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Credit Acceptance Corp (CACC 3.55%)
Q4 2018 Earnings Conference Call
Jan. 30, 2019, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good day, everyone, and welcome to the Credit Acceptance Corporation Fourth Quarter 2018 Earnings Call. Today's call is being recorded. A webcast and transcript of today's earnings call will be made available on Credit Acceptance's website.
At this time, I would like to turn the call over to Credit Acceptance's Senior Vice President and Treasurer, Doug Busk.
Douglas W. Busk -- Senior Vice President and Treasurer
Thank you. Good afternoon and welcome to the Credit Acceptance Corporation fourth quarter 2018 earnings call. As you read our news release posted on the Investor Relations section of our website at 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, I should mention that 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.
At this time, Brett Roberts, our Chief Executive Officer; Ken Booth, our Chief Financial Officer; and I, will take your questions.
Questions and Answers:
Operator
Thank you. (Operator Instructions) And our first question comes from the line of David Scharf with JMP Securities. Your line is now open.
David Scharf -- JMP Securities -- Analyst
Yeah. Good afternoon and thanks for taking my questions. A couple to start, maybe, first one for you, Doug. Wondering, having finished the year with -- it looks like the average funding cost given where rates have moved, it was up to 4.5% just based on everything you've seen, both your expectations for Fed actions as well as how spreads have been performing on recent securitizations in the market. Is there any kind of best guess you can give us for how we ought to be thinking about average funding throughout 2019?
Douglas W. Busk -- Senior Vice President and Treasurer
Well, I don't really have any expectations for how the Fed's going to behave. I mean, there are people that are lot more informed about that than I am. I will say that if the forward LIBOR curve that exist today is correct and our funding mix remains the same. You should expect about a 50% or a 50 basis point increase in the rate by year-end of 2019. But again that assumes that the forward curve remains the same, which is unlikely.
David Scharf -- JMP Securities -- Analyst
Right. Got it. It's helpful. And maybe transitioning to the competitive side, it seems like spreads on some deals widened last month or so, but some competitors even though the benchmark pulled back, but I'm wondering, is that any indication that there may be signs of any of competitive shakeout that's we've been waiting for years or is your sense based on kind of what you saw with volume per active dealer declining that it still remains as competitive as it was three and six months ago?
Douglas W. Busk -- Senior Vice President and Treasurer
I mean, I don't think the combination of benchmarks and credit spreads at this point has really changed enough to materially impact things.
David Scharf -- JMP Securities -- Analyst
Okay. So it's status quo. And lastly and then I'll get in queue. I'm curious as we think about forecasting provision expense over the next few quarters, as we think about the fourth quarter and maybe even the third quarter figure that were just reported -- were there -- are you starting to recognize any allowance reversal on that big kind of $60 million charge that was taken in the fourth quarter of the prior year? Is that kind of factoring into sort of the net allowance charge this provision expense we're seeing or is -- or are those pool still not being revised upward?
Douglas W. Busk -- Senior Vice President and Treasurer
We have thousands of dealer pools and a significant number of purchased loan pools. And as we stated in our public filings, to the extent that we have an allowance against a specific pool and performance improves, we will reverse that allowance. What -- you can't -- can't necessarily say what period the allowance was established and specifically attributable to.
David Scharf -- JMP Securities -- Analyst
Got it. Okay. Thank you very much.
Operator
Thank you. And our next question comes from the line of Moshe Orenbuch with Credit Suisse. Your line is now open.
Moshe Orenbuch -- Credit Suisse -- Analyst
Great. Kind of continuing on the competitive kind of environment. The -- I guess, as you kind of look at the fourth quarter, Ken, from one of the tables here, the forecasted collection percentage is kind of down from where it's been and looks like, obviously, you don't have every quarter on here, but it's lower than any of the individual years and had been falling, I guess, during 2018. Just talk a little bit about what is driving that and the advance -- the advance rate kind of rising and whether any conclusions we should reach from those two facts?
Kenneth S. Booth -- Chief Financial Officer
You're talking about the absolute collection performance for each year?
Moshe Orenbuch -- Credit Suisse -- Analyst
No, as you -- when you look at the forecast collection percentage for the -- for Q4 and the advance rate, they both kind of moved in opposite directions compressing the spread between the two of them. So I guess, is there -- if you kind of compare it to the early part of the year that was down by about 160 basis points and for various other points in history, obviously differing amounts.
Kenneth S. Booth -- Chief Financial Officer
I think the best thing to do there is, there is quite a bit of information in the 10-Q or in the Form 10-K, this goes through the, kind of, profit drivers of the loans that we wrote during the quarter and that's probably the best place to look and that's available right now, but if you look at that, I think, what you'd see is that the average size of the contract is increasing, the absolute amount of revenue or accretable yield we expect is also increasing on a per contract basis.
In percentage terms, there is a little bit of compression there, because if we get a larger contract, we're going to accept it, a slightly lower yield to compensate for that. But other than, there is not -- and the trend I just talked about really aren't that material. So I think when you look at that, your conclusion of product, from a product per loan perspective, Q4 wasn't that remarkable compared to the prior quarter.
Moshe Orenbuch -- Credit Suisse -- Analyst
Got it. And you pointed out that the 10-K is not available for a little while, anything that we should kind of be thinking about that maybe things that you would otherwise be talking about in the 10-K, things like any update with respect to the accounting method in CECL or anything else that we should be aware of?
Douglas W. Busk -- Senior Vice President and Treasurer
No update on the CECL fair value discussion. We continue to do a lot of -- a lot of good work there and will provide additional disclosure when appropriate.
Moshe Orenbuch -- Credit Suisse -- Analyst
Okay. Thanks.
Operator
Thank you. And our next question comes from the line of John Rowan with Janney. Your line is now open.
John Rowan -- Janney Montgomery Scott -- Analyst
Good afternoon, guys.
Douglas W. Busk -- Senior Vice President and Treasurer
Hi.
John Rowan -- Janney Montgomery Scott -- Analyst
Did you buyback any stock in the quarter?
Brett A. Roberts -- Chief Executive Officer
Yes, we did. We bought back approximately 337,000 shares at an average price of $378.
John Rowan -- Janney Montgomery Scott -- Analyst
Okay. What was the timing of that in the quarter, was it back-end loaded or is the diluted share count from this quarter representative of what it will be going forward?
Brett A. Roberts -- Chief Executive Officer
The activity during the quarter reduced the share count by approximately 50,000 shares.
John Rowan -- Janney Montgomery Scott -- Analyst
Okay. One thing I noticed is that the average loan was up about $200 between even just the third quarter and the fourth quarter, but there wasn't a change in duration. I mean -- I know it's not a gigantic change, but is there a change in mix of vehicles that you're selling? Is it just the stronger used car market, the pricing in there. I'm trying to understand. In the past, we always can track the increase in the loan outstanding to the consumer with higher duration, but now that didn't come through this quarter. So I'm wondering if there is anything else that drove that higher loan to the consumer?
Brett A. Roberts -- Chief Executive Officer
I think it's a -- the selling price of the vehicles up a little bit, but again as you point out the changes, it's pretty small.
John Rowan -- Janney Montgomery Scott -- Analyst
Okay. But there was no like wholesale shift in the type of vehicle mileage that your -- that your dealer partners are retailing. Correct?
Brett A. Roberts -- Chief Executive Officer
No. There is no -- there is a -- the mix always shifts a little bit, but nothing that was characterized as material.
John Rowan -- Janney Montgomery Scott -- Analyst
Okay. And just give us an update as to where we stand with the sales force -- where is the sales force today versus this time last year with the type for growth that we're seeing, any more hiring? Just give us an idea of where that growth -- that program stands today?
Brett A. Roberts -- Chief Executive Officer
Well, we -- we've continued to make progress growing the sales force. We're up about in terms of the number of MAMs. We're up a little over 50 MAMs versus where we were at year end 2017.
John Rowan -- Janney Montgomery Scott -- Analyst
Okay. All right. Thank you very much.
Operator
Thank you. And our next question comes from the line of Mark Hammond from the Bank of America High Yield. Your line is now open.
Mark Hammond -- Bank of America High Yield -- Analyst
Thanks. Hi, I had one question on the capital structure. So I had seen the call price on your (inaudible) high-yield bond stepping down the par in February. Just wondering if you're thinking about dealing with those bonds early with secured financing or something like that to counter that possible 50 basis points increase in funding costs that you mentioned, Doug?
Douglas W. Busk -- Senior Vice President and Treasurer
Yeah, I mean, we continually assess all of our options from our funding strategy perspective. Relative to that specific bond, you're right, it goes down to par in February. We've got a bunch of options there, let it run out until maturity. We'll just use available liquidity to pay it off or we could issue ABS and replace it that way. So no decision, just assessing our options.
Mark Hammond -- Bank of America High Yield -- Analyst
Great. And then, just a follow-up on that. Is there any mix that you wouldn't go below in terms of secured financing as a percent of total debt financing?
Douglas W. Busk -- Senior Vice President and Treasurer
We don't really have an absolute number. What we do is we try to manage the liability side of the balance sheet so that it provides a good result when capital is readily available and also provides a pretty good result of the capital to markets are constrained. So the mix of that leverage amount of unused availability are all kind of inputs into that analysis. So there is a -- it's a bunch of moving parts there, but no absolute number.
Mark Hammond -- Bank of America High Yield -- Analyst
All right. Thanks, Doug.
Operator
Thank you. And our next question comes from the line of Kyle Joseph with Jefferies. Your line is now open.
Kyle Joseph -- Jefferies -- Analyst
Good afternoon guys. Most of my questions have been answered already, but I'm just wondering if you could talk about the outlook for tax refunds in terms of timing and magnitude versus last year?
Douglas W. Busk -- Senior Vice President and Treasurer
I don't think we really know there's a lot have been written about potential delays due to the government shutdown. There's a lot been written relative to the size, the refunds versus what consumers have historically received. I don't think -- we don't know what's going to transpire. So we're just -- we'll deal with it when it comes.
Kyle Joseph -- Jefferies -- Analyst
Sure. And then, if you could just give us a sense of the health of your underlying consumer. Obviously, you have a pretty broad portfolio geographically, but just talking about overall trends you're seeing from underlying consumers in terms of their overall health?
Brett A. Roberts -- Chief Executive Officer
I think probably the best way to approach that is just to look at the numbers we have provided in the release. So on Page 3 of the release, there is a table that shows the change in forecasted net cash flows. This quarter was a positive number of $7.8 million, very small number relative to the amount of cash flows we're forecasting. I think if you look at that, you'd say our forecast was stable and that's probably our best assessment of the health of the borrower.
Kyle Joseph -- Jefferies -- Analyst
Sure. And then, looking at that same table in terms of dealer loans versus purchase loans, can you give a sense for your outlook for the growth opportunities by product and where you're seeing better growth opportunities and vice versa?
Brett A. Roberts -- Chief Executive Officer
I mean, you can look at the historical numbers. We obviously been growing the purchased loan product more rapidly than the portfolio product that changes from time to time. But typically when the environment is tough, we've relied more on that purchase program for growth, and when the environment gets easier, the opposite happens. That's kind of the same trend we're seeing this time.
Kyle Joseph -- Jefferies -- Analyst
Got it. Thanks for answering my questions.
Operator
Thank you. And our next question comes from the line of Dominick Gabriele with Oppenheimer. Your line is now open.
Dominick Gabriele -- Oppenheimer -- Analyst
Hey guys. Thanks for taking my question. Can you just talk a little bit more about your plans around hiring in 2019 and the plans for maybe an acceleration of possible or a reacceleration in the number of dealers that you're looking to acquire and also what -- some of the things that you guys could do in 2019 that could help also reaccelerate that penetration per dealer. Thanks so much.
Brett A. Roberts -- Chief Executive Officer
In terms of the hiring plans, I assume you are talking about the sales force there?
Dominick Gabriele -- Oppenheimer -- Analyst
Yeah, exactly. Thanks.
Brett A. Roberts -- Chief Executive Officer
We've gone through pretty rapid increase in the size of sales force. We're probably in a period now where we're filling in. I think the last time we did a sales force expansion was 2011. We grew the sales force pretty rapidly over -- mostly a one-year period, but filed that with the second year of some growth. It took us about five years to fill in that sales force before we got productivity back to where we started. So we are now two years and one quarter into this expansion. We've probably reached a number that's pretty close to the target number in terms of the maximum number that we want in this expansion and now we're probably in that two to three year period where we're trying to fill in and get productivity back to where it was.
Dominick Gabriele -- Oppenheimer -- Analyst
Great. Thanks a lot.
Operator
Thank you. And our next question comes from the line of Daniel Staff with Autonomous Research. Your line is now open.
Daniel Staff -- Autonomous Research -- Analyst
Hi, thank you for taking my question. Industrial report suggest there is a meaningful tale of small buy-here pay-here dealerships who appear to lend into a similar borrower segment, many of which also do not have an outside financing partner. Can you talk a little bit about the level of receptivity that you see in the field to the Credit Acceptance value proposition, as well as on your current areas of pushback that you may be getting from these dealers? Thank you.
Douglas W. Busk -- Senior Vice President and Treasurer
That market has always been a good source of business for us. I think our program has lot of advantages over a typical buy-here pay-here program. Advantages for the consumer, in particular, because they can reestablish their credit in our program. We reported the credit bureaus, they can move on and get a newer nicer vehicle at a lower interest rate, reestablish their credit, move their life in a positive direction. So there is a lots of -- lot of benefits to our program. Buy-here pay-here market is large and we've historically had a pretty good success in rolling those former Buy Here Pay Here dealers in our program. Flow hasn't changed.
In terms of our success, really I just focus on the release. Active dealers increased consistent with the trend line, double digits. The issue this quarter and the prior quarter was volume per dealer, but we're having good success signing up dealers. Attrition rates are about equal to the long-term trends. So both those numbers are pretty solid. It's just volume per dealer which was very strong in the first six months of the year has turned the other way in the last six months.
Daniel Staff -- Autonomous Research -- Analyst
Great. Thanks for taking my question.
Operator
Thank you. (Operator Instructions) And our next question comes from the line of Vincent Caintic with Stephens. Your line is now open.
Vincent Caintic -- Stephens, Inc. -- Analyst
Thanks. Good afternoon. Just wanted to follow-up on some questions about the dealers and probably want to get a sense of the dealer landscape that you're hearing. So as you're going -- as we're going into calendar 2019, just kind of wondering what are the conversations you're having with the dealers that might have changed versus calendar 2018 and any sort of some things that are resonating with the dealers that are driving up --driving your growth?
Douglas W. Busk -- Senior Vice President and Treasurer
I mean, I don't really think the value proposition that we offer or the conversation that we're having with the dealers is really different. The environment today isn't a whole lot different than it was a year ago. So I think the conversations in the interest receptivity is the same as it was a year ago.
Vincent Caintic -- Stephens, Inc. -- Analyst
Okay. Got it. So nothing that you're generally worried about or any kind of different features or products that they're looking for that's different.
Douglas W. Busk -- Senior Vice President and Treasurer
No.
Vincent Caintic -- Stephens, Inc. -- Analyst
Okay. Got it. That's all I had. Thanks very much.
Operator
Thank you. And our next question comes from the line of Jason Hahn with Principal Global Investors (ph). Your line is now open.
Jason Hahn -- Principal Global Investors -- Analyst
Good afternoon, guys. Just a couple of quick ones. One, with K not out yet, is there any update or any commentary you can provide regarding the various ongoing investigations by the state AGs?
Douglas W. Busk -- Senior Vice President and Treasurer
Yes, we filed an 8-K this afternoon to provide an update on two state matters. The update will be provided in the 10-K, but we wanted to provide the disclosure at the time we release earnings. So that 8-K should be out there. It relates to a state matter in Massachusetts and one in Mississippi.
Jason Hahn -- Principal Global Investors -- Analyst
Okay. Thank you. I'll take a look at that. And then, just more, I guess, broadly with the sort of steady increase in average contract size and tenor of the loans outstanding. I'm just curious if you could maybe just qualitatively talk about your confidence and sort of extending your modeling to, I guess, what I would view as sort of an increasingly out of sample type of activity.
Brett A. Roberts -- Chief Executive Officer
Yeah, it's not out of samples. We are not writing any loans today that we haven't written before and we have a full amortization scheduled behind us for any loan 66 months and shorter. The only ones we don't have a full term behind us on is the 72 months, but we're now up to, I think, 54 months on those. So we're almost through that period and we have a full term behind us in the 66-month loans. So we're not going to change anything in quite a while. We're not writing any loans we haven't written before. So when you see the average contract size move up, it's just an issue of mix. We offer all different terms, all different sizes, all different payments and the dealers and customers like which one they prefer and that drives our mix.
Jason Hahn -- Principal Global Investors -- Analyst
Thank you very much.
Douglas W. Busk -- Senior Vice President and Treasurer
I would add that we've been, I think, while we've been extending loan terms for a long time and we use pilot programs to do that. So when we extended the terms, six months, we obviously don't know how those are going to perform but you can make a pretty good estimate based on the performance data you do have, and you're in a pilot program when you accumulate performance data, you refine your estimate if necessary and once you're comfortable, you just roll it out more broadly. So it's a process we followed for many, many years.
Jason Hahn -- Principal Global Investors -- Analyst
Yeah, good. Thank you. That's helpful color. I appreciate that.
Operator
Thank you. And our next question comes from the line of Julio Bologna with BTIG. Your line is now open.
Giuliano Anderes-Bologna -- BTIG -- Analyst
Hi. Thanks for taking my question. Just thinking about the average loan term in the portfolio. Is there any way of thinking about the difference in the term between the dealer and purchase programs overtime?
Brett A. Roberts -- Chief Executive Officer
I mean, we don't disclose them separately, but I will say at this point, they're not materially different.
Giuliano Anderes-Bologna -- BTIG -- Analyst
Thank you. That makes a lot of sense. And then thinking about -- one of the things that we probably find out in the K is, looking at the transfers, it looks like the rate of the number of transfers that are happening between the dealer program and the purchase program are increasing our percentage of the principal on annualized and quarterly basis? Have those continued or how should we think about those going forward?
Brett A. Roberts -- Chief Executive Officer
Well, if -- in our 2017 K, we reported in the fourth quarter of last year an amount of transfers that was significantly higher than the prior periods. We did excluded some disclosure in there that basically said that some of those transfers should have occurred in prior periods. So there's a bit of a catch up there. 2018 transfers have been occurring at a higher rate than early in '17, but not a materially higher rate. So the -- and I think the conclusion of higher transfer is just a function of the catch up we did and the new process we put in place following that.
Giuliano Anderes-Bologna -- BTIG -- Analyst
Thank you. And one last one, just thinking about the average borrower and have you seen any big change in the borrower, the profile of your average borrower in the last few quarters?
Brett A. Roberts -- Chief Executive Officer
No.
Giuliano Anderes-Bologna -- BTIG -- Analyst
That makes sense. Well, that was -- that's it from me. I appreciate your time.
Operator
Thank you. And with no further questions in the queue, I would like to turn the conference back over to Mr. Busk for any additional or closing remarks.
Douglas W. Busk -- Senior Vice President and Treasurer
We'd like to thank everyone for their support and for joining us on our conference call today. If you have any additional follow-up questions, please direct them to our Investor Relations mailbox at [email protected] We look forward to talking to you again next quarter. Thank you.
Operator
Once again, this does conclude today's conference. We thank you for your participation.
Duration: 26 minutes
Call participants:
Douglas W. Busk -- Senior Vice President and Treasurer
David Scharf -- JMP Securities -- Analyst
Moshe Orenbuch -- Credit Suisse -- Analyst
Kenneth S. Booth -- Chief Financial Officer
John Rowan -- Janney Montgomery Scott -- Analyst
Brett A. Roberts -- Chief Executive Officer
Mark Hammond -- Bank of America High Yield -- Analyst
Kyle Joseph -- Jefferies -- Analyst
Dominick Gabriele -- Oppenheimer -- Analyst
Daniel Staff -- Autonomous Research -- Analyst
Vincent Caintic -- Stephens, Inc. -- Analyst
Jason Hahn -- Principal Global Investors -- Analyst
Giuliano Anderes-Bologna -- BTIG -- Analyst
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