assets | $ 8,097.0 | $ 7,610.2 | | LIABILITIES AND SHAREHOLDERS' EQUITY: | | | | Total liabilities | 6,444.8 | 5,856.5 | | Total shareholders' equity | 1,652.2 | 1,753.7 | | Total liabilities and shareholders' equity | $ 8,097.0 | $ 7,610.2 | Consolidated Statements of Income This table details the company's revenues, costs, expenses, and net income over the three-month periods | (Dollars in millions, except per share data) | For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 | |:---------------------------------------------|:------------------------------------------|:------------------------------------------| | Revenue: | | | | Finance charges | $ 469.2 | $ 421.1 | | Premiums earned | 21.9 | 17.4 | | Other income | 16.9 | 15.3 | | Total revenue | 508.0 | 453.8 | | Costs and expenses: | | | | Total operating expenses | 126.1 | 117.3 | | Total provision for credit losses | 186.0 | 137.4 | | Interest | 92.5 | 54.4 | | Provision for claims | 17.0 | 17.9 | | Total costs and expenses | 421.6 | 327.0 | | Income before provision for income taxes | 86.4 | 126.8 | | Provision for income taxes | 22.1 | 27.3 | | Net income | $ 64.3 | $ 99.5 | | Net income per share: | | | | Basic | $ 5.15 | $ 7.62 | | Diluted | $ 5.08 | $ 7.61 | Consolidated Statements of Comprehensive Income This table presents net income and other comprehensive gains or losses, leading to total comprehensive income | (In millions) | For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 | |:--------------|:------------------------------------------|:------------------------------------------| | Net income | $ 64.3 | $ 99.5 | | Other comprehensive gain (loss), net of tax: | | | | Unrealized gain (loss) on securities, net of tax | (0.2) | 0.8 | | Other comprehensive gain (loss) | (0.2) | 0.8 | | Comprehensive income | $ 64.1 | $ 100.3 | Consolidated Statements of Shareholders' Equity This table outlines changes in common stock, paid-in capital, retained earnings, and accumulated other comprehensive loss | (Dollars in millions) | Common Stock (Number of Shares) | Common Stock (Amount) | Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) | Total Shareholders' Equity | |:----------------------|:--------------------------------|:----------------------|:----------------|:------------------|:---------------------------------------|:---------------------------| | Balance, beginning of period (March 31, 2024) | 12,522,397 | $ 0.1 | $ 279.0 | $ 1,475.6 | $ (1.0) | $ 1,753.7 |\n| Net income | — | — | — | 64.3 | — | 64.3 |\n| Other comprehensive loss | — | — | — | — | (0.2) | (0.2) |\n| Stock-based compensation | — | — | 10.9 | — | — | 10.9 |\n| Repurchase of common stock | (351,368) | — | (1.0) | (190.1) | — | (191.1) |\n| Restricted stock units settled in common stock | 7,125 | — | — | — | — | — |\n| Stock options exercised | 42,426 | — | 14.6 | — | — | 14.6 |\n| Balance, end of period (March 31, 2024) | 12,220,580 | $ 0.1 | $ 303.5 | $ 1,349.8 | $ (1.2) | $ 1,652.2 | | (Dollars in millions) | Common Stock (Number of Shares) | Common Stock (Amount) | Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) | Total Shareholders' Equity | |:----------------------|:--------------------------------|:----------------------|:----------------|:------------------|:---------------------------------------|:---------------------------|\n| Balance, beginning of period (March 31, 2023) | 12,756,885 | $ 0.1 | $ 245.7 | $ 1,381.1 | $ (2.9) | $ 1,624.0 |\n| Net income | — | — | — | 99.5 | — | 99.5 |\n| Other comprehensive income | — | — | — | — | 0.8 | 0.8 |\n| Stock-based compensation | — | — | 9.9 | — | — | 9.9 |\n| Repurchase of common stock | (33,035) | — | (7.6) | (7.3) | — | (14.9) |\n| Restricted stock units settled in common stock | 100,757 | — | — | — | — | — |\n| Stock options exercised | 12,300 | — | 4.1 | — | — | 4.1 |\n| Balance, end of period (March 31, 2023) | 12,836,907 | $ 0.1 | $ 252.1 | $ 1,473.3 | $ (2.1) | $ 1,723.4 | Consolidated Statements of Cash Flows This table summarizes cash flows from operating, investing, and financing activities for the reporting periods | (In millions) | For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 | |:--------------|:------------------------------------------|:------------------------------------------| | Net cash provided by operating activities | $ 310.0 | $ 296.5 |\n| Net cash used in investing activities | (583.9) | (344.2) |\n| Net cash provided by financing activities | 370.6 | 118.1 |\n| Net increase in cash and cash equivalents and restricted cash and cash equivalents | 96.7 | 70.4 |\n| Cash and cash equivalents and restricted cash and cash equivalents beginning of period | 470.9 | 417.7 |\n| Cash and cash equivalents and restricted cash and cash equivalents end of period | $ 567.6 | $ 488.1 | Notes to Consolidated Financial Statements This section provides detailed disclosures and explanations for the consolidated financial statements, including accounting policies, loan specifics, and debt structures 1. Basis of Presentation This section describes the accounting principles and assumptions used in preparing the unaudited interim financial statements - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, not including all footnotes required for complete annual statements. Management's estimates and assumptions affect reported amounts, and actual results may differ[26][49] - No items requiring disclosure or adjustment were identified in events and transactions subsequent to March 31, 2024[50] - Certain prior period amounts have been reclassified to conform to the current presentation[51] 2. Description of Business This section outlines the company's core business of providing automobile financing solutions and its operational programs - Credit Acceptance Corporation provides innovative financing solutions to automobile dealers, enabling them to sell vehicles to consumers regardless of credit history, and helps consumers improve their credit scores[27][52] - The company operates two financing programs: the Portfolio Program (advances money to dealers for servicing consumer loans) and the Purchase Program (buys consumer loans from dealers)[56][87] Consumer Loan Assignment Volume | Consumer Loan Assignment Volume | For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 | |:--------------------------------|:------------------------------------------|:------------------------------------------| | Percentage of total unit volume with either FICO® scores below 650 or no FICO® scores | 83.3 % | 84.5 % | - The business is seasonal, with peak Consumer Loan assignments and collections in the first quarter, materially impacting interim results due to significant provision for credit losses expense recognition at assignment[35] 3. Summary of Significant Accounting Policies This section details the key accounting policies, including those for credit losses and loan portfolio segmentation - The company adopted the current expected credit loss model (CECL) on January 1, 2020. Loans prior to this date are accounted for under the PCD Method, while subsequent loans use the Originated Method[92][93] - The company's Loan portfolio consists of two segments: Dealer Loans and Purchased Loans, reflecting different risk levels and accounting treatments[67] Cash and Cash Equivalents and Restricted Cash and Cash Equivalents This section defines cash equivalents and restricted cash, detailing their components and balances - Cash equivalents are readily marketable securities with original maturities of three months or less[62] - Restricted cash and cash equivalents include cash pledged as collateral for secured financings and cash held in a trust for vehicle service contract claims[89] | (In millions) | March 31, 2024 | December 31, 2023 | |:--------------|:---------------|:------------------| | Cash and cash equivalents | $ 8.4 | $ 13.2 | | Restricted cash and cash equivalents | 559.2 | 457.7 | | Total cash and cash equivalents and restricted cash and cash equivalents | $ 567.6 | $ 470.9 | Restricted Securities Available for Sale This section describes restricted securities held in trust for vehicle service contract claims, valued at fair value - Restricted securities available for sale consist of amounts held in a trust for future vehicle service contract claims. These debt securities are stated at fair value with unrealized gains and losses included in comprehensive income[65] Loans Receivable and Allowance for Credit Losses This section explains the allowance for credit losses and the risks associated with the company's loan portfolio - The allowance for credit losses represents the amount needed to reduce the net carrying amount of loans to the present value of expected future net cash flows, discounted at the effective interest rate[73] - The majority of Consumer Loans are made to individuals with impaired or limited credit histories, entailing higher risk of delinquency, default, and losses. Accurate forecasting of Consumer Loan performance is critical[76] - When forecasted collection rates underperform, Purchased Loans are more adversely impacted than Dealer Loans, as Dealer Holdback payments mitigate losses for Dealer Loans[77] - The company fully writes off loans when no future net cash flows are expected, and partially writes off amounts exceeding 200% of the present value of expected future net cash flows[98] Finance Charges This section defines the components of finance charges and their recognition method over the loan life - Finance charges include interest income on loans, administrative fees from ancillary products, program fees, consumer loan assignment fees, and direct origination costs[78] - Finance charges are recognized on a level-yield basis over the life of the loan, calculated monthly by applying the effective interest rate to the net carrying amount[126] Reinsurance This section describes the company's reinsurance activities for vehicle service contracts and trust consolidation - The company's wholly-owned subsidiary, VSC Re Company, reinsures vehicle service contracts sold to consumers. Premiums are contributed to a trust account to fund claims[127] - The trust is consolidated into the financial statements as a variable interest entity, with the company identified as the primary beneficiary due to its control over premiums and obligation to absorb losses[82] New Accounting Updates Not Yet Adopted This section identifies new accounting standards currently being evaluated for their potential impact on financial statements - The company is evaluating the impact of ASU 2023-06 (Disclosure Improvements) and ASU 2023-09 (Improvements to Income Tax Disclosures), which are not yet adopted[105][106] - ASU 2023-07 (Improvements to Reportable Segment Disclosures) is also being evaluated, effective retrospectively for annual periods beginning after December 15, 2023, and interim periods after December 15, 2024[130] 4. Fair Value of Financial Instruments This section details the fair value measurement methodology and presents the fair values of financial instruments - Fair value is determined as an exit price, based on market participant assumptions, and assets/liabilities are grouped into three levels based on market activity and assumption observability[112] | Assets/Liabilities (In millions) | Carrying Amount (March 31, 2024) | Estimated Fair Value (March 31, 2024) | Carrying Amount (December 31, 2023) | Estimated Fair Value (December 31, 2023) | |:---------------------------------|:-----------------------------------|:--------------------------------------|:------------------------------------|:-----------------------------------------| | Cash and cash equivalents | $ 8.4 | $ 8.4 | $ 13.2 | $ 13.2 | | Restricted cash and cash equivalents | 559.2 | 559.2 | 457.7 | 457.7 | | Restricted securities available for sale | 99.9 | 99.9 | 93.2 | 93.2 | | Loans receivable, net | 7,345.6 | 8,215.3 | 6,955.3 | 7,759.1 | | Revolving secured lines of credit | $ 169.5 | $ 169.5 | $ 79.2 | $ 79.2 | | Secured financing | 4,444.1 | 4,304.6 | 3,990.9 | 4,025.9 | | Senior notes | 989.6 | 1,045.8 | 989.0 | 1,039.8 | | Mortgage note | 8.3 | 8.3 | 8.4 | 8.4 | 5. Restricted Securities Available for Sale This section provides a detailed breakdown of restricted securities available for sale by type and their fair values | (In millions) | Amortized Cost (March 31, 2024) | Gross Unrealized Gains (March 31, 2024) | Gross Unrealized Losses (March 31, 2024) | Estimated Fair Value (March 31, 2024) | |:--------------|:--------------------------------|:----------------------------------------|:-----------------------------------------|:--------------------------------------| | Corporate bonds | $ 44.7 | $ — | $ (0.7) | $ 44.0 | | U.S. Government and agency securities | 35.1 | — | (0.8) | 34.3 | | Asset-backed securities | 20.8 | 0.1 | (0.2) | 20.7 | | Municipal securities | 0.8 | — | — | 0.8 | | Mortgage-backed securities | 0.1 | — | — | 0.1 | | Total restricted securities available for sale | $ 101.5 | $ 0.1 | $ (1.7) | $ 99.9 | | (In millions) | Amortized Cost (December 31, 2023) | Gross Unrealized Gains (December 31, 2023) | Gross Unrealized Losses (December 31, 2023) | Estimated Fair Value (December 31, 2023) | |:--------------|:-----------------------------------|:-------------------------------------------|:--------------------------------------------|:-----------------------------------------| | Corporate bonds | $ 40.5 | $ 0.3 | $ (0.9) | $ 39.9 | | U.S. Government and agency securities | 35.2 | 0.2 | (0.9) | 34.5 | | Asset-backed securities | 18.0 | 0.1 | (0.2) | 17.9 | | Municipal securities | 0.7 | — | — | 0.7 | | Mortgage-backed securities | 0.2 | — | — | 0.2 | | Total restricted securities available for sale | $ 94.6 | $ 0.6 | $ (2.0) | $ 93.2 | 6. Loans Receivable and Allowance for Credit Losses This section presents detailed information on loans receivable, allowance for credit losses, and related activity by loan type | (In millions) | As of March 31, 2024 (Dealer Loans) | As of March 31, 2024 (Purchased Loans) | As of March 31, 2024 (Total) | |:--------------|:------------------------------------|:---------------------------------------|:-----------------------------| | Loans receivable | $ 7,553.0 | $ 2,930.5 | $ 10,483.5 | | Allowance for credit losses | (2,471.2) | (666.7) | (3,137.9) | | Loans receivable, net | $ 5,081.8 | $ 2,263.8 | $ 7,345.6 | | (In millions) | For the Three Months Ended March 31, 2024 (Dealer Loans) | For the Three Months Ended March 31, 2024 (Purchased Loans) | For the Three Months Ended March 31, 2024 (Total) | |:--------------|:---------------------------------------------------------|:------------------------------------------------------------|:--------------------------------------------------| | Balance, beginning of period | $ 7,065.5 | $ 2,954.6 | $ 10,020.1 | | Finance charges | 438.5 | 228.0 | 666.5 | | Provision for credit losses | — | — | (186.0) | | New Consumer Loan assignments | 1,009.4 | 307.6 | 1,317.0 | | Collections | (864.9) | (428.8) | (1,293.7) | | Write-offs | (142.8) | (168.6) | (311.4) | | Balance, end of period | $ 7,553.0 | $ 2,930.5 | $ 10,483.5 | | (In millions) | For the Three Months Ended March 31, 2024 (Dealer Loans) | For the Three Months Ended March 31, 2024 (Purchased Loans) | For the Three Months Ended March 31, 2024 (Total) | |:--------------|:---------------------------------------------------------|:------------------------------------------------------------|:--------------------------------------------------| | New Consumer Loan assignments | $ 57.4 | $ 41.4 | $ 98.8 | | Forecast changes | 64.3 | 22.9 | 87.2 | | Total | $ 121.7 | $ 64.3 | $ 186.0 | | (In millions) | For the Three Months Ended March 31, 2023 (Dealer Loans) | For the Three Months Ended March 31, 2023 (Purchased Loans) | For the Three Months Ended March 31, 2023 (Total) | |:--------------|:---------------------------------------------------------|:------------------------------------------------------------|:--------------------------------------------------| | New Consumer Loan assignments | $ 37.7 | $ 55.4 | $ 93.1 | | Forecast changes | 37.0 | 7.3 | 44.3 | | Total | $ 74.7 | $ 62.7 | $ 137.4 | | (In millions) | For the Three Months Ended March 31, 2024 (Dealer Loans) | For the Three Months Ended March 31, 2024 (Purchased Loans) | For the Three Months Ended March 31, 2024 (Total) | |:--------------|:---------------------------------------------------------|:------------------------------------------------------------|:--------------------------------------------------| | Contractual net cash flows at the time of assignment (1) | $ 1,586.2 | $ 636.5 | $ 2,222.7 | | Expected net cash flows at the time of assignment (2) | 1,437.8 | 448.2 | 1,886.0 | | Loans receivable at the time of assignment (3) | 1,009.4 | 307.6 | 1,317.0 | | Provision for credit losses expense at the time of assignment | $ (57.4) | $ (41.4) | $ (98.8) | | Expected future finance charges at the time of assignment (4) | 485.8 | 182.0 | 667.8 | | Expected net Loan income at the time of assignment (5) | $ 428.4 | $ 140.6 | $ 569.0 | | (In millions) | For the Three Months Ended March 31, 2024 (Dealer Loans) | For the Three Months Ended March 31, 2024 (Purchased Loans) | For the Three Months Ended March 31, 2024 (Total) | |:--------------|:---------------------------------------------------------|:------------------------------------------------------------|:--------------------------------------------------| | Balance, beginning of period | $ 6,707.2 | $ 3,472.0 | $ 10,179.2 | | New Consumer Loan assignments | 1,437.8 | 448.2 | 1,886.0 | | Realized net cash flows | (784.9) | (428.8) | (1,213.7) | | Forecast changes | (27.0) | (3.8) | (30.8) | | Transfers | (37.2) | 39.5 | 2.3 | | Balance, end of period | $ 7,295.9 | $ 3,527.1 | $ 10,823.0 | | (In millions) | For the Three Months Ended March 31, 2024 (Dealer Loans) | For the Three Months Ended March 31, 2024 (Purchased Loans) | For the Three Months Ended March 31, 2024 (Total) | |:--------------|:---------------------------------------------------------|:------------------------------------------------------------|:--------------------------------------------------| | Write-offs by Consumer Loan Assignment Year (2019 and prior) | $ 45.2 | $ 41.5 | $ 86.7 | | 2020 | 25.3 | 21.8 | 47.1 | | 2021 | 28.9 | 27.9 | 56.8 | | 2022 | 33.2 | 40.1 | 73.3 | | 2023 | 9.0 | 35.9 | 44.9 | | 2024 | 1.2 | 1.4 | 2.6 | | Total | $ 142.8 | $ 168.6 | $ 311.4 | 7. Property and Equipment This section details the company's property and equipment, including plans for office building consolidation and sale - The company plans to sell its larger office building in Southfield, Michigan, and consolidate into a smaller one due to a 'remote first' strategy, resulting in significant excess space[191][166] - The market value of the building intended for sale is believed to be significantly less than its carrying value of $27.5 million, but it does not yet meet criteria for reclassification as held for sale[166] | (In millions) | As of March 31, 2024 | As of December 31, 2023 | |:--------------|:---------------------|:------------------------| | Land and land improvements | $ 2.9 | $ 2.9 | | Building and improvements | 58.8 | 58.8 | | Data processing equipment and software | 49.2 | 50.0 | | Office furniture and equipment | 2.6 | 2.6 | | Total property and equipment | 113.5 | 114.3 | | Less: Accumulated depreciation on property and equipment | (68.9) | (67.8) | | Total property and equipment, net | $ 44.6 | $ 46.5 | 8. Reinsurance This section provides financial details on reinsurance activities, including premiums, claims, and trust assets | (In millions) | For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 | |:--------------|:------------------------------------------|:------------------------------------------| | Net assumed written premiums | $ 31.2 | $ 25.4 | | Net premiums earned | 21.9 | 17.4 | | Provision for claims | 17.0 | 17.9 | | Amortization of capitalized acquisition costs | 0.6 | 0.5 | | (In millions) | Balance Sheet Location | As of March 31, 2024 | December 31, 2023 | |:--------------|:-----------------------------------------|:---------------------|:------------------| | Trust assets | Restricted cash and cash equivalents | $ 3.0 | $ 1.4 | | Trust assets | Restricted securities available for sale | 99.9 | 93.2 | | Unearned premium | Accounts payable and accrued liabilities | 76.9 | 67.6 | | Claims reserve (1) | Accounts payable and accrued liabilities | 5.6 | 5.6 | 9. Other Income This section itemizes the components of other income, including profit sharing, interest, and remarketing fees - Other income includes ancillary product profit sharing, interest income, and remarketing fees[170][216][194] | (In millions) | For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 | |:--------------|:------------------------------------------|:------------------------------------------| | Ancillary product profit sharing | $ 7.3 | $ 7.5 | | Interest | 5.8 | 4.1 | | Remarketing fees | 3.3 | 3.0 | | Other | 0.5 | 0.7 | | Total | $ 16.9 | $ 15.3 | 10. Debt This section provides a detailed breakdown of the company's debt obligations and compliance with covenants | (In millions) | Principal Outstanding (March 31, 2024) | Unamortized Debt Issuance Costs (March 31, 2024) | Unamortized Discount (March 31, 2024) | Carrying Amount (March 31, 2024) | |:--------------|:---------------------------------------|:-------------------------------------------------|:--------------------------------------|:---------------------------------| | Revolving secured lines of credit (1) | $ 169.5 | $ — | $ — | $ 169.5 | | Secured financing (2) | 4,474.5 | (28.2) | (2.2) | 4,444.1 | | Senior notes | 1,000.0 | (10.4) | — | 989.6 | | Mortgage note | 8.3 | — | — | 8.3 | | Total debt | $ 5,652.3 | $ (38.6) | $ (2.2) | $ 5,611.5 | | (In millions) | Principal Outstanding (December 31, 2023) | Unamortized Debt Issuance Costs (December 31, 2023) | Unamortized Discount (December 31, 2023) | Carrying Amount (December 31, 2023) | |:--------------|:------------------------------------------|:----------------------------------------------------|:-----------------------------------------|:------------------------------------| | Revolving secured lines of credit (1) | $ 79.2 | $ — | $ — | $ 79.2 | | Secured financing (2) | 4,019.0 | (25.6) | (2.5) | 3,990.9 | | Senior notes | 1,000.0 | (11.0) | — | 989.0 |\n| Mortgage note | 8.4 | — | — | 8.4 |\n| Total debt | $ 5,106.6 | $ (36.6) | $ (2.5) | $ 5,067.5 | - The company was in compliance with all debt covenants under its revolving secured line of credit facility, Warehouse facilities, Term ABS financings, and senior notes indentures as of March 31, 2024[238][260] 11. Derivative and Hedging Instruments This section discusses the company's use of interest rate cap agreements to manage interest rate risk - The company uses interest rate cap agreements to manage interest rate risk on certain secured financings, though these are not designated as hedging instruments[263] - As of March 31, 2024, and December 31, 2023, the interest rate caps had a fair value of $0.1 million, as the capped rates were above market rates[239] 12. Income Taxes This section details the effective income tax rate and its reconciliation to the U.S. federal statutory rate | | For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 | |:--------------------------------------------|:------------------------------------------|:------------------------------------------| | U.S. federal statutory income tax rate | 21.0 % | 21.0 % | | State and local income taxes | 3.7 % | 3.2 % | | Non-deductible executive compensation expense | 1.3 % | 1.4 % | | Excess tax benefits from stock-based compensation | -0.6 % | -4.2 % | | Other | 0.2 % | 0.1 % | | Effective income tax rate | 25.6 % | 21.5 % | - The effective income tax rate increased to 25.6% for the three months ended March 31, 2024, from 21.5% in the prior year, primarily due to a decrease in excess tax benefits from stock-based compensation[240] 13. Net Income Per Share This section provides the calculation of basic and diluted net income per share, including weighted average shares | Weighted average shares outstanding: | For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 | |:-------------------------------------|:------------------------------------------|:------------------------------------------| | Common shares | 12,318,007 | 12,809,883 | | Vested restricted stock units | 163,132 | 247,734 | | Basic number of weighted average shares outstanding | 12,481,139 | 13,057,617 | | Dilutive effect of restricted stock units and stock options | 165,390 | 15,699 | | Dilutive number of weighted average shares outstanding | 12,646,529 | 13,073,316 | 14. Stock Repurchases This section details the company's stock repurchase activities, including shares bought and remaining authorization | (Dollars in millions) | Number of Shares Repurchased (2024) | Cost (1) (2024) | Number of Shares Repurchased (2023) | Cost (1) (2023) | |:----------------------|:------------------------------------|:----------------|:------------------------------------|:----------------| | Open Market (2) | 349,256 | $ 189.9 | — | $ — | | Other (3) | 2,112 | 1.2 | 33,035 | 14.9 | | Total | 351,368 | $ 191.1 | 33,035 | $ 14.9 | - As of March 31, 2024, the company had authorization to repurchase 1,456,751 shares of common stock[243] 15. Stock-Based Compensation Plans This section describes the company's stock-based compensation plans and related expense for the period - The company grants stock-based awards (restricted stock, restricted stock units, stock options) under its Amended and Restated Incentive Compensation Plan, utilizing a multi-year compensation program for executive officers and senior leaders[296] | (In millions) | For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 | |:--------------|:------------------------------------------|:------------------------------------------| | Stock options | $ 8.2 | $ 8.5 | | Restricted stock units | 2.7 | 1.4 | | Total | $ 10.9 | $ 9.9 | | (In millions) | Total Projected Compensation Expense | |:--------------|:-------------------------------------| | Remainder of 2024 | $ 31.1 | | 2025 | 11.4 | | 2026 | 5.4 | | 2027 | 0.2 | | 2028 | — | | Total | $ 48.1 | 16. Commitments and Contingencies This section outlines the company's legal proceedings, regulatory investigations, and potential financial impacts - The company is frequently subject to various consumer claims, litigation, and regulatory investigations, including allegations of violations of consumer protection laws, debt collection practices, and securitization practices[246][272][274] - Ongoing investigations include those from the Consumer Financial Protection Bureau (CFPB), the New York State Attorney General, the Maryland Attorney General (multistate inquiry), and the U.S. Department of Justice[247][272][274][301] - A joint lawsuit was filed by the New York State Attorney General and the CFPB on January 4, 2023, alleging deceptive practices, fraud, and securities fraud, which the company intends to vigorously defend[300] - The company is unable to estimate the reasonably possible loss or range of reasonably possible loss arising from these investigations and litigation[274][298][300][301] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial performance, critical success factors, consumer loan metrics, liquidity, and key changes in net income and expenses Overview This section summarizes the company's consolidated net income and key financial drivers for the reporting period - Consolidated net income for the three months ended March 31, 2024, was $64.3 million ($5.08 per diluted share), down from $99.5 million ($7.61 per diluted share) in the prior year, primarily due to increased provision for credit losses and interest expense, partially offset by higher finance charges[303] - Forecasted net cash flows decreased by $30.8 million (-0.3%) due to a decline in forecasted collection rates, compared to a $9.4 million increase (0.1%) in the prior year - Forecasted profitability for 2020-2022 Consumer Loans was lower than estimates due to declining collection rates and slower net cash flow timing - Consumer Loan assignment unit volume grew 24.1% and dollar volume grew 20.2% year-over-year, with the average loan portfolio balance increasing 11.7% - The initial spread on Consumer Loan assignments increased to 22.0% from 21.0% in the prior year - Average cost of debt increased from 4.7% to 7.0% due to higher interest rates on new/extended financings and senior notes - Common shares outstanding decreased by 5.7% (approximately 728,000 shares) due to stock repurchases since Q1 2023 Critical Success Factors This section identifies the key elements crucial for the company's long-term economic profitability and growth - Key success factors include accurately forecasting Consumer Loan performance, accessing capital on acceptable terms, and maintaining/growing Consumer Loan volume to maximize long-term economic profit[304] - Economic profit, a non-GAAP measure, is used to evaluate financial results, determine profit-sharing, and guide business decisions by measuring return on capital in excess of cost of capital[304] Consumer Loan Metrics This section details the company's consumer loan collection rate forecasts and their historical performance - The company uses a statistical model to estimate and continuously evaluate Consumer Loan collection rates, with accuracy improving as loans age[280] - Consumer Loans assigned in 2018-2020 outperformed initial collection estimates, while 2015, 2016, 2021, and 2022 underperformed - For Q1 2024, forecasted collection rates declined for 2021-2023 assignments and were consistent with expectations for other years - The cumulative change to forecasted future net cash flows from January 1, 2020, to March 31, 2024, was a decrease of $17.0 million (-0.2%)[281][283][308] | Consumer Loan Assignment Year | Forecasted Collection % as of March 31, 2024 | Initial Forecast % | Variance from Initial Forecast % | |:------------------------------|:---------------------------------------------|:-------------------|:---------------------------------| | 2015 | 65.3 % | 67.7 % | -2.4 % | | 2016 | 63.8 % | 65.4 % | -1.6 % | | 2017 | 64.7 % | 64.0 % | 0.7 % | | 2018 | 65.5 % | 63.6 % | 1.9 % | | 2019 | 67.0 % | 64.0 % | 3.0 % | | 2020 | 67.7 % | 63.4 % | 4.3 % | | 2021 | 64.3 % | 66.3 % | -2.0 % | | 2022 | 62.1 % | 67.5 % | -5.4 % | | 2023 | 67.2 % | 67.5 % | -0.3 % | | 2024 | 66.9 % | 66.9 % | 0.0 % | | Consumer Loan Assignment Year | Forecasted Collection % (Dealer Loans) | Advance % (Dealer Loans) | Spread % (Dealer Loans) | Forecasted Collection % (Purchased Loans) | Advance % (Purchased Loans) | Spread % (Purchased Loans) | |:------------------------------|:---------------------------------------|:-------------------------|:------------------------|:------------------------------------------|:----------------------------|:---------------------------| | 2024 | 66.0 % | 44.0 % | 22.0 % | 70.0 % | 48.3 % | 21.7 % | Consumer Loan Volume This section analyzes trends in consumer loan assignment unit and dollar volumes, and active dealer participation - Consumer Loan assignment volumes are influenced by demand for financing programs, available capital, and infrastructure capacity, with pricing aimed at maximizing economic profit[345] - Unit volume grew 24.1% and dollar volume grew 20.2% in Q1 2024 year-over-year - Active Dealers increased by 10.5%, and average volume per active Dealer rose by 12.0% - Dollar volume increased less than unit volume due to a decrease in the average advance paid, resulting from lower average advance rates and smaller average Consumer Loan sizes[346][321] | | For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 | % Change | |:------------------------------------------|:------------------------------------------|:------------------------------------------|:---------| | Consumer Loan unit volume | 111,488 | 89,821 | 24.1 % | | Active Dealers (1) | 10,805 | 9,775 | 10.5 % | | Average volume per active Dealer | 10.3 | 9.2 | 12.0 % | Results of Operations This section provides a detailed analysis of the company's revenues, expenses, and net income for the period - The GAAP methodology (CECL) for recognizing net loan income does not fully reflect the business's economics due to significant credit loss expense at assignment and higher subsequent finance charge revenue[323][351] | (Dollars in millions, except per share data) | 2024 (3 Months Ended March 31) | 2023 (3 Months Ended March 31) | $ Change | % Change | |:---------------------------------------------|:-------------------------------|:-------------------------------|:---------|:---------| | Total revenue | $ 508.0 | $ 453.8 | $ 54.2 | 11.9 % | | Total operating expenses | 126.1 | 117.3 | 8.8 | 7.5 % | | Total provision for credit losses | 186.0 | 137.4 | 48.6 | 35.4 % | | Interest | 92.5 | 54.4 | 38.1 | 70.0 % | | Net income | $ 64.3 | $ 99.5 | $ (35.2) | -35.4 % | | Diluted EPS | $ 5.08 | $ 7.61 | $ (2.53) | -33.2 % | - Finance charges increased by $48.1 million (11.4%) due to a higher average net Loans receivable balance, partially offset by a slight decrease in average yield[326][355] - Operating expenses increased by $8.8 million (7.5%), primarily driven by a $5.7 million (31.7%) rise in general and administrative expenses due to legal and technology system costs[356][327] - Provision for credit losses increased by $48.6 million (35.4%), with forecast changes contributing $42.9 million due to declining Consumer Loan performance and slower cash flow timing, and new assignments contributing $5.7 million due to higher unit volume[357][329] - Interest expense increased by $38.1 million (70.0%) due to a higher average cost of debt (7.0% vs. 4.7%) and an increased average outstanding debt principal balance ($5,306.8 million vs. $4,594.7 million)[359][360] - The effective income tax rate increased to 25.6% from 21.5%, mainly due to lower tax benefits from stock-based compensation[332] Properties This section discusses the company's office space strategy, including plans to sell a building due to remote work - The company is pursuing a 'remote first' strategy, leading to significant excess office space. A preliminary decision has been made to sell the larger of its two office buildings in Southfield, Michigan, and consolidate operations[361][333] - The market value of the building intended for sale is believed to be significantly less than its carrying value of $27.5 million, but it does not yet meet the criteria for reclassification as held for sale[383] Liquidity and Capital Resources This section outlines the company's sources of capital, debt levels, and recent financing activities - Primary capital sources include cash flows from operations, Consumer Loan collections, and borrowings from revolving secured lines of credit, Warehouse facilities, Term ABS financings, and senior notes[363] - Cash and cash equivalents were $8.4 million as of March 31, 2024, down from $13.2 million at December 31, 2023 - Unused and available lines of credit totaled $1,355.5 million as of March 31, 2024 - Total balance sheet indebtedness increased to $5,611.5 million as of March 31, 2024, from $5,067.5 million at December 31, 2023[336] - The company completed a $200.0 million Term ABS financing on February 27, 2024, and a $500.0 million Term ABS financing on March 28, 2024, both used for debt repayment and general corporate purposes[385][364] - The Term ABS 2021-1 financing was extended on February 16, 2024, pushing its revolving period end date to February 17, 2026[335] | (In millions) | Scheduled Principal Debt Maturities | |:--------------|:------------------------------------| | Remainder of 2024 | $ 627.8 | | 2025 | 1,800.9 | | 2026 | 2,094.4 | | 2027 | 519.1 | | 2028 | 610.1 | | Over five years | — | | Total | $ 5,652.3 | Critical Accounting Estimates This section highlights the significant estimates and judgments made in preparing the financial statements - The preparation of financial statements requires management to make estimates and judgments, particularly for assets, liabilities, and contingent items. No material changes to critical accounting estimates from the 2023 Annual Report on Form 10-K have occurred[366] Forward-Looking Statements This section cautions readers about risks and uncertainties that could impact future financial results and operations - The report contains forward-looking statements subject to risks and uncertainties, including the inability to accurately forecast collections, competition, adverse economic conditions, reliance on third parties, and capital access issues[367][368][389][390][391] - Other risks include technology and cybersecurity risks, legal and regulatory risks, and the potential for substantial debt and interest rate fluctuations[369][393][394][395] PART II. OTHER INFORMATION This section provides additional information beyond financial statements, including legal proceedings and equity security sales ITEM 1. Legal Proceedings This section details the company's ongoing legal proceedings and regulatory investigations, highlighting potential material adverse impacts - The company is frequently subject to consumer claims, litigation, and regulatory investigations alleging violations of consumer protection, debt collection, and other laws[375] - An adverse outcome in any legal action, or the requirement to pay filing fees for numerous individual arbitration demands, could materially harm the company's financial health[375] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activities, including shares bought in the open market and for tax withholdings | 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 (2) | Shares that May Yet Be Purchased Under the Plans or Programs (2) | |:------------------------|:---------------------------------|:---------------------------------|:-------------------------------------------------------------------------------------|:-----------------------------------------------------------------| | January 1 to January 31, 2024 | 224,118 | $ 533.54 | 223,808 | 1,582,199 | | February 1 to February 29, 2024 | 50,063 | $ 549.11 | 48,296 | 1,533,903 | | March 1 to March 31, 2024 | 77,187 | $ 548.88 | 77,152 | 1,456,751 | | Total | 351,368 | $ 539.13 | 349,256 | | - The average price paid per share excludes a 1% excise tax on repurchases in excess of issuances, enacted by the Inflation Reduction Act, which is recognized as part of the c