Credit Acceptance(CACC) - 2024 Q4 - Annual Report

Consumer Loans Performance - In 2024, 80.6% of Consumer Loans assigned had either FICO scores below 650 or no FICO scores, compared to 80.9% in 2023 and 84.8% in 2022[15]. - In 2024, the total dollar volume of Consumer Loan assignments reached $4,618.4 million, a significant increase from$ 4,147.8 million in 2023, representing a growth of approximately 11.3%[51]. - The average balance of the Loan portfolio increased by 13.6%, marking the largest balance ever for the Company[146]. - The average yield on the Loan portfolio remained stable at 26.5%[187]. - The average forecasted collection percentage for Consumer Loans as of December 31, 2024, was 66.5%, compared to an initial forecast of 67.2%[163]. - Consumer Loans assigned in 2022 continued to underperform expectations, leading to a reduction in forecasted collection rates[156]. - The company monitors Consumer Loan performance monthly, adjusting forecasts based on actual performance data as loans age[206]. Revenue and Financial Performance - Total revenue for the year ended December 31, 2024, was $2,162.4 million, an increase of$ 260.5 million or 13.7% compared to 2023[185]. - Finance charges represented 92.2% of total revenue in 2024, slightly down from 92.3% in 2023 and up from 92.0% in 2022[25]. - Finance charge revenue increased by $237.3 million, or 13.5%, primarily due to an increase in the average net Loans receivable balance, which rose by$ 902.9 million to $7,530.7 million[187]. - The provision for credit losses increased by$ 78.5 million, or 10.7%, totaling $814.7 million, driven mainly by forecast changes[191]. - Net income decreased to$ 247.9 million, down $38.2 million or 13.4% from the previous year[185]. Dealer Relationships and Operations - The number of Dealer enrollments increased to 6,088 in 2024 from 5,605 in 2023, while active Dealers rose to 15,463 from 14,174[27]. - The Company relies on Dealers for Consumer Loan origination, and high levels of Dealer attrition could adversely affect operations[75]. - The company utilizes a Dealer rating system to assess performance, which influences the amount paid to Dealers for Consumer Loans, aligning interests among Dealers, consumers, and the company[40]. - The average volume per active Dealer increased by 6.4% in 2024, indicating improved performance among Dealers[178]. Regulatory and Legal Risks - The company is subject to various regulations, including the Truth in Lending Act and the Equal Credit Opportunity Act, which could materially affect operations if not complied with[55]. - Regulatory investigations by state and federal agencies are ongoing, which may have a material adverse impact on the company[57]. - The Company received multiple subpoenas from the New York State Attorney General regarding origination, collection, and securitization practices, with potential litigation for violations of various laws[59]. - The Company intends to vigorously defend itself against the allegations in the ongoing litigation[60]. Economic and Market Conditions - Economic downturns could lead to increased delinquencies, defaults, and losses on Consumer Loans, adversely impacting financial results[74]. - The market for consumers who do not qualify for conventional automobile financing is highly competitive, with various financial institutions and dealerships competing for this segment[49]. - The company is subject to competition from various financing sources, which may affect its ability to compete successfully in the automobile finance market[72]. Debt and Financial Management - The company has substantial debt, which may hinder its ability to generate sufficient cash flows to service obligations and could require asset sales or refinancing[94]. - Interest expense rose significantly by$ 153.0 million, or 57.4%, reaching $419.5 million, attributed to an increase in the average outstanding debt balance and average cost of debt[196]. - The average outstanding debt balance increased by$ 1,064.0 million to $5,849.7 million, contributing to higher interest expenses[196]. - The company's debt agreements impose covenants that restrict business operations, potentially preventing favorable business activities and impairing strategic execution[90]. Cybersecurity and Technology Risks - The Company has implemented a comprehensive information security incident management plan to respond effectively to cybersecurity threats[124]. - Cybersecurity threats have not materially affected the company to date, but future incidents could have a significant adverse effect[100]. - The company relies on technology for processing significant amounts of data, and any loss of these systems could interrupt business operations[99]. - The rapid evolution of technology may require additional investment in information systems to support future growth[102]. Collection Rates and Forecasting - The decline in forecasted collection rates decreased forecasted net cash flows from the Loan portfolio by$ 314.0 million, or 3.1%, compared to a decrease of $206.3 million, or 2.3% in 2023[145]. - The forecasted collection rates for Consumer Loans assigned in 2021 were 63.8%, down from an initial forecast of 66.3%[163]. - An adjustment in forecasting methodology during Q2 2024 reduced forecasted net cash flows by$ 147.2 million, or 1.4%, and increased provision for credit losses by $127.5 million[156].