Summary of Consumer Portfolio Services (CPSS) Conference Call Company Overview - **Company Name**: Consumer Portfolio Services (CPSS) - **Ticker Symbol**: CPSS - **Industry**: Specialty finance, specifically subprime auto financing - **Headquarters**: Las Vegas - **Years in Business**: 34 years, making it the longest-running subprime auto finance company in the industry - **Employee Count**: Approximately 1,000 - **Dealer Relationships**: Contracts with 13,000 auto dealers, with 85% being franchise dealers and 15% independent dealers [3][4] Financial Performance - **Profitability**: 55 consecutive profitable quarters since 2014 [4][5] - **Assets Under Management (AUM)**: $3.9 billion, an all-time record [4][5] - **Portfolio Growth**: Year-over-year growth rate of 17% [5] - **Asset-Backed Securities (ABS)**: Completed 105 ABS deals over 34 years, averaging four deals per year [5][6] - **Revenue Growth**: Revenue increased from $266 million in 2021 to $363 million in 2022, with projections to exceed $400 million in 2023 [21][22] - **Net Yield**: Currently tracking a net yield of 1.2%, with expectations to exceed 3% by the end of the year [24][25] Market Dynamics - **Total Addressable Market**: $1.6 trillion in auto finance, with subprime representing 16% of that market [14] - **Application Volume**: Receiving 11,000 applications per day with a 45% approval rate [15] - **Competitive Landscape**: Limited competition with only 6-7 national players, creating a favorable environment for CPS [6][14] Technology and Innovation - **Fintech Approach**: Utilizes advanced technology and AI for credit evaluation and loan origination [9][10] - **AI Integration**: AI is used for customer behavior analysis, underwriting, and collections, improving efficiency and accuracy [11][12][13] - **Credit Algorithm**: Regularly updated every 18 months, leveraging 34 years of customer data [9][10] Risk Management - **Credit Tightening**: Adjusts credit criteria based on macroeconomic conditions, evidenced by a reduction in originations from $1.8 billion to $1.3 billion in response to market pressures [32][33] - **Net Losses**: Historical cumulative net losses around 15%, with recent vintages reaching 21%, currently targeting a 17% net loss [42][43] Strategic Focus - **Dealer Relationships**: Emphasis on large dealer groups, increasing originations from 16% to 29% from these groups [40] - **Operational Efficiency**: Reduced operating expenses from 6% to below 5%, contributing to improved net yield [23] Future Outlook - **Growth Projections**: Anticipating a 10% growth rate for the current year, with a target of $1.75 billion in originations [21][30] - **Interest Rate Impact**: High interest expenses are currently affecting profitability, with hopes for a reduction in borrowing costs to improve margins [22][30] Additional Insights - **Hidden Assets**: CPS holds approximately $400 million in cash from residuals of ABS transactions, providing liquidity and value to shareholders [28][29] - **Market Position**: CPS is well-capitalized with high shareholder equity and a strong portfolio, positioning itself favorably for future growth [30]