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Credit Acceptance(CACC) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted net income decreased by 35.6% to $127 million for Q1 2023 compared to Q1 2022 [13] - Adjusted earnings per share decreased by 29.4% to $9.71 from Q1 2022 [13] - The average balance of the loan portfolio increased by 0.8% on a GAAP basis and 5.1% on an adjusted basis compared to Q1 2022 [12] - Forecasted net cash flows from the loan portfolio increased by $9.4 million or 0.1% in Q1 2023 [4] Business Line Data and Key Metrics Changes - Growth in consumer loan assignment volume increased by 22.8% in units and 18.6% in dollar volumes compared to Q1 2022 [18] - The initial spread on consumer loans assigned in Q1 2023 was 21%, up from 19.4% in Q1 2022 [5] Market Data and Key Metrics Changes - The company noted stable forecasted collection rates during Q1 2023, contrasting with the elevated consumer loan performance seen in Q1 2022 due to federal stimulus payments [4] Company Strategy and Development Direction - The company is investing in its engineering department to enhance products and transform technology systems to be more dealer and customer-focused, leading to a 14.4% increase in operating expenses compared to Q1 2022 [19] - The company aims to maintain capital to fund anticipated levels of loan originations while considering market conditions and regulatory matters [49] Management's Comments on Operating Environment and Future Outlook - Management indicated that the debt markets have reacted to concerns around credit quality, with tighter and more expensive credit markets compared to 18 months ago [45] - The company expects to continue growing its portfolio based on April numbers, although this could change in the coming months [24] Other Important Information - The company reported a provision for forecast changes of $44 million, primarily due to the slowdown in cash flow timing [60] - Management emphasized the importance of building a significant margin of safety into loans to mitigate uncertainties in the underwriting process [41] Q&A Session Summary Question: How do you program the unique environment with rising rates and inflation? - Management stated they have a good track record in predicting collection rates over a large number of loans but cannot predict individual outcomes [23] Question: How does the funding environment change with recent bank failures? - Management noted that while the funding environment remains stable for them, credit markets are tighter and more expensive than before [45] Question: What is the appetite for share repurchases given slower growth? - Management indicated that share repurchases are considered when they can buy stock for less than its worth, depending on capital availability [54] Question: What were the growth rates for unit originations in Q1? - Management reported growth rates of 39% in January, 27% in February, and 12% in March, attributing variability to prior year comparisons [68] Question: Any updates on the CFPB and New York AG issue? - Management stated that the latest updates are included in the 10-Q filed on the same day [52]