Credit Acceptance Corp 2026 Q3 Earnings Call

Thank you. Good afternoon and welcome to the Credit Acceptance Corporation quarterly earnings call. As you read our news release posted on the investor relations section of our website at ir.creditacceptance.com, 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, to comply with the SEC's Regulation G, please refer to the supplemental information section of our news release, which provides tables showing how non-GAAP measures reconcile to GAAP measures.

At this time, I would like to introduce our Chief Executive Officer, Vinayak Hegde.

Good afternoon everyone, and thank you for joining us. As I approach my one-year mark as CEO, the work we began when I stepped into this role is starting to produce tangible results. We set out to transform Credit Acceptance into a deeply data-informed, AI-enabled company while maintaining a disciplined approach to risk and capital allocation. We are focused on executing this strategy while building a culture that puts dealers and consumers at the center of how we operate. Our third quarter results show meaningful progress. Consumer loan assignment unit volume increased 38% year-over-year. Loan dollar volume increased 51%. Economic profit increased 18%. Economic profit per diluted share increased 30%, and active dealers reached a record more than 12,000. We expanded our dealer network, generated more volume from existing dealer relationships, and continued to strengthen the operating capabilities that support profitable growth.

We continue to drive operational rigor and data-driven disciplines across our business. As part of that work, we adjusted and strengthened our methodology for forecasting future net cash flows from our loan portfolio, which reduced forecasted collection rates from consumer loans assigned from 2022 to 2026. Additional seasoning, performance history, and more granular segmentation gave us better insight into expected lifetime collections. I will discuss what changed, what we learned, and how those insights are reflected in our current scorecard. Today, I will focus on three important takeaways. First, our third quarter growth was strong and broad-based. Second, we are advancing our pricing and forecasting capabilities, which provided insights that informed the portfolio forecast adjustment we made during the quarter. Third, the operating capabilities we have built give us confidence in the opportunity for disciplined, profitable growth.

We achieved these results through execution across four core operating pillars, customer obsession, segmentation, leveraging data and AI, and disciplined operating rhythms and practices. These will remain our center of gravity and priorities as we transform and grow our business. We achieved growth without compromising our credit discipline or chasing short-term volume, because our focus is growth that maximizes long-term economic profit per share. It is still early in capturing the opportunity ahead, but our transformation is well underway. Our first core operating pillar is customer obsession. We spend time with dealers in their stores, listen to their feedback, and work with them to help more consumers find reliable vehicles with affordable payments. Those conversations inform our product and technology priorities and keep our investments focused on the problems dealers and consumers need us to solve.

We are also making it easier for dealers to do business with us by integrating directly into the aggregator platforms they already use to submit financing applications. These integrations simplify the path from application to funding and expand our reach, particularly among franchise and large independent dealers. Additionally, we continue to make it easier for consumers to interact with us. For example, mobile app usage where consumers self-service their accounts has increased 19% year-over-year. The second pillar is segmentation. We are increasingly evaluating opportunities across multiple dimensions, including consumer credit, dealer characteristics, geography, vehicle attributes, and deal structure. This approach allows us to evaluate opportunity and risk with more granularity across specific segments, tailor our approach, and allocate resources where we believe we have the strongest opportunity to create value. We have strengthened our go-to-market execution and are building a more capable commercial engine.

Segmentation generates insights that shape our commercial strategies and our sales organization translates these strategies into field execution tailored by dealer type, geography, and channel. The work is contributing to growth among franchise and large independent dealers and is opening new distribution channels. Segmentation is also helping us identify opportunities within existing markets. The light structural damage vehicle offering we launched last quarter continues to add incremental volume and adoption is increasing as it scales nationally. More broadly, we are evaluating opportunities to expand the products we support in established segments where dealer and consumer demand already exist, and where we believe we can maximize economic value added. But segmentation is just as valuable in telling us where to be more selective. That discipline is central to how we think about growth. Let me address an important question directly.

How are we growing faster at the same time that we are lowering our forecast to certain existing loan cohorts? The majority of the impact of this quarter's forecast adjustment is related to loans assigned to us before the introduction of our new scorecard. Our current growth is driven by stronger commercial execution, expanded aggregator distribution, and a new scorecard, which was designed to enhance our risk assessment capabilities. We began rolling out our new scorecard late in the second quarter and enhanced it throughout the third quarter. In developing the new scorecard, we returned to first principles. We analyzed more recent performance across detailed consumer, vehicle, dealer, and transaction segments and back-tested those results against our prior expectations. We used those insights to inform the new scorecard, which uses more tailored approaches for customer segments with different risk characteristics.

We expect this approach to provide a richer and more current view of the risk, allowing us to differentiate loan attributes more effectively in making more informed pricing and assignment decisions. That analysis also helped us better understand the primary drivers of the small but consistent negative forecast changes that had been recording. It showed the underperformance of loans assigned to us in 2022 through 2026 was most pronounced in lower score bands. We made the portfolio forecast adjustment this quarter because the expanded analysis indicated that the underperformance in the affected cohorts was likely to continue. Without the insights that informed this adjustment, it is possible that quarterly adjustments would have continued through the remaining life of these loans. Coming to the performance of the loans assigned under the new scorecard, we are closely monitoring them, and early indications are encouraging.

However, these loans remain relatively unseasoned, and we need additional performance history before drawing firm conclusions. We view the current scorecard as an important step, not the end state. Over time, we'll continue to advance our models so we can refine pricing and implement decisions with greater speed and precision. Alongside the scorecard, our aggregator integrations expanded our reach towards franchise and large independent dealers, and our commercial team executed against those opportunities. Our unified strategy drove the growth, and the capabilities we are building are designed to help make it repeatable. Our objective is to make more informed, tailored decisions for each consumer, dealer, vehicle, and transaction. That should help us support consumers throughout the life of their loans, grow alongside our dealers, and allocate capital to opportunities where we maximize economic profit. The third pillar is leveraging data and AI. Our objective is practical. Use better data and predictive tools to improve risk selection, pricing, capital allocation, operating efficiency, and customer service.

We are modernizing our technology stack and bringing decades of proprietary data into a centralized platform so our teams can make faster, more informed decisions. For dealers, we are applying proprietary data and AI to inventory matching tools that help identify vehicles that fit well with our programs for consumers. We are embedding these capabilities in the systems dealers already use so they can fit naturally into dealer workflows. For consumers, we are expanding digital self-service and personalization across the life of the loan while preserving access to our team when human support is needed. To accelerate this evolution, we brought in Jeetu Mirchandani as Chief Technology Officer to lead our digital-first strategy and technology transformation. The fourth pillar is disciplined operating rhythms and practices.

Customer obsession, segmentation, and AI only create value when they are supported by clear ownership, consistent measurement, and timely decisions. Over the past year, we have established a more consistent cadence of setting priorities, measuring results, and holding teams accountable. We are also releasing internal constraints and shortening development cycles. As a result, we can deploy certain platform enhancements in days rather than weeks and align resources against a unified roadmap. We will not get every decision right. Our objective is to test ideas thoughtfully, identify what is not working early, and direct resources towards the initiatives producing the strongest results. Over the past year, we have deliberately assembled an executive leadership team with the capabilities needed to lead the next phase of our transformation.

During the quarter, we welcomed the additions of Sid Lal as Chief Marketing Officer, Jeetu Mirchandani as Chief Technology Officer, and Shannon Wilson as Chief Human Resources Officer. At the same time, we have preserved deep institutional knowledge throughout Credit Acceptance. We paired leaders who understand our business and customers with complementary experience from industries that have navigated similar challenges to the ones we are tackling today. This combination is already driving innovation and accelerating our business transformation. With our executive leadership team in place, we continue to invest in our talent and deepen our leadership bench to ensure we have capabilities required to execute our long-term strategy. These pillars define our core operating model, and our recent progress reflects the value of that work. Turning to our third-quarter operating results, economic profit is the primary metric around which we optimize our business.