What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-04-30 · 249 added, 81 removed, 343 unchanged (49% of the section changed)

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and from sales to customers responding to advertisements for our financing programs, but who actually end up qualifying for traditional financing.

For the three months ended March 31, 2024, consolidated net income was $64.3 million, or $5.08 per diluted share, compared to consolidated net income of $99.5 million, or $7.61 per diluted share, for the same period in 2023, primarily due to increases in provision for credit losses and interest expense, partially offset by an increase in finance charges.

Our results for the three months ended March 31, 2024 included:

• A decrease in forecasted collection rates

The decrease in forecasted collection rates decreased forecasted net cash flows from our Loan portfolio by $30.8 million, or 0.3%, compared to stable forecasted collection rates during the first quarter of 2023 that increased forecasted net cash flows from our Loan portfolio by $9.4 million, or 0.1%.

For the three months ended June 30, 2024, consolidated net loss was $47.1 million, or $3.83 per diluted share, compared to consolidated net income of $22.2 million, or $1.69 per diluted share, for the same period in 2023, primarily due to increases in provision for credit losses on forecast changes and interest expense, partially offset by an increase in finance charges.

Our results for the three months ended June 30, 2024 included:

• A larger decrease in forecasted collection rates

The decrease in forecasted collection rates decreased forecasted net cash flows from our Loan portfolio by $189.3 million, or 1.7%, compared to a decrease in forecasted collection rates during the second quarter of 2023 that decreased forecasted net cash flows from our Loan portfolio by $89.3 million, or 0.9%.

The $189.3 million decrease in forecasted net cash flows for the second quarter of 2024 was comprised of an ordinary decrease in forecasted net cash flows of $42.1 million, or 0.3%, and an adjustment applied to our forecasting methodology, which upon implementation, reduced forecasted net cash flows by $147.2 million, or 1.4%.

The $89.3 million decrease in forecasted net cash flows for the second quarter of 2023 was comprised of an ordinary decrease in forecasted net cash flows of $44.8 million, or 0.4%, and an adjustment to our forecasting methodology, which upon implementation, reduced forecasted net cash flows by $44.5 million, or 0.5%.

• A decrease in forecasted profitability for Consumer Loans assigned in 2021 through 2024

Forecasted profitability was lower than our estimates at March 31, 2023, due to a decline in forecasted collection rates since the first quarter of 2023 and slower forecasted net cash flow timing during 2023 and the first quarter of 2024, primarily as a result of a decrease in Consumer Loan prepayments, which remain at below-average levels.

Forecasted profitability was lower than our estimates at June 30, 2023, due to a decline in forecasted collection rates since the second quarter of 2023 and slower forecasted net cash flow timing during 2023 and the first six months of 2024, primarily as a result of a decrease in Consumer Loan prepayments, which remain at below-average levels.

• Growth in Consumer Loan assignment volume and the average balance of our Loan portfolio

Unit and dollar volumes grew 24.1% and 20.2%, respectively, as compared to the first quarter of 2023.

The average balance of our Loan portfolio, which is our largest-ever, increased 11.7% as compared to the first quarter of 2023.

Unit and dollar volumes grew 20.9% and 16.3%, respectively, as compared to the second quarter of 2023.

The average balance of our Loan portfolio, which is our largest-ever, increased 13.7% as compared to the second quarter of 2023.

• An increase in the initial spread on Consumer Loan assignments

The initial spread increased to 22.0% compared to 21.0% on Consumer Loans assigned in the first quarter of 2023.

The initial spread increased to 22.0% compared to 21.2% on Consumer Loans assigned in the second quarter of 2023.

• An increase in our average cost of debt

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• A decrease in common shares outstanding due to stock repurchases

Since the first quarter of 2023, we have repurchased approximately 728,000 shares, or 5.7% of the shares outstanding as of March 31, 2023.

Since the second quarter of 2023, we have repurchased approximately 822,000 shares, or 6.4% of the shares outstanding as of June 30, 2023.

• Loss on sale of building

We recognized a $23.7 million loss during the second quarter of 2024 related to the sale of one of our two office buildings.

The building was sold to reduce excess office space and eliminate the associated annual operating costs of approximately $2.1 million.

For the six months ended June 30, 2024, consolidated net income was $17.2 million, or $1.37 per diluted share, compared to consolidated net income of $121.7 million, or $9.30 per diluted share, for the same period in 2023, primarily due to increases in provision for credit losses on forecast changes and interest expense, partially offset by an increase in finance charges.

Our results for the six months ended June 30, 2024 included:

• A larger decrease in forecasted collection rates

The decrease in forecasted collection rates decreased forecasted net cash flows from our Loan portfolio by $220.1 million, or 2.2%, compared to a decrease in forecasted collection rates during the first six months of 2023 that decreased forecasted net cash flows from our Loan portfolio by $79.9 million, or 0.9%.

The $220.1 million decrease in forecasted net cash flows for the first six months of 2024 was comprised of an ordinary decrease in forecasted net cash flows of $72.9 million, or 0.8%, and an adjustment applied to our forecasting methodology, which upon implementation, reduced forecasted net cash flows by $147.2 million, or 1.4%.

The $79.9 million decrease in forecasted net cash flows for the first six months of 2023 was comprised of an ordinary decrease in forecasted net cash flows of $35.4 million, or 0.4%, and an adjustment to our forecasting methodology, which upon implementation, reduced forecasted net cash flows by $44.5 million, or 0.5%.

• A decrease in forecasted profitability for Consumer Loans assigned in 2021 through 2024

Forecasted profitability was lower than our estimates at June 30, 2023, due to a decline in forecasted collection rates since the first six months of 2023 and slower forecasted net cash flow timing during 2023 and the first six months of 2024, primarily as a result of a decrease in Consumer Loan prepayments, which remain at below-average levels.

• Growth in Consumer Loan assignment volume and the average balance of our Loan portfolio

Unit and dollar volumes grew 22.6% and 18.3%, respectively, as compared to the first six months of 2023.

The average balance of our Loan portfolio, which is our largest-ever, increased 12.7% as compared to the first six months of 2023.

• An increase in the initial spread on Consumer Loan assignments

The initial spread increased to 22.0% compared to 21.1% on Consumer Loans assigned in the first six months of 2023.

• An increase in our average cost of debt

Our average cost of debt increased from 5.0% to 7.1%, primarily a result of higher interest rates on recently-completed or -extended secured financings and recently-issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.

• A decrease in common shares outstanding due to stock repurchases

Since the second quarter of 2023, we have repurchased approximately 822,000 shares, or 6.4% of the shares outstanding as of June 30, 2023.

• Loss on sale of building

We recognized a $23.7 million loss during the second quarter of 2024 as described above.

Critical Success Factors

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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 aggregated forecast of Consumer Loan collection rates as of March 31, 2024, with the aggregated forecasts as of December 31, 2023 and at the time of assignment, segmented by year of assignment:

The following table compares our aggregated forecast of Consumer Loan collection rates as of June 30, 2024, with the aggregated forecasts as of March 31, 2024, as of December 31, 2023, and at the time of assignment, segmented by year of assignment:

Forecasted Collection Percentage as of (1) Current Forecast Variance from

Consumer Loan Assignment Year March 31, 2024 December 31, 2023 Initial Forecast December 31, 2023 Initial Forecast

Consumer Loan Assignment Year June 30, 2024 March 31, 2024 December 31, 2023 Initial Forecast March 31, 2024 December 31, 2023 Initial Forecast

2015 65.3 % 65.3 % 65.2 % 67.7 % 0.0 % 0.1 % -2.4 %

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Forecasted collection rates are negatively impacted by canceled Consumer Loans as the contractual amount owed is not removed from the denominator for purposes of computing forecasted collection rates.

Consumer Loans assigned in 2018 through 2020 have yielded forecasted collection results significantly better than our initial estimates, while Consumer Loans assigned in 2015, 2016, 2021, and 2022 have yielded forecasted collection results significantly worse than our initial estimates.

(2) The forecasted collection rate for 2024 Consumer Loans as of June 30, 2024 includes both Consumer Loans that were in our portfolio as of March 31, 2024 and Consumer Loans assigned during the most recent quarter.

The following table provides forecasted collection rates for each of these segments:

Forecasted Collection Percentage as of Current Forecast Variance from

2024 Consumer Loan Assignment Period June 30, 2024 March 31, 2024 Initial Forecast March 31, 2024 Initial Forecast

January 1, 2024 through March 31, 2024 65.9 % 66.9 % 66.9 % -1.0 % -1.0 %

April 1, 2024 through June 30, 2024 67.3 % — 67.6 % — -0.3 %

Consumer Loans assigned in 2018 through 2020 have yielded forecasted collection results significantly better than our initial estimates, while Consumer Loans assigned in 2015, 2016, and 2021 through 2023 have yielded forecasted collection results significantly worse than our initial estimates.

For all other assignment years presented, actual results have been close to our initial estimates.

For the three months ended March 31, 2024, forecasted collection rates declined for Consumer Loans assigned in 2021 through 2023 and were generally consistent with expectations at the start of the period for all other assignment years presented.

The changes in forecasted collection rates for the three months ended March 31, 2024 and 2023 impacted forecasted net cash flows (forecasted collections less forecasted Dealer Holdback payments) as follows:

(Dollars in millions) For the Three Months Ended March 31,

Increase (Decrease) in Forecasted Net Cash Flows 2024 2023

For the three months ended June 30, 2024, forecasted collection rates declined for Consumer Loans assigned in 2021 through 2024 and were generally consistent with expectations at the start of the period for all other assignment years presented.

For the six months ended June 30, 2024, forecasted collection rates improved for Consumer Loans assigned in 2019, declined for Consumer Loans assigned in 2021 through 2024, and were generally consistent with expectations at the start of the period for all other assignment years presented.

The changes in forecasted collection rates for the three and six months ended June 30, 2024 and 2023 impacted forecasted net cash flows (forecasted collections less forecasted Dealer Holdback payments) as follows:

(Dollars in millions) For the Three Months Ended June 30, For the Six Months Ended June 30,

Decrease in Forecasted Net Cash Flows 2024 2023 2024 2023

Dealer loans $ (102.4) $ (41.8) $ (129.4) $ (49.0)

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% change from forecast at beginning of period -1.7 % -0.9 % -2.2 % -0.9 %

During the second quarter of 2024, we applied an adjustment to our estimate of future net cash flows from our Loan portfolio, which reduced the forecasted collection rates for Consumer Loans assigned in 2022 through 2024.

Consumer Loans assigned in 2022 have continued to underperform our expectations for the past several quarters.

More recently, Consumer Loans assigned in 2023 have also begun exhibiting similar trends of underperformance, although not as severe as Consumer Loans assigned in 2022.

During the second quarter of 2024, we determined that we had sufficient Consumer Loan performance experience to estimate the magnitude by which we expect Consumer Loans assigned in 2022 through 2024 will likely underperform our historical collection rates on Consumer Loans with similar characteristics.

Accordingly, we applied an adjustment to Consumer Loans assigned in 2022 through 2024 to reduce forecasted collection rates to what we believe the ultimate collection rates will be based on these trends.

Changes in the amount and timing of forecasted net cash flows are recognized in the period of change as a provision for credit losses.

The implementation of this forecast adjustment during the second quarter of 2024 reduced forecasted net cash flows by $147.2 million, or 1.4%, and increased provision for credit losses by $127.5 million.

During the second quarter of 2023, we adjusted our methodology for forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent Consumer Loan performance and Consumer Loan prepayment data.

We had experienced a decrease in Consumer Loan prepayments to below-average levels and as a result, slowed our forecasted net cash flow timing.

Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit.

Changes in the amount and timing of forecasted net cash flows are recognized in the period of change as a provision for credit losses.

The implementation of the adjustment to our forecasting methodology during the second quarter of 2023 reduced forecasted net cash flows by $44.5 million, or 0.5%, and increased provision for credit losses by $71.3 million.

We have experienced increased levels of uncertainty associated with our estimate of the amount and timing of future net cash flows from our Loan portfolio since the beginning of 2020, with realized collections underperforming our expectations during the early stages of the COVID-19 pandemic, outperforming our expectations following the distribution of federal stimulus payments and enhanced unemployment benefits, and underperforming our expectations during the current economic environment.

Forecasting collection rates accurately is challenging, so we have designed our business model to produce acceptable levels of profitability across our portfolio, even if Loan performance is less than forecasted in the aggregate.

For the period from January 1, 2020 through March 31, 2024, the cumulative change to our forecast of future net cash flows from our Loan portfolio has been a decrease of $17.0 million, or 0.2%, as shown in the following table:

For the period from January 1, 2020 through June 30, 2024, the cumulative change to our forecast of future net cash flows from our Loan portfolio has been a decrease of $206.3 million, or 2.3%, as shown in the following table:

(Dollars in millions) Increase (Decrease) in Forecasted Net Cash Flows

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March 31, 2024 (30.8) -0.3 %

June 30, 2024 (189.3) -1.7 %

Total $ (206.3) -2.3 %

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Payments of Dealer Holdback and accelerated Dealer Holdback are not included.

(3) Represents activity for the three months ended March 31, 2024.

(3) Represents activity for the six months ended June 30, 2024.

Information in this table for each of the years prior to 2024 represents activity for all 12 months of that year.

(4) The averages for 2024 Consumer Loans include both Consumer Loans that were in our portfolio as of March 31, 2024 and Consumer Loans assigned during the most recent quarter.

The following table provides averages for each of these segments:

2024 Consumer Loan Assignment Period Consumer Loan Advance Initial Loan Term (in months)

January 1, 2024 through March 31, 2024 $ 26,318 $ 11,813 61

April 1, 2024 through June 30, 2024 26,816 12,278 61

The profitability of our loans is primarily driven by the amount and timing of the net cash flows we receive from the spread between the forecasted collection rate and the advance rate, less operating expenses and the cost of capital.

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With this in mind, we establish advance rates that are intended to allow us to achieve acceptable levels of profitability across our portfolio, even if collection rates are less than we initially forecast.

The following table presents aggregate forecasted Consumer Loan collection rates, advance rates, and spreads (the forecasted collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of March 31, 2024, as well as forecasted collection rates and spreads at the time of assignment.

The following table presents aggregate forecasted Consumer Loan collection rates, advance rates, and spreads (the forecasted collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of June 30, 2024, as well as forecasted collection rates and spreads at the time of assignment.

All amounts, unless otherwise noted, are presented as a percentage of the initial balance of the Consumer Loan (principal + interest).

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Forecasted Collection % as of Spread % as of

Consumer Loan Assignment Year March 31, 2024 Initial Forecast Advance % (1) March 31, 2024 Initial Forecast % of Forecast Realized (2)

Consumer Loan Assignment Year June 30, 2024 Initial Forecast Advance % (1) June 30, 2024 Initial Forecast % of Forecast Realized (2)

2015 65.3 % 67.7 % 44.5 % 20.8 % 23.2 % 99.6 %

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(2) Presented as a percentage of total forecasted collections.

(3) The forecasted collection rate, advance rate and spread for 2024 Consumer Loans as of June 30, 2024 include both Consumer Loans that were in our portfolio as of March 31, 2024 and Consumer Loans assigned during the most recent quarter.

The following table provides forecasted collection rates, advance rates, and spreads for each of these segments:

Forecasted Collection % as of Spread % as of

2024 Consumer Loan Assignment Period June 30, 2024 Initial Forecast Advance % June 30, 2024 Initial Forecast

January 1, 2024 through March 31, 2024 65.9 % 66.9 % 44.9 % 21.0 % 22.0 %

April 1, 2024 through June 30, 2024 67.3 % 67.6 % 45.6 % 21.7 % 22.0 %

The risk of a material change in our forecasted collection rate declines as the Consumer Loans age.

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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 as of March 31, 2024 and the advance rate ranges from 14.7% to 23.8%, on an annual basis, for Consumer Loans assigned over the last 10 years.

The spread between the forecasted collection rate as of June 30, 2024 and the advance rate ranges from 13.7% to 23.8%, on an annual basis, for Consumer Loans assigned over the last 10 years.

The spreads with respect to 2019 and 2020 Consumer Loans have been positively impacted by Consumer Loan performance, which has exceeded our initial estimates by a greater margin than the other years presented.

The spread with respect to 2022 Consumer Loans has been negatively impacted by Consumer Loan performance, which has been lower than our initial estimates by a greater margin than the other years presented.

The higher spread for 2024 Consumer Loans relative to 2023 Consumer Loans as of March 31, 2024 was primarily a result of a higher initial spread on 2024 Consumer Loans, which was due to a decrease in the advance rate, partially offset by a lower initial forecast.

Additionally, the performance of 2023 Consumer Loans has been lower than our initial estimates.

The following table compares our forecast of aggregate Consumer Loan collection rates as of March 31, 2024 with the forecasts at the time of assignment, for Dealer Loans and Purchased Loans separately:

The higher spread for 2024 Consumer Loans relative to 2023 Consumer Loans as of June 30, 2024 was primarily a result of Consumer Loan performance, as the performance of 2023 Consumer Loans has been lower than our initial estimates by a greater margin than 2024 Consumer Loans.

Additionally, 2024 Consumer Loans had a higher initial spread, which was due to a decrease in the advance rate, partially offset by a lower initial forecast.

The following table compares our forecast of aggregate Consumer Loan collection rates as of June 30, 2024 with the forecasts at the time of assignment, for Dealer Loans and Purchased Loans separately:

Dealer Loans Purchased Loans

Forecasted Collection Percentage as of (1) Forecasted Collection Percentage as of (1)

Consumer Loan Assignment Year March 31, 2024 Initial

Forecast Variance March 31, 2024 Initial

Consumer Loan Assignment Year June 30, 2024 Initial

Forecast Variance June 30, 2024 Initial

Forecast Variance

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The following table presents aggregate forecasted Consumer Loan collection rates, advance rates, and spreads (the forecasted collection rate less the advance rate) as of March 31, 2024 for Dealer Loans and Purchased Loans separately.

The following table presents aggregate forecasted Consumer Loan collection rates, advance rates, and spreads (the forecasted collection rate less the advance rate) as of June 30, 2024 for Dealer Loans and Purchased Loans separately.

All amounts are presented as a percentage of the initial balance of the Consumer Loan (principal + interest).

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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.

The spread as of March 31, 2024 on 2024 Dealer Loans was 22.0%, as compared to a spread of 21.3% on 2023 Dealer Loans.

The increase was due to Consumer Loan performance, as the performance of 2023 Dealer Loans has been lower than our initial estimates.

The spread as of March 31, 2024 on 2024 Purchased Loans was 21.7%, as compared to a spread of 20.2% on 2023 Purchased Loans.

The increase was primarily a result of a higher initial spread on 2024 Purchased Loans, due to a lower advance rate and higher initial forecast.

The increase was partially offset by Consumer Loan performance, as the performance of 2023 Purchased Loans has exceeded our initial estimates.

The spread as of June 30, 2024 on 2024 Dealer Loans was 21.3%, as compared to a spread of 18.5% on 2023 Dealer Loans.

The increase was due to Consumer Loan performance, as the performance of 2023 Dealer Loans has been lower than our initial estimates by a greater margin than 2024 Dealer Loans.

The spread as of June 30, 2024 on 2024 Purchased Loans was 21.3%, as compared to a spread of 17.9% on 2023 Purchased Loans.

The increase was primarily a result of a higher initial spread on 2024 Purchased Loans, due to a higher initial forecast and lower advance rate.

Additionally, the performance of 2023 Purchased Loans has been lower than our initial estimates by a greater margin than 2024 Purchased Loans.

Access to Capital

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and (3) maintain multiple funding sources.

Our funded debt to equity ratio was 3.4 to 1 as of March 31, 2024.

Our funded debt to equity ratio was 3.8 to 1 as of June 30, 2024.

We currently utilize the following primary forms of debt financing:

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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:

The following table summarizes changes in Consumer Loan assignment volume in each of the last six quarters as compared to the same period in the previous year:

Year over Year Percent Change

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March 31, 2024 24.1 % 20.2 %

June 30, 2024 20.9 % 16.3 %

(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.

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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 24.1% and 20.2%, respectively, during the first quarter of 2024 as the number of active Dealers grew 10.5% and the average unit volume per active Dealer increased 12.0%.

Dollar volume increased less than unit volume during the first quarter of 2024 due to a decrease in the average advance paid, due to decreases in the average advance rate and the average size of Consumer Loans assigned.

Unit volume for the 28-day period ended April 28, 2024 grew 11.4% compared to the same period in 2023.

Unit and dollar volumes grew 20.9% and 16.3%, respectively, during the second quarter of 2024 as the number of active Dealers grew 8.9% and the average unit volume per active Dealer increased 10.7%.

Dollar volume increased less than unit volume during the second quarter of 2024 due to a decrease in the average advance paid, due to decreases in the average advance rate and the average size of Consumer Loans assigned.

Unit volume for the 28-day period ended July 28, 2024 grew 27.7% compared to the same period in 2023.

The following table summarizes the changes in Consumer Loan unit volume and active Dealers:

For the Three Months Ended March 31,

2024 2023 % Change

For the Three Months Ended June 30, For the Six Months Ended

2024 2023 % Change 2024 2023 % Change

Consumer Loan unit volume 100,057 82,727 20.9 % 211,545 172,548 22.6 %

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The following table provides additional information on the changes in Consumer Loan unit volume and active Dealers:

For the Three Months Ended March 31,

2024 2023 % Change

For the Three Months Ended June 30, For the Six Months Ended

2024 2023 % Change 2024 2023 % Change

Consumer Loan unit volume from new active Dealers

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decrease in Consumer Loan unit volume from Dealers who have received funding for at least one Loan during the comparable period of the prior year but did not receive funding for any Loans during the current period divided by prior year comparable period Consumer Loan unit volume.

The following table shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last five quarters:

The following table shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last six quarters:

Unit Volume Dollar Volume (1)

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March 31, 2024 78.2 % 21.8 % 76.6 % 23.4 %

June 30, 2024 78.5 % 21.5 % 77.3 % 22.7 %

(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, 2024 and December 31, 2023, the net Dealer Loans receivable balance was 69.2% and 67.7% , respectively, of the total net Loans receivable balance.

As of June 30, 2024 and December 31, 2023, the net Dealer Loans receivable balance was 70.5% and 67.7% , respectively, of the total net Loans receivable balance.

Results of Operations

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Due to the GAAP treatment of contractual net cash flows we do not expect to realize at the time of loan assignment (i.e.

significant expense at the time of loan assignment, which is offset by higher revenue in subsequent periods), we do not believe the GAAP methodology we employ provides sufficient transparency into the economics of our business.

For additional information, see Note 3 and Note 6 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

The following is a discussion of our results of operations and income statement data on a consolidated basis.

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Provision for claims 20.3 19.7 0.6 3.0 %

Loss on sale of building 23.7 — 23.7 — %

Total costs and expenses 593.5 450.0 143.5 31.9 %

Income (loss) before provision (benefit) for income taxes (55.3) 27.9 (83.2) -298.2 %

Provision (benefit) for income taxes (8.2) 5.7 (13.9) -243.9 %

Net income (loss) $ (47.1) $ 22.2 $ (69.3) -312.2 %

Net income (loss) per share:

Basic $ (3.83) $ 1.70 $ (5.53) -325.3 %

Diluted $ (3.83) $ 1.69 $ (5.52) -326.6 %

Weighted average shares outstanding:

Basic 12,282,174 13,049,935 (767,761) -5.9 %

Diluted 12,282,174 13,099,961 (817,787) -6.2 %

Finance Charges.

The increase of $56.7 million, or 12.9%, was primarily due to an increase in the average net Loans receivable balance, as follows:

(Dollars in millions) For the Three Months Ended June 30,

2024 2023 Change

Average net Loans receivable balance $ 7,499.2 $ 6,596.6 $ 902.6

Average yield on our Loan portfolio 26.5 % 26.7 % -0.2 %

The following table summarizes the impact each component had on the overall increase in finance charges for the three months ended June 30, 2024:

(In millions) Year over Year Change

Impact on finance charges:

For the Three Months Ended June 30, 2024

Due to an increase in the average net Loans receivable balance $ 60.3

Due to a decrease in the average yield (3.6)

Total increase in finance charges $ 56.7

The increase in the average net Loans receivable balance was primarily due to the dollar volume of new Consumer Loan assignments exceeding the principal collected on Loans receivable.

Premiums Earned.

The increase of $4.5 million, or 22.7%, was primarily due to growth in the size of our reinsurance portfolio, which resulted from growth in new Consumer Loan assignments and an increase in the average premium written per reinsured vehicle service contract in recent periods.

Operating Expenses.

The increase of $7.4 million, or 6.3%, was primarily due to:

• An increase in salaries and wages expense of $5.6 million, or 8.0%, primarily due to an increase in the number of team members as we are investing in our business with the goal of increasing the speed at which we enhance our product for Dealers and consumers.

• An increase in general and administrative expense of $2.7 million, or 13.2%, primarily due to an increase in technology systems expenses.

Provision for Credit Losses .

The increase of $70.1 million, or 28.0%, was primarily due to an increase in provision for credit losses on forecast changes.

We recognize provision for credit losses on new Consumer Loan assignments for contractual net cash flows that are not expected to be realized at the time of assignment.

We also recognize provision for credit losses on forecast changes in the amount and timing of expected future net cash flows subsequent to assignment.

The following table summarizes the provision for credit losses for each of these components:

(In millions) For the Three Months Ended June 30,

Provision for Credit Losses 2024 2023 Change

Forecast changes $ 237.8 $ 168.8 $ 69.0

New Consumer Loan assignments 82.8 81.7 1.1

Total $ 320.6 $ 250.5 $ 70.1

The increase in provision for credit losses related to forecast changes was primarily due to a greater decline in Consumer Loan performance during the second quarter of 2024 compared to the second quarter of 2023.

During the second quarter of 2024, we decreased our estimate of future net cash flows by $189.3 million, or 1.7%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments, which remain at below-average levels.

Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit.

Consumer Loans assigned in 2022 have continued to underperform our expectations for the past several quarters.

More recently, Consumer Loans assigned in 2023 have also begun exhibiting similar trends of underperformance, although not as severe as Consumer Loans assigned in 2022.

During the second quarter of 2023, we decreased our estimate of future net cash flows by $89.3 million, or 0.9%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments to below-average levels.

The $89.3 million decrease in forecasted net cash flows for the second quarter of 2023 was comprised of an ordinary decrease in forecasted net cash flows of $44.8 million, or 0.4%, and an adjustment to our forecasting methodology, which upon implementation, decreased our estimate of future net cash flows by $44.5 million, or 0.5%, and increased our provision for credit losses by $71.3 million.

We adjusted our methodology for forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent Consumer Loan performance and Consumer Loan prepayment data.

For additional information, see Note 6 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

The increase in provision for credit losses related to new Consumer Loan assignments was primarily due to a 20.9% increase in Consumer Loan assignment unit volume, partially offset by a 16.2% decrease in the average provision per Consumer Loan assignment.

The decrease in the average provision per Consumer Loan assignment was primarily due to a decrease in the average advance rate for 2024 Consumer Loans.

The increase in interest expense of $41.7 million, or 66.4%, was due to:

• An increase in our average cost of debt, which increased interest expense by $27.3 million.

The increase in our cost of debt was primarily a result of higher interest rates on recently-completed or -extended secured financings and recently-issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.

• An increase in our average outstanding debt balance, which increased interest expense by $14.4 million.

The increase in our average outstanding debt balance was primarily due to borrowings used to fund the growth of our Loan portfolio and stock repurchases.

The following table presents the change in interest expense, average outstanding debt balance, and average cost of debt for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023:

(Dollars in millions) For the Three Months Ended June 30,

2024 2023 Change

Interest expense $ 104.5 $ 62.8 $ 41.7

Average outstanding debt balance 5,818.2 4,730.3 1,087.9

Average cost of debt 7.2 % 5.3 % 1.9 %

Loss on Sale of Building.

For the three months ended June 30, 2024, we recognized a loss on sale of a building of $23.7 million.

For additional information, see Note 7 to the consolidated financial statements contained in Part I - Item 1 of this Form 10-Q, which is incorporated herein by reference.

Provision for Income Taxes .

For the three months ended June 30, 2024, the effective income tax rate decreased to 14.8% from 20.4% for the same period in 2023.

The decrease was primarily due to the impact of non-deductible executive compensation expense, which in the second quarter of 2024 reduced, rather than increased, our effective income tax rate, as we had a pre-tax loss in the period, compared to pre-tax income in the second quarter of 2023.

For additional information, see Note 12 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

The following is a discussion of our results of operations and income statement data on a consolidated basis.

(Dollars in millions, except per share data) For the Six Months Ended

2024 2023 $ Change % Change

Finance charges $ 966.9 $ 862.1 $ 104.8 12.2 %

Premiums earned 46.2 37.2 9.0 24.2 %

Other income 33.1 32.4 0.7 2.2 %

Total revenue 1,046.2 931.7 114.5 12.3 %

Costs and expenses:

Salaries and wages 154.3 147.4 6.9 4.7 %

General and administrative 46.9 38.5 8.4 21.8 %

Sales and marketing 49.3 48.4 0.9 1.9 %

Total operating expenses 250.5 234.3 16.2 6.9 %

Provision for credit losses on forecast changes 325.0 213.1 111.9 52.5 %

Provision for credit losses on new Consumer Loan assignments 181.6 174.8 6.8 3.9 %

Total provision for credit losses 506.6 387.9 118.7 30.6 %

Interest 197.0 117.2 79.8 68.1 %

Provision for claims 37.3 37.6 (0.3) -0.8 %

Loss on sale of building 23.7 — 23.7 — %

Total costs and expenses 1,015.1 777.0 238.1 30.6 %

Income before provision for income taxes 31.1 154.7 (123.6) -79.9 %

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Finance Charges.

The increase of $48.1 million, or 11.4%, was primarily due to an increase in the average net Loans receivable balance, as follows:

(Dollars in millions) For the Three Months Ended March 31,

The increase of $104.8 million, or 12.2%, was primarily a result of an increase in the average net Loans receivable balance, as follows:

(Dollars in millions) For the Six Months Ended June 30,

2024 2023 Change

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Average yield on our Loan portfolio 26.5 % 26.6 % -0.1 %

The following table summarizes the impact each component had on the overall increase in finance charges for the three months ended March 31, 2024:

The following table summarizes the impact each component had on the overall increase in finance charges for the six months ended June 30, 2024:

(In millions) Year over Year Change

Impact on finance charges:

For the Three Months Ended March 31, 2024

For the Six Months Ended June 30, 2024

Due to an increase in the average net Loans receivable balance $ 109.7

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Operating Expenses.

The increase of $8.8 million, or 7.5%, was primarily due to an increase in general and administrative expenses of $5.7 million, or 31.7%, primarily due to increases in legal and technology systems expenses.

The increase of $16.2 million, or 6.9%, was primarily due to:

• An increase in general and administrative expense of $8.4 million, or 21.8%, primarily due to increases in legal and technology systems expenses.

• An increase in salaries and wages expense of $6.9 million, or 4.7%, primarily due to an increase in the number of team members as we are investing in our business with the goal of increasing the speed at which we enhance our product for Dealers and consumers.

Provision for Credit Losses .

The increase of $48.6 million, or 35.4%, was due to increases in provision for credit losses on forecast changes and provision for credit losses on new Consumer Loan assignments.

The increase of $118.7 million, or 30.6%, was primarily due to an increase in provision for credit losses on forecast changes.

We recognize provision for credit losses on new Consumer Loan assignments for contractual net cash flows that are not expected to be realized at the time of assignment.

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The following table summarizes the provision for credit losses for each of these components:

(In millions) For the Three Months Ended March 31,

(In millions) For the Six Months Ended June 30,

Provision for Credit Losses 2024 2023 Change

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Total $ 506.6 $ 387.9 $ 118.7

The increase in provision for credit losses related to forecast changes was due to a decline in Consumer Loan performance and slower net cash flow timing during the first quarter of 2024 compared to the first quarter of 2023.

During the first quarter of 2024, we decreased our estimate of future net cash flows by $30.8 million, or 0.3%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments, which remain at below-average levels.

The increase in provision for credit losses related to forecast changes was primarily due to a greater decline in Consumer Loan performance during the first six months of 2024 compared to the first six months of 2023.

During the first six months of 2024, we decreased our estimate of future net cash flows by $220.1 million, or 2.2%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments, which remain at below-average levels.

Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit.

During the first quarter of 2023, we increased our estimate of future net cash flows by $9.4 million, or 0.1%, to reflect stable forecasted collection rates during the period;

however, we slowed our forecasted net cash flow timing to reflect a decrease in Consumer Loan prepayments.

The increase in provision for credit losses related to new Consumer Loan assignments was primarily due to a 24.1% increase in Consumer Loan assignment unit volume, partially offset by a 14.5% decrease in the average provision per Consumer Loan assignment.

Consumer Loans assigned in 2022 have continued to underperform our expectations for the past several quarters.

More recently, Consumer Loans assigned in 2023 have also begun exhibiting similar trends of underperformance, although not as severe as Consumer Loans assigned in 2022.

During the first six months of 2023, we decreased our estimate of future net cash flows by $79.9 million, or 0.9%, to reflect a decline in Consumer Loan prepayments to below-average levels.

The $79.9 million decrease in forecasted net cash flows for the first six months of 2023 was comprised of an ordinary decrease in forecasted net cash flows of $35.4 million, or 0.4%, and an adjustment to our forecasting methodology, which upon implementation, decreased our estimate of future net cash flows by $44.5 million, or 0.5%, and increased our provision for credit losses by $71.3 million.

For additional information, see Note 6 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

The increase in provision for credit losses related to new Consumer Loan assignments was due to a 22.6% increase in Consumer Loan assignment unit volume, partially offset by a 15.3% decrease in the average provision per Consumer Loan assignment.

The decrease in the average provision per Consumer Loan assignment was primarily due to a decrease in the average advance rate for 2024 Consumer Loans.

The increase in interest expense of $79.8 million, or 68.1%, was due to:

• An increase in our average cost of debt, which was primarily a result of higher interest rates on recently-completed or -extended secured financings and recently-issued senior notes and the repayment of older secured financings and senior notes with lower interest rates.

• An increase in the average outstanding debt principal balance, which was primarily due to borrowing used to fund the growth of our loan portfolio and stock repurchases.

The following table presents the change in interest expense, average outstanding debt principal balance, and average cost of debt for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023:

(Dollars in millions) For the Three Months Ended March 31,

• An increase in our average cost of debt, which increased interest expense by $57.2 million.

• An increase in our average outstanding debt balance, which increased interest expense by $22.6 million.

The increase in our average outstanding debt balance was primarily due to borrowings used to fund the growth of our Loan portfolio and stock repurchases.

The following table presents the change in interest expense, average outstanding debt balance, and average cost of debt for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023:

(Dollars in millions) For the Six Months Ended June 30,

2024 2023 Change

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Average cost of debt 7.1 % 5.0 % 2.1 %

(1) Includes the unamortized debt discount.

Provision for Income Taxes .

For the three months ended March 31, 2024, the effective income tax rate increased to 25.6% from 21.5% for the same period in 2023.

The increase was primarily due to the impact of tax benefits recognized in 2023 related to our stock-based compensation plan.

Loss on Sale of Building.

For the six months ended June 30, 2024, we recognized a loss on the sale of a building of $23.7 million.

For additional information, see Note 7 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Provision for Income Taxes.

For the six months ended June 30, 2024, our effective income tax rate increased to 44.7% from 21.3% for the six months ended June 30, 2023.

The increase was primarily due to a decrease in pre-tax income, which increased the impact of an adjustment to an uncertain tax position for state income taxes recorded in the second quarter of 2024 and non-deductible executive compensation expense on our 2024 effective income tax rate.

For additional information, see Note 12 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which i s incorporated herein by reference.

The COVID-19 pandemic had a significant impact on our work environment, as the vast majority of our team members began working remotely.

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Therefore, we believe we have a continuing need for some amount of office space.

As a result of the “remote first” strategy, we have significant excess space in the two office buildings that we own, which are located in Southfield, Michigan.

After exploring options to reduce our office space, we have made the preliminary decision to sell the larger building and consolidate into the smaller building that has served as our headquarters since 1993.

The building that we intend to sell is currently scheduled for auction in mid-May 2024.

As there is currently a significant amount of unoccupied office space in our region, we do not know whether the auction will result in a sale of the building.

Additionally, we believe the market value of the building and its improvements, together with the related land and land improvements and office furniture and equipment, is significantly less than the carrying value of $27.5 million.

We have evaluated the facts and circumstances of the potential auction sale, and we do not believe that the building currently meets all of the criteria necessary for us to reclassify it as held for sale.

If we were to reclassify the building as held for sale, we would record an impairment charge to reduce its carrying value to its estimated market value less costs to sell.

As the vast majority of our team members now work remotely, we had significant excess space in the two office buildings that we owned in Southfield, Michigan.

During the second quarter of 2024, we sold the larger building for net sales proceeds of $3.2 million, and recognized a loss on sale of the building of $23.7 million.

The loss on sale of the building represented the amount by which the $26.9 million carrying value of the building and its improvements, the related land and land improvements, and office furniture and equipment exceeded the net sales proceeds of $3.2 million.

Liquidity and Capital Resources

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and (4) senior notes.

There are various restrictive covenants to which we are subject under each financing arrangement, and we were in compliance with those covenants as of March 31, 2024.

There are various restrictive covenants to which we are subject under each financing arrangement, and we were in compliance with those covenants as of June 30, 2024.

For information regarding these financings and the covenants included in the related documents, see Note 10 to the consolidated financial statements contained in Part I - Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

On February 16, 2024, we extended the $100.0 million Term ABS financing that we entered into on January 29, 2021 and to which we refer as Term ABS 2021-1.

Under the amendment effecting the extension, the date on which the financing will cease to revolve has been extended from December 16, 2024 to February 17, 2026.

On February 16, 2024, we extended the $100.0 million Term ABS 2021-1 financing and extended the date on which the financing will cease to revolve from December 16, 2024 to February 17, 2026.

On February 27, 2024, we completed a $200.0 million Term ABS financing, which was used to repay outstanding indebtedness and for general corporate purposes.

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The financing has an expected average annualized cost of 6.4% (including initial purchasers’ fees and other costs), and it will revolve for 24 months, after which it will amortize based upon the cash flows on the underlying Loans.

Cash and cash equivalents were $8.4 million as of March 31, 2024 and $13.2 million as of December 31, 2023.

As of March 31, 2024 and December 31, 2023, we had $1,355.5 million and $1,505.8 million, respectively, in unused and available lines of credit.

Our total balance sheet indebtedness increased to $5,611.5 million as of March 31, 2024 from $5,067.5 million as of December 31, 2023.

A summary of our scheduled principal debt maturities as of March 31, 2024 is as follows:

On June 17, 2024, we extended the maturity of our revolving secured line of credit facility from June 22, 2026 to June 22, 2027.

The interest rate on borrowings under the facility has changed from BSBY plus 187.5 basis points to SOFR plus 197.5 basis points.

On June 20, 2024, we completed a $550.0 million Term ABS financing, which was used to repay outstanding indebtedness and for general corporate purposes.

The financing has an expected average annualized cost of 6.5% (including initial purchasers’ fees and other costs), and it will revolve for 24 months, after which it will amortize based upon the cash flows on the underlying Loans.

On June 21, 2024, we increased the financing amount on the Term ABS 2022-2 financing from $200.0 million to $300.0 million and extended the date on which the financing will cease to revolve from December 15, 2025 to June 15, 2027.

Cash and cash equivalents were $8.3 million as of June 30, 2024 and $13.2 million as of December 31, 2023.

As of June 30, 2024 and December 31, 2023, we had $1,440.7 million and $1,505.8 million, respectively, in unused and available lines of credit.

Our total balance sheet indebtedness increased to $5,946.6 million as of June 30, 2024 from $5,067.5 million as of December 31, 2023, primarily due to the growth in new Consumer Loan assignments and stock repurchases.

A summary of our scheduled principal debt maturities as of June 30, 2024 is as follows:

(In millions)

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Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023 discusses several critical accounting estimates, which we believe involve a high degree of judgment and complexity.

There have been no material changes to the estimates and assumptions associated with these accounting estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023.

During the second quarter of 2024, we applied an adjustment to our methodology for forecasting the amount of future net cash flows from our Loan portfolio, which reduced the forecasted collection rates for Consumer Loans assigned in 2022 through 2024.

Consumer Loans assigned in 2022 have continued to underperform our expectations for the past several quarters.

More recently, Consumer Loans assigned in 2023 have also begun exhibiting similar trends of underperformance, although not as severe as Consumer Loans assigned in 2022.

Changes in the amount and timing of forecasted net cash flows are recognized in the period of change as a provision for credit losses.

Forward-Looking Statements

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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-Q

Item 2. Management’s Discussion and Analysis