Southfield, Michigan, April 29, 2015 (GLOBE NEWSWIRE) -- Credit Acceptance Corporation (NASDAQ:
CACC) (referred to as the "Company", "Credit Acceptance",
"we", "our", or "us") today announced consolidated net income of
$71.5 million, or $3.41 per diluted share, for the three months
ended March 31, 2015 compared to consolidated net income of $49.8
million, or $2.12 per diluted share, for the same period in
2014. For the three months ended March 31, 2014, our GAAP
financial results included a pre-tax loss on extinguishment of debt
of $21.8 million and additional interest expense of $1.4 million
associated with the issuance and redemption of senior notes during
the period, which collectively reduced consolidated net income by
$14.6 million or $0.62 per diluted share.
Adjusted net income, a non-GAAP financial
measure, for the three months ended March 31, 2015 was $72.1
million, or $3.44 per diluted share, compared to $63.4 million, or
$2.69 per diluted share, for the same period in 2014.
Webcast Details
We will host a webcast on April 29, 2015 at 5:00
p.m. Eastern Time to answer questions related to our first quarter
results. The webcast can be accessed live by visiting
the "Investor Relations" section of our website at
creditacceptance.com or by dialing
877-303-2904. Additionally, a replay and transcript of
the webcast will be archived in the "Investor Relations" section of
our website.
Consumer Loan Performance
Dealers assign retail installment contracts
(referred to as "Consumer Loans") to Credit
Acceptance. At the time a Consumer Loan is submitted to
us for assignment, we forecast future expected cash flows from the
Consumer Loan. Based on the amount and timing of these
forecasts and expected expense levels, an advance or one-time
purchase payment is made to the related dealer at a price designed
to achieve an acceptable return on capital. If Consumer
Loan performance equals or exceeds our initial expectation, it is
likely our expected return on capital will be achieved.
We use a statistical model to estimate the
expected collection rate for each Consumer Loan at the time of
assignment. We continue to evaluate the expected
collection rate of each Consumer Loan subsequent to
assignment. Our evaluation becomes more accurate as the
Consumer Loans age, as we use actual performance data in our
forecast. By comparing our current expected collection
rate for each Consumer Loan with the rate we projected at the time
of assignment, we are able to assess the accuracy of our initial
forecast. The following table compares our forecast of
Consumer Loan collection rates as of March 31, 2015, with the
forecasts as of December 31, 2014, and at the time of assignment,
segmented by year of assignment:
|
|
Forecasted
Collection Percentage as of (1) |
|
Variance in
Forecasted Collection Percentage from |
Consumer Loan
Assignment Year |
|
March
31, 2015 |
|
December 31,
2014 |
|
Initial
Forecast |
|
December 31,
2014 |
|
Initial
Forecast |
2006 |
|
70.0% |
|
70.0% |
|
71.4% |
|
0.0% |
|
-1.4% |
2007 |
|
68.1% |
|
68.0% |
|
70.7% |
|
0.1% |
|
-2.6% |
2008 |
|
70.3% |
|
70.3% |
|
69.7% |
|
0.0% |
|
0.6% |
2009 |
|
79.4% |
|
79.4% |
|
71.9% |
|
0.0% |
|
7.5% |
2010 |
|
77.3% |
|
77.2% |
|
73.6% |
|
0.1% |
|
3.7% |
2011 |
|
74.2% |
|
74.0% |
|
72.5% |
|
0.2% |
|
1.7% |
2012 |
|
73.4% |
|
73.4% |
|
71.4% |
|
0.0% |
|
2.0% |
2013 |
|
73.6% |
|
73.7% |
|
72.0% |
|
-0.1% |
|
1.6% |
2014 |
|
72.8% |
|
72.6% |
|
71.8% |
|
0.2% |
|
1.0% |
(1)
Represents the total forecasted collections we expect to collect on
the Consumer Loans as a percentage of the repayments that we were
contractually owed on the Consumer Loans at the time of
assignment. Contractual repayments include both
principal and interest.
Consumer Loans assigned in 2009 through 2014
have yielded forecasted collection results materially better than
our initial estimates, while Consumer Loans assigned in 2006 and
2007 have yielded forecasted collection results materially worse
than our initial estimates. For Consumer Loans assigned
in 2008, actual results have been very close to our initial
estimates. For the three months ended March 31, 2015,
forecasted collection rates improved for Consumer Loans assigned in
2011 and 2014 and were generally consistent with expectations at
the start of the period for all other assignment years
presented.
Forecasting collection rates accurately at loan
inception is difficult. With this in mind, we establish
advance rates that are intended to allow us to achieve acceptable
levels of profitability, even if collection rates are less than we
initially forecast.
The following table presents forecasted Consumer
Loan collection rates, advance rates, the spread (the forecasted
collection rate less the advance rate), and the percentage of the
forecasted collections that had been realized as of March 31,
2015. All amounts, unless otherwise noted, are presented
as a percentage of the initial balance of the Consumer Loan
(principal + interest). The table includes both dealer
loans and purchased loans.
|
|
As of March 31,
2015 |
Consumer Loan
Assignment Year |
|
Forecasted
Collection % |
|
Advance %
(1) |
|
Spread
% |
|
% of
Forecast
Realized (2) |
2006 |
|
70.0% |
|
46.6% |
|
23.4% |
|
99.7% |
2007 |
|
68.1% |
|
46.5% |
|
21.6% |
|
99.3% |
2008 |
|
70.3% |
|
44.6% |
|
25.7% |
|
99.0% |
2009 |
|
79.4% |
|
43.9% |
|
35.5% |
|
99.0% |
2010 |
|
77.3% |
|
44.7% |
|
32.6% |
|
98.2% |
2011 |
|
74.2% |
|
45.5% |
|
28.7% |
|
93.6% |
2012 |
|
73.4% |
|
46.3% |
|
27.1% |
|
80.7% |
2013 |
|
73.6% |
|
47.6% |
|
26.0% |
|
58.0% |
2014 |
|
72.8% |
|
47.7% |
|
25.1% |
|
26.4% |
2015 |
|
68.7% |
|
45.7% |
|
23.0% |
|
3.2% |
(1)
Represents advances paid to dealers on Consumer Loans assigned
under our portfolio program and one-time payments made to dealers
to purchase Consumer Loans assigned under our purchase program as a
percentage of the initial balance of the Consumer
Loans. Payments of dealer holdback and accelerated
dealer holdback are not included.
(2)
Presented as a percentage of total forecasted
collections.
The risk of a material change in our forecasted
collection rate declines as the Consumer Loans age. For
2011 and prior Consumer Loan assignments, the risk of a material
forecast variance is modest, as we have currently realized in
excess of 90% of the expected collections. Conversely,
the forecasted collection rates for more recent Consumer Loan
assignments are less certain as a significant portion of our
forecast has not been realized.
The spread between the forecasted collection
rate and the advance rate declined during 2007 as we increased
advance rates in response to a more difficult competitive
environment. During 2008 and 2009, the spread increased
as the competitive environment improved and we reduced advance
rates. In addition, during 2009, the spread was
positively impacted by materially better than expected Consumer
Loan performance. During the 2010 through 2013 period,
the spread decreased as we again increased advance rates in
response to the competitive environment. The decline in
the spread from 2013 to 2014 is primarily the result of the
performance of 2013 Consumer Loans, which has exceeded our initial
expectations by a greater margin than 2014 Consumer Loans. The
decline in the spread from 2014 to 2015 was primarily the result of
a change in the mix of Consumer Loan assignments and the
performance of the 2014 Consumer Loans, which has exceeded our
initial estimates.
The initial forecast for Consumer Loans assigned
in the first quarter of 2015 was lower than the initial forecast
for Consumer Loans assigned in 2014. The lower initial
forecast reflects a change in the mix of Consumer Loan assignments
received during the first quarter of 2015, including a longer
average initial loan term. The average initial term for
Consumer Loans assigned in the first quarter of 2015 was 49.1
months as compared to 46.9 months for Consumer Loans assigned in
2014. The average estimated initial
yield(3) on Consumer Loans assigned in the first
quarter of 2015 was comparable to the average estimated initial
yield(3) on Consumer Loans assigned in the fourth
quarter of 2014.
(3) The average estimated initial yield represents
the rate of return we expect on Consumer Loans assigned during a
given period excluding other income and premiums earned and before
deducting expenses. Assuming no changes in forecasted cash
flows, premiums earned, other income, expenses or tax rates, a
consistent yield would generate a consistent after-tax return on
capital.
The following table presents forecasted Consumer
Loan collection rates, advance rates, and the spread (the
forecasted collection rate less the advance rate) as of March 31,
2015 for dealer loans and purchased loans
separately. All amounts are presented as a percentage of
the initial balance of the Consumer Loan (principal +
interest).
|
Consumer Loan Assignment
Year |
|
Forecasted
Collection % (1) |
|
Advance %
(1)(2) |
|
Spread
% |
Dealer loans |
2007 |
|
68.0% |
|
45.8% |
|
22.2% |
|
2008 |
|
70.7% |
|
43.3% |
|
27.4% |
|
2009 |
|
79.4% |
|
43.4% |
|
36.0% |
|
2010 |
|
77.4% |
|
44.4% |
|
33.0% |
|
2011 |
|
74.1% |
|
45.2% |
|
28.9% |
|
2012 |
|
73.3% |
|
46.1% |
|
27.2% |
|
2013 |
|
73.6% |
|
47.1% |
|
26.5% |
|
2014 |
|
72.7% |
|
47.2% |
|
25.5% |
|
2015 |
|
68.7% |
|
45.0% |
|
23.7% |
|
|
|
|
|
|
|
|
Purchased loans |
2007 |
|
68.3% |
|
49.1% |
|
19.2% |
|
2008 |
|
69.6% |
|
46.7% |
|
22.9% |
|
2009 |
|
79.5% |
|
45.3% |
|
34.2% |
|
2010 |
|
77.2% |
|
46.2% |
|
31.0% |
|
2011 |
|
74.5% |
|
47.6% |
|
26.9% |
|
2012 |
|
73.7% |
|
48.0% |
|
25.7% |
|
2013 |
|
73.7% |
|
50.4% |
|
23.3% |
|
2014 |
|
74.1% |
|
51.7% |
|
22.4% |
|
2015 |
|
69.0% |
|
50.4% |
|
18.6% |
(1) The forecasted
collection rates and advance rates presented for each Consumer Loan
assignment year change over time due to the impact of transfers
between dealer and purchased loans. Under our portfolio
program, certain events may result in dealers forfeiting their
rights to dealer holdback. We transfer the dealer's
Consumer Loans from the dealer loan portfolio to the purchased loan
portfolio in the period this forfeiture occurs.
(2)
Represents advances paid to dealers on Consumer Loans assigned
under our portfolio program and one-time payments made to dealers
to purchase Consumer Loans assigned under our purchase program as a
percentage of the initial balance of the Consumer
Loans. Payments of dealer holdback and accelerated
dealer holdback are not included.
Although the advance rate on purchased loans is
higher as compared to the advance rate on dealer loans, purchased
loans do not require us to pay dealer holdback.
Consumer Loan Volume
The following table summarizes changes in
Consumer Loan assignment volume in each of the last five quarters
as compared to the same period in the previous year:
|
|
Year over Year
Percent Change |
Three Months
Ended |
|
Unit
Volume |
|
Dollar Volume
(1) |
March 31, 2014 |
|
14.3% |
|
16.2% |
June 30, 2014 |
|
4.5% |
|
5.7% |
September 30, 2014 |
|
4.7% |
|
6.1% |
December 31, 2014 |
|
19.4% |
|
25.4% |
March 31, 2015 |
|
28.4% |
|
32.5% |
(1)
Represents advances paid to dealers on Consumer Loans assigned
under our portfolio program and one-time payments made to dealers
to purchase Consumer Loans assigned under our purchase
program. Payments of dealer holdback and accelerated
dealer holdback are not included.
Consumer Loan assignment volumes depend on a
number of factors including (1) the overall demand for our product,
(2) the amount of capital available to fund new loans, and (3) our
assessment of the volume that our infrastructure can
support. Our pricing strategy is intended to maximize
the amount of economic profit we generate, within the confines of
capital and infrastructure constraints.
Unit and dollar volumes grew 28.4% and 32.5%,
respectively, during the first quarter of 2015 as the number of
active dealers grew 18.5% and average volume per active dealer grew
8.5%.
The following table summarizes the changes in
Consumer Loan unit volume and active dealers:
|
For the Three
Months Ended March 31, |
|
2015 |
|
2014 |
|
%
Change |
Consumer Loan unit volume |
83,854 |
|
65,283 |
|
28.4% |
Active dealers (1) |
5,996 |
|
5,058 |
|
18.5% |
Average volume per active dealer |
14.0 |
|
12.9 |
|
8.5% |
(1) Active dealers are
dealers who have received funding for at least one dealer loan or
purchased loan during the period.
The following table provides additional
information on the changes in Consumer Loan unit volume and active
dealers:
|
For the Three
Months Ended March 31, |
|
2015 |
|
2014 |
|
%
Change |
Consumer Loan unit volume from dealers active
both periods |
62,807 |
|
56,821 |
|
10.5% |
Dealers active both periods |
3,609 |
|
3,609 |
|
-- |
Average volume per dealers active
both periods |
17.4 |
|
15.7 |
|
10.5% |
|
|
|
|
|
|
Consumer Loan unit volume from new
dealers |
4,727 |
|
3,082 |
|
53.4% |
New active dealers (1) |
857 |
|
634 |
|
35.2% |
Average volume per new active dealers |
5.5 |
|
4.9 |
|
12.2% |
|
|
|
|
|
|
Attrition (2) |
-13.0% |
|
-12.6% |
|
|
(1)
New active dealers are dealers who enrolled in our program and have
received funding for their first dealer loan or purchased loan from
us during the period.
(2)
Attrition is measured according to the following
formula: decrease in Consumer Loan unit volume from
dealers who have received funding for at least one dealer loan or
purchased loan during the comparable period of the prior year but
did not receive funding for any dealer loans or purchased loans
during the current period divided by prior year comparable period
Consumer Loan unit volume.
Consumer Loans are assigned to us as either
dealer loans through our portfolio program or purchased loans
through our purchase program. The following table
summarizes the portion of our Consumer Loan volume that was
assigned to us as dealer loans:
|
|
For the Three
Months Ended March 31, |
|
|
2015 |
|
2014 |
Dealer loan unit volume as a percentage of
total unit volume |
|
88.6% |
|
91.7% |
Dealer loan dollar volume as a percentage of
total dollar volume (1) |
|
85.2% |
|
89.2% |
(1)
Represents advances paid to dealers on Consumer Loans assigned
under our portfolio program and one-time payments made to dealers
to purchase Consumer Loans assigned under our purchase
program. Payments of dealer holdback and accelerated
dealer holdback are not included.
As of March 31, 2015 and December 31, 2014, the
net dealer loans receivable balance was 86.4% and 87.2%,
respectively, of the total net loans receivable balance.
Adjusted Financial Results
Adjusted financial results are provided to help
shareholders understand our financial performance. The
financial data below is non-GAAP, unless labeled
otherwise. We use adjusted financial information
internally to measure financial performance and to determine
incentive compensation. The table below shows our
results following adjustments to reflect non-GAAP accounting
methods. Material adjustments are explained in the table
footnotes and the subsequent "Floating Yield Adjustment" and
"Senior Notes Adjustment" sections. Measures such as
adjusted average capital, adjusted net income, adjusted net income
per diluted share, adjusted net income plus interest expense
after-tax, adjusted return on capital, adjusted revenue, operating
expenses, and economic profit are all non-GAAP financial
measures. These non-GAAP financial measures should be
viewed in addition to, and not as an alternative for, our reported
results prepared in accordance with GAAP.
Adjusted financial results for the three months
ended March 31, 2015, compared to the same period in 2014, include
the following:
|
|
For the Three
Months Ended March 31, |
(In millions, except share and per
share data) |
|
2015 |
|
2014 |
|
%
Change |
Adjusted average capital |
|
$ |
2,604.2 |
|
$ |
2,211.9 |
|
17.7% |
Adjusted net income |
|
$ |
72.1 |
|
$ |
63.4 |
|
13.7% |
Adjusted interest expense after-tax |
|
$ |
9.9 |
|
$ |
9.7 |
|
2.1% |
Adjusted net income plus interest expense
after-tax |
|
$ |
82.0 |
|
$ |
73.1 |
|
12.2% |
Adjusted return on capital |
|
12.6% |
|
13.2% |
|
-4.5% |
Cost of capital |
|
4.7% |
|
5.8% |
|
-19.0% |
Economic profit |
|
$ |
51.6 |
|
$ |
40.8 |
|
26.5% |
GAAP diluted weighted average shares
outstanding |
|
20,948,676 |
|
23,528,466 |
|
-11.0% |
Adjusted net income per diluted share |
|
$ |
3.44 |
|
$ |
2.69 |
|
27.9% |
Economic profit increased 26.5% for the three
months ended March 31, 2015, as compared to the same period in
2014. Economic profit is a function of the return on
capital in excess of the cost of capital and the amount of capital
invested in the business. The following table summarizes
the impact each of these components had on the increase in economic
profit for the three months ended March 31, 2015, as compared to
the same period in 2014:
|
Year over Year
Change in Economic Profit |
(In millions) |
For the Three
Months Ended
March 31, 2015 |
Decrease in cost of capital |
$ |
7.7 |
Increase in adjusted average capital |
7.2 |
Decrease in adjusted return on capital |
(4.1) |
Increase in economic profit |
$ |
10.8 |
The increase in economic profit for the three
months ended March 31, 2015, as compared to the same period in
2014, was primarily the result of the following:
• A decrease in our cost of capital of 110
basis points primarily due to a decrease in the 30-year treasury
rate, which is used in the average cost of equity calculation.
• An increase in adjusted average capital
of 17.7% due to growth in our loan portfolio primarily as a result
of year-over-year growth in new Consumer Loan assignment volume in
recent years.
• A decrease in our adjusted return on
capital of 60 basis points primarily as a result of a decline in
the yield on our loan portfolio due to lower yields on new Consumer
Loan assignments, as a result of advance rate increases made in
recent years in response to the competitive environment.
The growth in operating expenses did not have a
significant impact on the adjusted return on capital as operating
expenses grew 18.0% while adjusted average capital grew
17.7%. The 18.0% increase ($7.8 million) in operating
expenses included:
• An increase in salaries and wages expense of $4.8
million, or 18.8%, comprised of the following:
- An increase of $2.4 million in cash-based incentive
compensation expense primarily due to a year-over-year improvement
in Company performance measures.
- An increase of $1.0 million in fringe benefits, primarily
related to medical claims.
- Excluding the increases in cash-based incentive compensation
expense and fringe benefits, salaries and wages expense increased
$1.4 million primarily related to an increase for our support
function.
• An increase in sales and marketing
expense of $2.1 million, or 21.9%, primarily as a result of an
increase in sales commissions related to growth in Consumer Loan
unit volume and an increase in the base salaries of our sales
force.
The following table shows adjusted revenue and
operating expenses as a percentage of adjusted average capital, the
adjusted return on capital, and the percentage change in adjusted
average capital for each of the last eight quarters, compared to
the same periods in the prior year:
|
|
For the Three
Months Ended |
|
|
|
Mar. 31,
2015 |
|
Dec. 31,
2014 |
|
Sept. 30,
2014 |
|
Jun. 30,
2014 |
|
Mar. 31,
2014 |
|
Dec. 31,
2013 |
|
Sept. 30,
2013 |
|
Jun. 30,
2013 |
|
Adjusted revenue as a percentage of adjusted
average capital (1) |
|
27.8% |
|
28.3% |
|
28.3% |
|
27.8% |
|
28.8% |
|
29.5% |
|
29.8% |
|
29.9% |
|
Operating expenses as a percentage of
adjusted average capital (1) |
|
7.9% |
|
7.7% |
|
6.7% |
|
7.1% |
|
7.8% |
|
7.5% |
|
7.1% |
|
7.8% |
|
Adjusted return on capital (1) |
|
12.6% |
|
13.0% |
|
13.6% |
|
13.0% |
|
13.2% |
|
13.9% |
|
14.3% |
|
13.9% |
|
Percentage change in adjusted average capital
compared to the same period in the prior year |
|
17.7% |
|
12.8% |
|
12.9% |
|
15.2% |
|
15.7% |
|
15.5% |
|
17.4% |
|
18.5% |
|
(1) Annualized
The decrease in our adjusted return on capital
of 40 basis points for the three months ended March 31, 2015, as
compared to the three months ended December 31, 2014, was primarily
the result of a decline in the yield on our loan portfolio, which
decreased the adjusted return on capital by 20 basis points due to
higher advance rates on new Consumer Loan assignments.
The increase in operating expenses as a
percentage of adjusted average capital for the three months ended
March 31, 2015, as compared to the three months ended December 31,
2014, was primarily the result of the following:
• An increase in salaries and wages expense of $2.2
million, or 7.8%, primarily comprised of the following:
- An increase of $2.2 million in cash-based incentive
compensation expense primarily due to a year-over-year improvement
in Company performance measures.
- An increase of $1.1 million in payroll taxes as a result of the
seasonal impact of both taxes that are subject to income
limitations and the taxes on the annual vesting of equity awards
during the first quarter of the year.
- A decrease of $1.6 million in stock-based compensation expense
primarily due to amounts recorded in the prior quarter related to a
change in the expected vesting period of performance-based stock
awards.
• An increase in sales and marketing
expense of $2.0 million, or 20.6%, primarily as a result of an
increase in sales commissions driven by higher Consumer Loan unit
volume related to both seasonality and higher year-over-year growth
rates.
The following tables provide a reconciliation of
non-GAAP measures to GAAP measures. All after-tax
adjustments are calculated using a 37% tax rate as we estimate that
to be our long term average effective tax rate. Certain
amounts do not recalculate due to rounding.
|
|
For the Three
Months Ended |
(In millions, except share and per
share data) |
|
Mar. 31,
2015 |
|
Dec. 31,
2014 |
|
Sept. 30,
2014 |
|
Jun. 30,
2014 |
|
Mar. 31,
2014 |
|
Dec. 31,
2013 |
|
Sept. 30,
2013 |
|
Jun. 30,
2013 |
Adjusted net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income |
|
$ |
71.5 |
|
$ |
73.0 |
|
$ |
74.0 |
|
$ |
69.4 |
|
$ |
49.8 |
|
$ |
65.9 |
|
$ |
65.1 |
|
$ |
61.5 |
Floating yield adjustment (after-tax) |
|
1.2 |
|
(3.4) |
|
(0.9) |
|
(0.6) |
|
(1.1) |
|
(0.9) |
|
0.1 |
|
(0.6) |
Senior notes adjustment (after-tax) |
|
(0.5) |
|
(0.5) |
|
(0.5) |
|
(0.6) |
|
14.1 |
|
-- |
|
-- |
|
-- |
Adjustment to record taxes at 37% |
|
(0.1) |
|
0.3 |
|
(1.3) |
|
(0.6) |
|
0.6 |
|
(0.7) |
|
(0.7) |
|
(0.2) |
Adjusted net income |
|
$ |
72.1 |
|
$ |
69.4 |
|
$ |
71.3 |
|
$ |
67.6 |
|
$ |
63.4 |
|
$ |
64.3 |
|
$ |
64.5 |
|
$ |
60.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income per diluted share |
|
$ |
3.44 |
|
$ |
3.28 |
|
$ |
3.26 |
|
$ |
2.98 |
|
$ |
2.69 |
|
$ |
2.73 |
|
$ |
2.72 |
|
$ |
2.53 |
Diluted weighted average shares
outstanding |
|
20,948,676 |
|
21,171,235 |
|
21,895,222 |
|
22,658,891 |
|
23,528,466 |
|
23,575,786 |
|
23,708,043 |
|
24,017,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP total revenue |
|
$ |
194.2 |
|
$ |
185.1 |
|
$ |
181.7 |
|
$ |
179.8 |
|
$ |
176.9 |
|
$ |
175.3 |
|
$ |
172.7 |
|
$ |
169.4 |
Floating yield adjustment |
|
1.8 |
|
(5.4) |
|
(1.3) |
|
(1.0) |
|
(1.8) |
|
(1.4) |
|
-- |
|
(0.9) |
Provision for credit losses |
|
(6.2) |
|
0.7 |
|
(4.1) |
|
(4.6) |
|
(4.7) |
|
(4.6) |
|
(6.1) |
|
(5.4) |
Provision for claims |
|
(8.6) |
|
(8.6) |
|
(9.4) |
|
(11.0) |
|
(11.0) |
|
(10.3) |
|
(11.0) |
|
(10.5) |
Adjusted revenue |
|
$ |
181.2 |
|
$ |
171.8 |
|
$ |
166.9 |
|
$ |
163.2 |
|
$ |
159.4 |
|
$ |
159.0 |
|
$ |
155.6 |
|
$ |
152.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted average
capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP average debt |
|
$ |
1,845.9 |
|
$ |
1,726.9 |
|
$ |
1,626.6 |
|
$ |
1,593.8 |
|
$ |
1,529.5 |
|
$ |
1,427.4 |
|
$ |
1,404.4 |
|
$ |
1,384.4 |
GAAP average shareholders' equity |
|
739.6 |
|
683.3 |
|
710.7 |
|
732.3 |
|
750.4 |
|
717.7 |
|
676.5 |
|
646.3 |
Senior notes adjustment |
|
15.5 |
|
16.0 |
|
16.5 |
|
17.0 |
|
(77.6) |
|
-- |
|
-- |
|
-- |
Floating yield adjustment |
|
3.2 |
|
4.2 |
|
6.7 |
|
6.6 |
|
9.6 |
|
9.3 |
|
10.0 |
|
8.4 |
Adjusted average capital |
|
$ |
2,604.2 |
|
$ |
2,430.4 |
|
$ |
2,360.5 |
|
$ |
2,349.7 |
|
$ |
2,211.9 |
|
$ |
2,154.4 |
|
$ |
2,090.9 |
|
$ |
2,039.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted revenue as a percentage of adjusted
average capital (1) |
|
27.8% |
|
28.3% |
|
28.3% |
|
27.8% |
|
28.8% |
|
29.5% |
|
29.8% |
|
29.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted interest
expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP interest expense |
|
$ |
14.9 |
|
$ |
13.9 |
|
$ |
13.5 |
|
$ |
13.3 |
|
$ |
16.0 |
|
$ |
16.7 |
|
$ |
16.1 |
|
$ |
16.2 |
Senior notes adjustment |
|
0.8 |
|
0.8 |
|
0.8 |
|
0.9 |
|
(0.6) |
|
-- |
|
-- |
|
-- |
Adjusted interest expense (pre-tax) |
|
15.7 |
|
14.7 |
|
14.3 |
|
14.2 |
|
15.4 |
|
16.7 |
|
16.1 |
|
16.2 |
Adjustment to record tax effect at 37% |
|
(5.8) |
|
(5.4) |
|
(5.3) |
|
(5.3) |
|
(5.7) |
|
(6.2) |
|
(6.0) |
|
(6.0) |
Adjusted interest expense (after-tax) |
|
$ |
9.9 |
|
$ |
9.3 |
|
$ |
9.0 |
|
$ |
8.9 |
|
$ |
9.7 |
|
$ |
10.5 |
|
$ |
10.1 |
|
$ |
10.2 |
(1) Annualized
|
|
For the Three
Months Ended |
(In millions) |
|
Mar. 31,
2015 |
|
Dec. 31,
2014 |
|
Sept. 30,
2014 |
|
Jun. 30,
2014 |
|
Mar. 31,
2014 |
|
Dec. 31,
2013 |
|
Sept. 30,
2013 |
|
Jun. 30,
2013 |
Adjusted return on
capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income |
|
$ |
72.1 |
|
$ |
69.4 |
|
$ |
71.3 |
|
$ |
67.6 |
|
$ |
63.4 |
|
$ |
64.3 |
|
$ |
64.5 |
|
$ |
60.7 |
Adjusted interest expense (after-tax) |
|
9.9 |
|
9.3 |
|
9.0 |
|
8.9 |
|
9.7 |
|
10.5 |
|
10.1 |
|
10.2 |
Adjusted net income plus interest expense
(after-tax) |
|
$ |
82.0 |
|
$ |
78.7 |
|
$ |
80.3 |
|
$ |
76.5 |
|
$ |
73.1 |
|
$ |
74.8 |
|
$ |
74.6 |
|
$ |
70.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted return on
capital (1) (3) |
|
12.6% |
|
13.0% |
|
13.6% |
|
13.0% |
|
13.2% |
|
13.9% |
|
14.3% |
|
13.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted return on capital |
|
12.6% |
|
13.0% |
|
13.6% |
|
13.0% |
|
13.2% |
|
13.9% |
|
14.3% |
|
13.9% |
Cost of capital (2) (3) |
|
4.7% |
|
4.9% |
|
5.2% |
|
5.4% |
|
5.8% |
|
5.9% |
|
5.8% |
|
5.4% |
Adjusted return on capital in excess of cost
of capital |
|
7.9% |
|
8.1% |
|
8.4% |
|
7.6% |
|
7.4% |
|
8.0% |
|
8.5% |
|
8.5% |
Adjusted average capital |
|
$ |
2,604.2 |
|
$ |
2,430.4 |
|
$ |
2,360.5 |
|
$ |
2,349.7 |
|
$ |
2,211.9 |
|
$ |
2,154.4 |
|
$ |
2,090.9 |
|
$ |
2,039.1 |
Economic profit |
|
$ |
51.6 |
|
$ |
48.9 |
|
$ |
49.7 |
|
$ |
44.8 |
|
$ |
40.8 |
|
$ |
43.1 |
|
$ |
44.7 |
|
$ |
43.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP salaries and wages |
|
$ |
30.4 |
|
$ |
28.2 |
|
$ |
22.0 |
|
$ |
24.4 |
|
$ |
25.6 |
|
$ |
22.2 |
|
$ |
20.1 |
|
$ |
23.1 |
GAAP general and administrative |
|
9.1 |
|
8.9 |
|
8.7 |
|
8.5 |
|
8.2 |
|
9.5 |
|
8.7 |
|
8.3 |
GAAP sales and marketing |
|
11.7 |
|
9.7 |
|
8.7 |
|
8.8 |
|
9.6 |
|
8.5 |
|
8.5 |
|
8.5 |
Operating expenses |
|
$ |
51.2 |
|
$ |
46.8 |
|
$ |
39.4 |
|
$ |
41.7 |
|
$ |
43.4 |
|
$ |
40.2 |
|
$ |
37.3 |
|
$ |
39.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses as a percentage of
adjusted average capital (3) |
|
7.9% |
|
7.7% |
|
6.7% |
|
7.1% |
|
7.8% |
|
7.5% |
|
7.1% |
|
7.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in adjusted average capital
compared to the same period in the prior year |
|
17.7% |
|
12.8% |
|
12.9% |
|
15.2% |
|
15.7% |
|
15.5% |
|
17.4% |
|
18.5% |
(1) Adjusted return on capital
is defined as adjusted net income plus adjusted interest expense
after-tax divided by adjusted average capital.
(2) The cost of capital
includes both a cost of equity and a cost of debt. The
cost of equity capital is determined based on a formula that
considers the risk of the business and the risk associated with our
use of debt. The formula utilized for determining the
cost of equity capital is as follows: (the average 30 year treasury
rate + 5%) + [(1 - tax rate) x (the average 30 year treasury rate +
5% - pre-tax average cost of debt rate) x average debt/(average
equity + average debt x tax rate)]. For the periods
presented, the average 30 year treasury rate and the adjusted
pre-tax average cost of debt were as follows:
|
|
For the Three
Months Ended |
|
|
Mar. 31,
2015 |
|
Dec. 31,
2014 |
|
Sept. 30,
2014 |
|
Jun. 30,
2014 |
|
Mar. 31,
2014 |
|
Dec. 31,
2013 |
|
Sept. 30,
2013 |
|
Jun. 30,
2013 |
Average 30 year treasury rate |
|
2.5% |
|
3.0% |
|
3.2% |
|
3.4% |
|
3.7% |
|
3.8% |
|
3.7% |
|
3.2% |
Adjusted pre-tax average cost of debt
(3) |
|
3.4% |
|
3.4% |
|
3.5% |
|
3.5% |
|
4.4% |
|
4.7% |
|
4.6% |
|
4.7% |
(3)
Annualized
Floating Yield Adjustment
The purpose of this non-GAAP adjustment is to
modify the calculation of our GAAP-based finance charge revenue so
that favorable and unfavorable changes in expected cash flows from
loans receivable are treated consistently. To make the
adjustment understandable, we must first explain how GAAP requires
us to account for finance charge revenue, our primary revenue
source.
The finance charge revenue we will recognize
over the life of the loan equals the cash inflows from our loan
portfolio less cash outflows to acquire the loans. Our
GAAP finance charge revenue is based on estimates of future cash
flows and is recognized on a level-yield basis over the estimated
life of the loan. With the level-yield approach, the
amount of finance charge revenue recognized from a loan in a given
period, divided by the loan asset, is a constant
percentage. Under GAAP, favorable changes in expected
cash flows are treated as increases to the yield and are recognized
over time, while unfavorable changes are recorded as a current
period expense. The non-GAAP methodology that we use
(the "floating yield" method) is identical to the GAAP approach
except that, under the "floating yield" method, all changes in
expected cash flows (both positive and negative) are treated as
yield adjustments and therefore impact earnings over
time. The GAAP treatment results in a lower carrying
value of the loan receivable asset, but may result in either higher
or lower earnings for any given period depending on the timing and
amount of expected cash flow changes.
We believe the floating yield adjustment
provides a more accurate reflection of the performance of our
business, since both favorable and unfavorable changes in estimated
cash flows are treated consistently.
Senior Notes Adjustment
On January 22, 2014, we issued $300 million of
6.125% senior notes due 2021 (the "2021 notes") in a private
offering exempt from registration under the Securities Act of
1933. On February 21, 2014, we used the net proceeds from the
2021 notes, together with borrowings under our revolving credit
facilities, to redeem in full the $350.0 million outstanding
principal amount of our 9.125% senior notes due 2017 (the "2017
notes"). The purpose of this non-GAAP adjustment is to modify
our GAAP financial results to treat the issuance of the 2021 notes
as a refinancing of the 2017 notes.
Under GAAP, the redemption of the 2017 notes was
considered an extinguishment of debt. For the quarter ended
March 31, 2014, our GAAP financial results included a pre-tax loss
on extinguishment of debt of $21.8 million and additional interest
expense of $1.4 million as a result of the one month lag from
issuance of the 2021 notes to the redemption of the 2017 notes,
which collectively reduced consolidated net income by $14.6 million
or $0.62 per diluted share.
Under our non-GAAP approach, the loss on
extinguishment of debt and additional interest expense that was
recognized for GAAP purposes for the quarter ended March 31, 2014
was deferred as a debt issuance cost and is being recognized
ratably as interest expense over the term of the 2021 notes.
In addition, for adjusted average capital purposes, the impact of
additional outstanding debt related to the one month lag from the
issuance of the 2021 notes to the redemptions of the 2017 notes was
deferred and is being recognized ratably over the term of the 2021
notes.
We believe the senior notes adjustment provides
a more accurate reflection of the performance of our business,
since we are recognizing the costs incurred with this transaction
in a manner consistent with how we recognize the costs incurred
when we periodically refinance our other debt facilities.
Cautionary Statement Regarding Forward-Looking
Information
We claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 for all of our forward-looking
statements. Statements in this release that are not
historical facts, such as those using terms like "may," "will,"
"should," "believe," "expect," "anticipate," "assume," "forecast,"
"estimate," "intend," "plan," "target" and those regarding our
future results, plans and objectives, are "forward-looking
statements" within the meaning of the federal securities
laws. These forward-looking statements represent our
outlook only as of the date of this release. Actual
results could differ materially from these forward-looking
statements since the statements are based on our current
expectations, which are subject to risks and
uncertainties. Factors that might cause such a
difference include, but are not limited to, the factors set forth
in Item 1A to our Form 10-K for the year ended December 31, 2014,
filed with the Securities and Exchange Commission on February 12,
2015, other risk factors discussed herein or listed from time to
time in our reports filed with the Securities and Exchange
Commission and the following:
• Our
inability to accurately forecast and estimate the amount and timing
of future collections could have a material adverse effect on
results of operations.
• We
may be unable to execute our business strategy due to current
economic conditions.
• We
may be unable to continue to access or renew funding sources and
obtain capital needed to maintain and grow our business.
• The terms of our
debt limit how we conduct our business.
• A
violation of the terms of our asset-backed secured financing
facilities or revolving secured warehouse facilities could have a
materially adverse impact on our operations.
• The
conditions of the U.S. and international capital markets may
adversely affect lenders with which we have relationships, causing
us to incur additional costs and reducing our sources of liquidity,
which may adversely affect our financial position, liquidity and
results of operations.
• Our
substantial debt could negatively impact our business, prevent us
from satisfying our debt obligations and adversely affect our
financial condition.
• Due
to competition from traditional financing sources and
non-traditional lenders, we may not be able to compete
successfully.
• We
may not be able to generate sufficient cash flows to service our
outstanding debt and fund operations and may be forced to take
other actions to satisfy our obligations under such debt.
• Interest rate
fluctuations may adversely affect our borrowing costs,
profitability and liquidity.
•
Reduction in our credit rating could increase the cost of our
funding from, and restrict our access to, the capital markets and
adversely affect our liquidity, financial condition and results of
operations.
• We
may incur substantially more debt and other
liabilities. This could exacerbate further the risks
associated with our current debt levels.
• The regulation to
which we are or may become subject could result in a material
adverse effect on our business.
•
Adverse changes in economic conditions, the automobile or finance
industries, or the non-prime consumer market could adversely affect
our financial position, liquidity and results of operations, the
ability of key vendors that we depend on to supply us with
services, and our ability to enter into future financing
transactions.
•
Litigation we are involved in from time to time may adversely
affect our financial condition, results of operations and cash
flows.
•
Changes in tax laws and the resolution of uncertain income tax
matters could have a material adverse effect on our results of
operations and cash flows from operations.
• Our dependence on
technology could have a material adverse effect on our
business.
• Our use of
electronic contracts could impact our ability to perfect our
ownership or security interest in Consumer Loans.
•
Reliance on third parties to administer our ancillary product
offerings could adversely affect our business and financial
results.
• We
are dependent on our senior management and the loss of any of these
individuals or an inability to hire additional team members could
adversely affect our ability to operate profitably.
• Our reputation is a
key asset to our business, and our business may be affected by how
we are perceived in the marketplace.
• The concentration
of our dealers in several states could adversely affect us.
•
Failure to properly safeguard confidential consumer information
could subject us to liability, decrease our profitability and
damage our reputation.
• A
small number of our shareholders have the ability to significantly
influence matters requiring shareholder approval and such
shareholders have interests which may conflict with the interests
of our other security holders.
• Reliance on our
outsourced business functions could adversely affect our
business.
•
Natural disasters, acts of war, terrorist attacks and threats or
the escalation of military activity in response to these attacks or
otherwise may negatively affect our business, financial condition
and results of operations.
Other factors not currently anticipated by
management may also materially and adversely affect our results of
operations. We do not undertake, and expressly disclaim
any obligation, to update or alter our statements whether as a
result of new information, future events or otherwise, except as
required by applicable law.
Description of Credit Acceptance
Corporation
Since 1972, Credit Acceptance has offered
automobile dealers financing programs that enable them to sell
vehicles to consumers, regardless of their credit
history. Our financing programs are offered through a
nationwide network of automobile dealers who benefit from sales of
vehicles to consumers who otherwise could not obtain financing;
from repeat and referral sales generated by these same customers;
and from sales to customers responding to advertisements for our
product, but who actually end up qualifying for traditional
financing.
Without our financing programs, consumers are
often unable to purchase a vehicle or they purchase an unreliable
one. Further, as we report to the three national credit
reporting agencies, an important ancillary benefit of our programs
is that we provide a significant number of our consumers with an
opportunity to improve their lives by improving their credit score
and move on to more traditional sources of
financing. Credit Acceptance is publicly traded on the
NASDAQ under the symbol CACC. For more information,
visit creditacceptance.com.
CREDIT ACCEPTANCE
CORPORATION
CONSOLIDATED STATEMENTS OF
INCOME
(UNAUDITED)
(In millions, except share and per share
data) |
For the Three
Months Ended March 31, |
|
2015 |
|
2014 |
|
|
Revenue: |
|
Finance charges |
$ |
169.9 |
|
$ |
152.8 |
Premiums earned |
12.1 |
|
13.2 |
Other income |
12.2 |
|
10.9 |
Total revenue |
194.2 |
|
176.9 |
Costs and expenses: |
|
|
|
Salaries and wages |
30.4 |
|
25.6 |
General and administrative |
9.1 |
|
8.2 |
Sales and marketing |
11.7 |
|
9.6 |
Provision for credit losses |
6.2 |
|
4.7 |
Interest |
14.9 |
|
16.0 |
Provision for claims |
8.6 |
|
11.0 |
Loss on extinguishment of debt |
-- |
|
21.8 |
Total costs and expenses |
80.9 |
|
96.9 |
Income before provision for income taxes |
113.3 |
|
80.0 |
Provision for income taxes |
41.8 |
|
30.2 |
Net income |
$ |
71.5 |
|
$ |
49.8 |
|
|
|
|
Net income per share: |
|
|
|
Basic |
$ |
3.42 |
|
$ |
2.12 |
Diluted |
$ |
3.41 |
|
$ |
2.12 |
|
|
|
|
Weighted average shares outstanding: |
|
|
|
Basic |
20,922,620 |
|
23,463,380 |
Diluted |
20,948,676 |
|
23,528,466 |
CREDIT ACCEPTANCE
CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions, except share and per share
data) |
As
of |
|
March 31,
2015 |
|
December 31,
2014 |
|
|
|
|
ASSETS: |
|
|
|
Cash and cash equivalents |
$ |
86.7 |
|
$ |
6.4 |
Restricted cash and cash equivalents |
198.9 |
|
157.6 |
Restricted securities available for sale |
53.0 |
|
53.2 |
|
|
|
|
Loans receivable (including $9.2 and $8.7
from affiliates as of March 31, 2015 and December 31, 2014,
respectively) |
2,943.6 |
|
2,719.8 |
Allowance for credit losses |
(210.4) |
|
(206.9) |
Loans receivable, net |
2,733.2 |
|
2,512.9 |
|
|
|
|
Property and equipment, net |
20.6 |
|
20.9 |
Income taxes receivable |
1.0 |
|
1.4 |
Other assets |
33.7 |
|
33.0 |
Total Assets |
$ |
3,127.1 |
|
$ |
2,785.4 |
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY: |
|
|
|
Liabilities: |
|
|
|
Accounts payable and accrued liabilities |
$ |
129.9 |
|
$ |
114.4 |
Revolving secured line of credit |
-- |
|
119.5 |
Secured financing |
1,435.3 |
|
1,333.0 |
Senior notes |
548.2 |
|
300.0 |
Deferred income taxes, net |
220.5 |
|
213.4 |
Income taxes payable |
15.9 |
|
2.9 |
Total Liabilities |
2,349.8 |
|
2,083.2 |
|
|
|
|
Shareholders' Equity: |
|
|
|
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued |
-- |
|
-- |
Common stock, $.01 par value, 80,000,000
shares authorized, 20,597,554 and 20,597,671 shares issued and
outstanding as of March 31, 2015 and December 31, 2014,
respectively |
0.2 |
|
0.2 |
Paid-in capital |
92.4 |
|
88.7 |
Retained earnings |
684.5 |
|
613.4 |
Accumulated other comprehensive loss |
0.2 |
|
(0.1) |
Total Shareholders' Equity |
777.3 |
|
702.2 |
Total Liabilities and Shareholders'
Equity |
$ |
3,127.1 |
|
$ |
2,785.4 |
CONTACT: Investor Relations: Douglas W. Busk
Senior Vice President and Treasurer
(248) 353-2700 Ext. 4432
IR@creditacceptance.com