What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2024-02-12 compared with 2023-02-10 · 53 added, 68 removed, 197 unchanged (38% of the section changed)

1 unchanged sentence

Our inability to accurately forecast and estimate the amount and timing of future collections could have a material adverse effect on results of operations.

The vast majority of the Consumer Loans assigned to us are made to individuals with impaired or limited credit histories.

The majority of the Consumer Loans assigned to us are made to individuals with impaired or limited credit histories.

Consumer Loans made to these individuals generally entail a higher risk of delinquency, default, and repossession, and higher losses than loans made to consumers with better credit.

2 unchanged sentences

Based on these forecasts, which include estimates for wholesale vehicle prices in the event of vehicle repossession and sale, we make an advance or one-time purchase payment to the related Dealer at a level designed to maximize economic profit, a non-GAAP financial measure.

We continue to forecast the expected collection rate of each Consumer Loan subsequent to assignment.

We continue to forecast the expected collection rate for each Consumer Loan subsequent to assignment.

These forecasts also serve as a critical assumption in our accounting for recognizing finance charge income and determining our allowance for credit losses.

3 unchanged sentences

In periods with changing economic conditions, accurately forecasting the performance of Consumer Loans is more difficult.

In the event that our forecasts are not accurate, our financial position, liquidity, and results of operations could be materially adversely affected.

In the event that our forecasts are not accurate in the aggregate, our financial position, liquidity, and results of operations could be materially adversely affected.

Due to competition from traditional financing sources and non-traditional lenders, we may not be able to compete successfully.

7 unchanged sentences

Additionally, if we are unsuccessful in maintaining and expanding our relationships with Dealers, we may be unable to accept Consumer Loans in the volume and on the terms that we anticipate.

An outbreak of contagious disease, such as the COVID-19 pandemic, or other public health emergency could materially and adversely affect our business, financial condition, liquidity, and results of operations.

The COVID-19 pandemic caused a deterioration in the U.S.

economy and our industry, resulted in a period of substantial economic and financial market turmoil and adversely affected our business.

In the early stages of the pandemic, certain state governments implemented social distancing guidelines, travel bans and restrictions, quarantines, stay-at-home orders, and shutdowns of non-essential businesses.

These actions caused economic hardship in the areas in which they were implemented.

Though such restrictions have lessened, uncertainty remains as to when economic conditions will fully return to normal.

Additionally, the automotive industry experienced many supply chain disruptions, which resulted in low dealer inventories and elevated used vehicle prices.

As a result, we experienced a significant decline in Consumer Loan assignments.

While unit volume for the year ended December 31, 2022 increased from the prior year, it remained below pre-pandemic levels.

The ultimate impact of the COVID-19 pandemic, and the potential impact of future contagious-disease outbreaks or other public health emergencies, are highly uncertain.

Disruptions in our workforce, decreases in collections from our consumers, declines in Consumer Loan assignments, or extended periods of economic or supply chain disruptions resulting from the COVID-19 pandemic or from future contagious-disease outbreaks or other public health emergencies could cause a material adverse effect on our financial position, liquidity, and results of operations.

Financial market disruptions, as occurred during the early stages of the COVID-19 outbreak, that occur as a result of contagious-disease outbreaks or other public health emergencies could reduce our ability to access capital or our consumers’ ability to repay past or future Consumer Loans and could negatively affect our liquidity and results of operations.

The COVID-19 pandemic could continue to, and may materially—and any future contagious-disease outbreak or other public health emergency could materially—adversely affect our business, financial condition, liquidity, and results of operations and also intensify the risks described in the other risk factors disclosed in this Form 10-K.

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.

We are subject to general economic conditions which are beyond our control.

During periods of economic slowdown or recession, delinquencies, defaults, repossessions, and losses may increase on our Consumer Loans and Consumer Loan prepayments may decline.

These periods are also typically accompanied by decreased consumer demand for automobiles and declining values of automobiles securing outstanding Consumer Loans, which weakens collateral coverage and increases the amount of loss in the event of default.

Significant increases in the inventory of used automobiles during periods of economic recession may also depress the prices at which repossessed automobiles may be sold or delay the timing of these sales.

Additionally, inflation, higher gasoline prices, the deferral or resumption of student loan payments, increased focus on climate-related initiatives and regulation, declining stock market values, unstable real estate values, resets of adjustable rate mortgages to higher interest rates, increasing unemployment levels, general availability of consumer credit, or other factors that impact consumer confidence or disposable income could increase loss frequency and decrease consumer demand for automobiles as well as weaken collateral values of automobiles.

Because our business is focused on consumers who do not qualify for conventional automobile financing, the actual rates of delinquencies, defaults, repossessions, and losses on our Consumer Loans could be higher than those experienced in the general automobile finance industry, and could be more dramatically affected by a general economic downturn.

We rely on Dealers to originate Consumer Loans for assignment under our programs.

High levels of Dealer attrition, due to a general economic downturn or otherwise, could materially adversely affect our operations.

In addition, we rely on vendors to provide us with services we need to operate our business.

Any disruption in our operations due to the untimely or discontinued supply of these services could substantially adversely affect our operations.

Finally, during an economic slowdown or recession, our servicing costs may increase without a corresponding increase in finance charge revenue.

Any sustained period of increased delinquencies, defaults, repossessions, or losses or increased servicing costs could also materially adversely affect our financial position, liquidity, and results of operations and our ability to enter into future financing transactions.

Technological advancements or changes to trends in the automobile industry such as new autonomous driving technologies or car- and ride-sharing programs could decrease consumer demand for automobiles.

Decreased consumer demand for automobiles could negatively impact demand for our financing programs as well as weaken collateral values of automobiles, which could materially adversely affect our financial position, liquidity, and results of operations.

Reliance on third parties to administer our ancillary product offerings could adversely affect our business and financial results.

5 unchanged sentences

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 senior management average 15 years of experience with us.

Our senior management average over 14 years of experience with us.

Our success is dependent upon the management and the leadership skills of this team.

4 unchanged sentences

Our reputation is a key asset to our business.

Our ability to attract consumers through our Dealers is highly dependent upon external perceptions of our level of service, trustworthiness, business practices, and financial condition.

Our ability to attract consumers through Dealers is highly dependent upon external perceptions of our level of service, trustworthiness, business practices, and financial condition.

Negative publicity regarding these matters could damage our reputation among existing and potential consumers and Dealers, which could make it difficult for us to attract new consumers and Dealers and maintain existing Dealers.

Adverse developments with respect to our industry may also, by association, negatively impact our reputation or result in greater regulatory or legislative scrutiny or litigation against us.

The concentration of our Dealers in several states could adversely affect us.

An outbreak of contagious disease or other public health emergency could materially and adversely affect our business, financial condition, liquidity, and results of operations.

Contagious-disease outbreaks or other public health emergencies could cause a deterioration in the U.S.

economy and our industry, disruptions in our workforce, decreases in collections from our consumers, declines in Consumer Loan assignments, or extended periods of economic or supply chain disruptions.

Financial market disruptions that occur as a result of contagious-disease outbreaks or other public health emergencies could reduce our ability to access capital or our consumers’ ability to repay past or future Consumer Loans and could negatively affect our liquidity and results of operations.

A future contagious-disease outbreak or other public health emergency could materially adversely affect our business, financial condition, liquidity, and results of operations and also intensify the risks described in the other risk factors disclosed in this Form 10-K.

The concentration of Dealers in several states could adversely affect us.

Dealers are located throughout the United States.

During the year ended December 31, 2022, our five largest states (measured by 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) contained 29.0% of our Dealers.

During the year ended December 31, 2023, our five largest states (measured by 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) contained 27.7% of Dealers.

While we believe we have a diverse geographic presence, for the near term, we expect that significant amounts of Consumer Loan assignments will continue to be generated by Dealers in these five states due to the number of Dealers in these states and currently prevailing economic, demographic, regulatory, competitive, and other conditions in these states.

21 unchanged sentences

Our failure or inability to execute any element of our business strategy could materially adversely affect our financial position, liquidity, and results of operations.

We are subject to general economic conditions which are beyond our control.

During periods of economic slowdown or recession, delinquencies, defaults, repossessions, and losses may increase on our Consumer Loans and Consumer Loan prepayments may decline.

Additionally, inflation, higher gasoline prices, increased focus on climate-related initiatives and regulation, declining stock market values, unstable real estate values, resets of adjustable rate mortgages to higher interest rates, increasing unemployment levels, general availability of consumer credit, or other factors that impact consumer confidence or disposable income could increase loss frequency and decrease consumer demand for automobiles as well as weaken collateral values of automobiles.

We rely on Dealers to originate Consumer Loans for assignment under our programs.

High levels of Dealer attrition, due to a general economic downturn or otherwise, could materially adversely affect our operations.

In addition, we rely on vendors to provide us with services we need to operate our business.

Any disruption in our operations due to the untimely or discontinued supply of these services could substantially adversely affect our operations.

Finally, during an economic slowdown or recession, our servicing costs may increase without a corresponding increase in finance charge revenue.

Natural disasters, climate change, military conflicts, acts of war, terrorist attacks and threats, or the escalation of military activity in response to terrorist attacks or otherwise may negatively affect our business, financial condition, and results of operations.

Natural disasters, climate change, military conflicts such as the war in Ukraine, acts of war, terrorist attacks, and the escalation of military activity in response to terrorist attacks or otherwise may have negative and significant effects, such as imposition of increased security measures, changes in applicable laws, economic and financial market disruptions, loss of lives, damage to infrastructure, and job losses.

Natural disasters, climate change, military conflicts, acts of war, terrorist attacks, and the escalation of military activity in response to terrorist attacks or otherwise may have negative and significant effects, such as imposition of increased security measures, changes in applicable laws, economic and financial market disruptions, loss of lives, damage to infrastructure, and job losses.

These types of events or developments and their consequences may have an adverse effect on the economy in general, including diminished liquidity and credit availability, reduced consumer confidence, disruptions to energy and food supplies, decreased economic growth, higher unemployment rates, increased inflation, and political and social upheaval.

16 unchanged sentences

Apple and Mr.

Neary includes, in each case, beneficial ownership in their capacity as trustees of shares held in a trust established by our late founder, Donald Foss, for the benefit of members of Mr.

Foss’s family and representing 11.4% of our common stock as of December 31, 2022.

Neary includes, in each case, beneficial ownership in their capacity as trustees of shares held in a marital trust established by our late founder, Donald Foss, and representing 9.2% of our common stock as of December 31, 2023.

The shares in the trust are subject to the terms of a shareholder agreement, entered into by Mr.

6 unchanged sentences

We currently utilize the following primary forms of debt financing:

(1) a revolving secured line of credit;

(1) a revolving secured line of credit facility;

(2) revolving secured warehouse (“Warehouse”) facilities;

(3) asset-backed secured financings (“Term ABS”);

(3) asset-backed secured financings (“Term ABS financings”);

and (4) senior notes.

We cannot guarantee that the revolving secured line of credit or the Warehouse facilities will continue to be available beyond their current maturity dates, on acceptable terms, or at all, or that we will be able to obtain additional financing on acceptable terms or at all.

We cannot guarantee that the revolving secured line of credit facility or the Warehouse facilities will continue to be available beyond their current maturity dates, on acceptable terms, or at all, or that we will be able to obtain additional financing on acceptable terms or at all.

The availability of additional financing will depend on a variety of factors such as market conditions, the general availability of credit, our financial position, our results of operations, and the capacity for additional borrowing under our existing financing arrangements.

17 unchanged sentences

In the event our creditors accelerate the repayment of our debt, there can be no assurance that we would have sufficient assets to repay that debt, and our financial condition, liquidity, and results of operations would suffer.

A violation of the terms of our Term ABS facilities or Warehouse facilities could have a material adverse impact on our operations.

Under our Term ABS facilities and our Warehouse facilities, (1) we have various obligations and covenants as servicer and custodian of the Consumer Loans contributed thereto and in our individual capacity and (2) the special purpose subsidiaries to which we contribute Consumer Loans have various obligations and covenants.

A violation of any of these obligations or covenants by us or the special purpose subsidiaries, respectively, may result in our being unable to obtain additional funding under our Warehouse facilities, the termination of our servicing rights, and the loss of servicing fees, and may result in amounts outstanding under our Term ABS financings and our Warehouse facilities becoming immediately due and payable.

In addition, the violation of any financial covenant under our revolving secured line of credit facility is an event of default or termination event under certain of the Term ABS facilities and our Warehouse facilities.

The lack of availability from any or all of these Term ABS facilities and Warehouse facilities may have a material adverse effect on our financial position, liquidity, and results of operations.

A violation of the terms of our Term ABS financings or Warehouse facilities could have a material adverse impact on our operations.

Under our Term ABS financings and our Warehouse facilities, (1) we have various obligations and covenants as seller, servicer, and custodian of the Loans conveyed thereunder and in our individual capacity and (2) the special purpose subsidiaries to which we convey Loans have various obligations and covenants.

A violation of any of these obligations or covenants in any of our Term ABS financings or our Warehouse facilities by us or the special purpose subsidiaries, respectively, may result in an early termination of the revolving period, repurchase or indemnification obligations on our part, and the termination of our servicing rights (and, accordingly, the loss of servicing fees), and may further result in amounts outstanding under such Term ABS financings and Warehouse facilities becoming immediately due and payable.

In addition, the violation of any financial covenant under our revolving secured line of credit facility is an event of default or termination event under certain of our Term ABS financings and our Warehouse facilities.

The occurrence of any of the events described in the immediately-preceding paragraph could have a material adverse effect on 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.

16 unchanged sentences

We can provide no assurance, however, that our strategies will mitigate the impact of increases in interest rates.

The phaseout of the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with a different reference rate, could result in a material adverse effect on our business.

In July 2017, the United Kingdom Financial Conduct Authority, or the FCA (the authority that regulates LIBOR), announced that it would phase out LIBOR by the end of 2021.

The FCA-regulated and authorized administrator of LIBOR indicated in 2020 that U.S.-dollar LIBOR for certain maturities would continue to be available until the end of June 2023.

During 2022, we entered into amendments for most of our LIBOR-based facilities to transition to alternative benchmark rates.

One of our Warehouse facilities and the corresponding interest rate cap agreement continue to utilize LIBOR as a benchmark for calculating the applicable interest rates.

We plan to transition the remaining LIBOR-based facility and its related interest rate cap to an alternative benchmark.

Any market volatility or disruption or changes in effective interest rates resulting from the discontinuance or replacement of LIBOR, or any failure to transition our remaining LIBOR-based facility and its related interest rate cap to an alternative benchmark, could adversely affect our access to the debt, securitization or derivative markets and increase our costs of funding and hedging.

Such market volatility or disruption or higher costs of funding and hedging or any other similar increases in our cost of capital resulting from the phaseout or replacement of LIBOR could materially adversely affect our financial position, liquidity, and results of operations.

Alternatives to LIBOR that have been incorporated into our borrowings to date, such as the Bloomberg Short-Term Bank Yield Index Rate (“BSBY”) and the Secured Overnight Financing Rate (“SOFR”), are relatively new reference rates with limited histories.

The future performance of these alternatives to LIBOR cannot reliably be predicted based on their limited historical performance.

Additionally, any other successor rates to LIBOR or successors to these initial alternatives to LIBOR may have different characteristics from those of LIBOR and these initial alternatives.

As a result, the manner in which and degree to which the interest rates on our variable-interest-rate debt fluctuate relative to market interest rates may be more difficult to predict than prior to the phaseout of LIBOR.

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.

18 unchanged sentences

Our dependence on technology could have a material adverse effect on our business.

All Consumer Loans submitted to us for assignment are processed through our internet-based CAPS application, which enables our Dealers to interact with our proprietary credit scoring system.

All Consumer Loans submitted to us for assignment are processed through our internet-based CAPS application.

Our Consumer Loan servicing platform is also technology based.

We rely on these systems to record and process significant amounts of data quickly and accurately.

Our systems are dependent upon computer and telecommunications equipment, software systems, and internet access.

Our systems, and those of our third-party service providers, are dependent upon computer and telecommunications equipment, software systems, and internet access.

The temporary or permanent loss of any components of these systems through hardware failures, software errors, operating malfunctions, the vulnerability of the internet, or otherwise could interrupt our business operations and harm our business.

Our systems, and the equipment, software, and internet access on which they depend, may be subject to cyber attacks, security breaches, and other cybersecurity incidents.

Although the cybersecurity incidents we have experienced to date have not had a material effect on our business, financial condition, or results of operations, there can be no assurance that cybersecurity incidents will not have a material adverse effect on us in the future.

Although Company systems and systems of third party service providers are subject to risks from cybersecurity threats and incidents, these have not materially affected the Company, including its business strategy, results of operations, or financial condition, though there can be no assurance that cybersecurity threats and incidents will not have a material adverse effect on us in the future.

We rely on a variety of measures to protect our technology and proprietary information, including copyrights and a comprehensive information security program.

However, these measures may not prevent misappropriation or infringement of our intellectual property or proprietary information, which would adversely affect us.

In addition, our competitors or other third parties may allege that our systems, processes, or technologies infringe their intellectual property rights.

In addition, our competitors or other third parties may allege that our proprietary systems, processes, or technologies infringe their intellectual property rights.

Our ability to integrate computer and telecommunications technologies into our business is essential to our success.

Computer and telecommunications technologies are evolving rapidly and are characterized by short product life cycles.

Computer and telecommunications technologies are evolving rapidly and, as a result, may be characterized by short product life cycles.

We may not be successful in anticipating, managing, or adopting technological changes on a timely basis.

1 unchanged sentence

We cannot assure that adequate capital resources will be available to us at the appropriate time.

We depend on secure information technology, and a breach of our systems or those of our third-party service providers could result in our experiencing significant financial, legal, and reputational exposure and could materially adversely affect our business, financial condition, and results of operations.

We and our third-party service providers face ongoing threats to our systems and data and from time to time experience cyberattacks and other security incidents.

There is no guarantee that our security controls, or those of our third-party service providers, will protect against all threats.

Our and our third-party service providers’ security measures may not be able to anticipate, prevent, detect or identify cybersecurity incidents in a timely manner or at all.

As a result, our computer systems, software, and networks, as well as those of our third-party service providers, are vulnerable to unauthorized access, computer viruses, malware attacks, and other events that could have a security impact beyond our control, and information we transmit and receive may be vulnerable to interception, misuse, or mishandling.

Cybersecurity incidents, including such occurrences that compromise information processed by, stored in, or transmitted through our computer systems and networks, or those of our third-party service providers, or that cause interruptions or malfunctions in our or our service providers’ operations could result in losses, loss of business by us and loss of confidence in us, consumer and Dealer dissatisfaction, significant litigation, regulatory exposures, and harm to our reputation, any of which could have a material adverse impact on our business, financial condition, and results of operations.

While we have not been materially affected by cybersecurity incidents to date, we may be required to expend significant additional resources in the future to enhance our security controls, modify our protective measures, investigate the circumstances surrounding cybersecurity incidents, and implement mitigation and remediation measures in response to cybersecurity incidents and new or more sophisticated threats, as well as in response to new regulations related to cybersecurity.

Cybersecurity incidents may result in our being subject to fines, penalties, litigation (including securities fraud class action lawsuits) and regulatory investigation costs and settlements and other financial losses, which could have a material adverse effect on our business, financial condition and results of operations.

Our use of electronic contracts could impact our ability to perfect our ownership or security interest in Consumer Loans.

24 unchanged sentences

We may also have disputes and litigation with Dealers.

The claims may allege, among other theories of liability, that we breached our Dealer servicing agreement.

The claims may allege, among other theories of liability, that we breached the Dealer servicing agreement.

We may also have disputes and litigation with vendors and other third parties.

1 unchanged sentence

The damages, fines, and penalties that may be claimed by consumers, regulatory agencies, Dealers, vendors, or other third parties in these types of matters can be substantial.

A significant judgment against us in connection with any litigation or arbitration could have a material adverse effect on our financial position, liquidity, and results of operations.

The relief requested by plaintiffs varies but may include requests for compensatory, statutory, and punitive damages and injunctive relief, and plaintiffs may seek treatment as purported class actions or they may file individual arbitration demands for which arbitration providers may request separate filings fees.

A significant judgment against us in connection with any litigation or arbitration or the requirement to pay filing fees for a large number of individual arbitration demands could have a material adverse effect on our financial position, liquidity, and results of operations.

For a description of significant litigation to which we are a party, see Note 16 to the consolidated financial statements contained in Item 8 of this Form 10-K, which is incorporated herein by reference.

12 unchanged sentences

Business “Regulation” for a discussion of regulatory risk factors.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors