Credit Acceptance Corp 2026 Q2 Earnings Call

Thank you. Good afternoon. 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, 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 financial results section of our news release, which provides tables showing how non-GAAP measures reconcile to GAAP measures.

Before turning the call over to Vinayak, I'd like to share a personal note. I retired as chief financial officer on July 27th and now serve as a senior advisor to assist with the leadership transition. As a result, this will be my final quarterly earnings call. It has been an honor to serve Credit Acceptance and its shareholders for the past 23 years. I am sincerely grateful for the trust and support that our investors, analysts, business partners, directors, and team members have shown throughout the years. I leave my role with tremendous confidence in the future of the company. Under Vinayak's leadership and with Joe Billante now serving as chief financial officer, I believe Credit Acceptance is well-positioned to continue building on its long history of success.

While I am stepping away from my day-to-day responsibilities, I will remain a shareholder and look forward to following the company's continued success in the years ahead. Thank you again for your support over the years. With that, I'd like to introduce our Chief Executive Officer, Vinayak Hegde.

Good afternoon, everyone, and thank you for joining us today. The second quarter represented another step forward for Credit Acceptance. While the environment remains challenging for many non-prime consumers and the dealers who serve them, we are seeing encouraging signs that the work we have been doing across pricing, segmentation, and operating efficiency is beginning to gain traction. Profitability increased, volume trends continued to improve, dealer engagement remains strong, and we are becoming more precise in how we deploy capital, underwrite risk, and serve our customers. The progress we are seeing is the result of a series of deliberate changes we have made across the business. It reflects a broader evolution in how we operate using data, better tools, and a more disciplined approach to decision-making across the business.

At the center of that transformation is a commitment to customer obsession, putting dealers and consumers at the heart of the decisions we make. We are still early in that journey, and we are beginning to see those efforts show up in the results. I'll begin with the financial highlights. For the second quarter, we reported GAAP net income of $12.66 per diluted share, up 71% from the second quarter of 2025, and adjusted net income of $12.12 per diluted share, up 21% from last Q2. From a loan performance perspective, forecasted net cash flows from the loan portfolio declined by 0.3% during the quarter, compared to a decline of 0.5% in the second quarter of last year. While we continue to monitor portfolio performance carefully, the broader picture remains of increasing stability relative to the more volatile periods we have experienced over the past several years.

On the origination side, consumer loan assignment unit volume declined 1% year-on-year. Importantly, monthly unit volumes returned to year-on-year growth in June, and that growth continued into July. This does not mean our work is complete, but it's an encouraging sign that the changes we have made are beginning to show up in the business. Looking across the business, the quarter shows that we are moving back towards better operating results while doing so with a more data-informed and targeted approach. That distinction is important. Our objective is not to regain volume at any cost. Our objective is profitable growth, supported by disciplined capital allocation and a relentless focus on maximizing long-term intrinsic value per share. A central part of our strategy is building Credit Acceptance into a deeply data-informed, AI-enabled company.

That means using better information and a sharper operating discipline to make more precise decisions across pricing, marketing, servicing, and collections. The foundation of that work is segmentation, understanding dealers, vehicles, and consumers at a more granular level so we can focus on where we can be most competitive and where the long-term economics are strongest. At the dealer level, segmentation helps us better understand friction points, dealer needs, and opportunities to strengthen our partnerships. We are using those insights to simplify workflows and integrate more deeply into the systems dealers already use including RouteOne, Dealertrack, and DealerCenter. The easier we are to do business with while maintaining our discipline, the better experience we create for dealers and a better position we are in the marketplace. To better serve our dealer partners, we made improvements in our sales engagement model.

We are being more deliberate about where our sales force spends time, how we structure markets, and how we tailor service to different types of dealers. Not every dealer has the same needs, and not every market opportunity requires the same approach. We believe better alignment between dealer engagement and pricing should support more disciplined, profitable growth. In prior quarters, I discussed our strategy with franchise dealers, and today we are seeing encouraging progress in originations and engagement across that segment of our dealer network. Our focus has been on reducing attrition, regaining market share where the economics make sense, and better meeting their needs. We're also building AI-based tools to give our sales teams better insights in the field. One example is helping our teams advise dealers on which vehicles in their inventory best fit our program, where adjustments to inventory strategy may improve outcomes.

This is what we mean by being AI-enabled, using better information to help our teams make more informed recommendations for our dealer partners. At a vehicle level, segmentation helps us identify which vehicles fit our program, where we can be competitive, and how vehicle characteristics interact with consumer credit performance. One example this quarter was our work around light structural damage vehicles. We opened this opportunity after careful calibration, as it aligns with market standards, the inventory dealers commonly carry, and the price and vehicle segments in which we compete. We're monitoring the performance and risk carefully, and early results are encouraging. Plan to evaluate additional vehicle categories with the same disciplined approach to determine where we can expand responsibly. Consumer segmentation is equally important. Our goal is to better match consumer credit performance to the vehicle profile and deal structure.

Over time, we want to move closer to personalization, making decisions that reflect specific economics and risk of each transaction. We're still early in that journey, but the direction is clear, and I'm confident in our ability to keep improving. We're continuing to improve our pricing and decisioning models. As conditions change, our models need to evolve with them. This means testing assumptions, back-testing performance, refining variables to improve precision, and deploying pricing changes efficiently. Our goal is to make this process faster, more rigorous, and more responsive to current market conditions. Our refined scorecard improves how we evaluate consumer credit strength and deal-level risk by leveraging additional data across consumer, deal, and vehicle characteristics. This can enable us to assess risk more precisely at the deal level. We're encouraged by the initial results we saw in Q2. We'll continue refining the scorecard as conditions evolve.

We are taking the same deeply data-informed, AI-enabled approach to servicing. We see meaningful opportunities for data to help us better understand where consumers are in their journey, what challenges they may be facing, and how we can support them through the life of their loan. Our objective is to improve both the effectiveness and efficiency of servicing, helping consumers get the support they need while expanding self-service options and delivering a better consumer experience at scale. This work is closely tied to our purpose of changing lives. Credit Acceptance exists to make vehicle ownership possible for consumers who may otherwise have limited access to financing. When we do our job well, we help consumers obtain transportation and create an opportunity to build stronger financial future. That is why improving our company and improving consumer outcomes are not separate goals. They are deeply connected. Stepping back, I believe our transformation is still early, but it's becoming increasingly tangible.

We have not changed our focus on profitable growth. We continue to approach capital allocation with discipline, directing capital towards opportunities where we see the strongest long-term value for shareholders. What has changed is the level of precision in which we are managing the business, the dealers we serve, the vehicles that fit our program, the consumers we can support effectively, and the pricing strategies that create attractive long-term economics. That precision should help us build a more durable, resilient company while delivering a better experience for both dealers and consumers. I'm optimistic about the path we are on and the team we have to execute our vision.

The work we are doing is beginning to show up in the business, while we still have plenty left to accomplish, the capabilities we are building today should position Credit Acceptance to serve our customers better and maximize long-term intrinsic value per share. As I close, I want to take a moment to recognize two leaders who have made a meaningful impact on Credit Acceptance. First, I want to recognize Ken Booth, who recently retired from our board of directors as part of a planned transition after previously serving as our CEO. Ken played a pivotal role in shaping Credit Acceptance and advancing our mission.