CREDIT ACCEPTANCE CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in Item 8 - Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the year ended December 31, 2024, as well as Part I - Item 1 - Financial Statements, of this Quarterly Report on Form 10-Q, which is incorporated herein by reference. Overview We make vehicle ownership possible by providing innovative financing solutions that enable automobile dealers to sell vehicles to consumers regardless of their credit history. Our financing programs are offered through a nationwide network of automobile dealers who benefit from sales of vehicles to consumers who otherwise could not obtain financing; from repeat and referral sales generated by these same customers; and from sales to customers responding to advertisements for our financing programs, but who actually end up qualifying for traditional financing. For the three months ended March 31, 2025, consolidated net income was $106.3 million, or $8.66 per diluted share, compared to consolidated net income of $64.3 million, or $5.08 per diluted share, for the same period in 2024. The increase was primarily due to an increase in finance charges and a decrease in provision for credit losses, partially offset by an increase in interest expense. Our results and achievements for the three months ended March 31, 2025 included the following: • A modest decline in forecasted collection rates, which decreased forecasted net cash flows from our Loan portfolio by $20.9 million, or 0.2%, and slower forecasted net cash flow timing. • An 11.0% increase in the average balance of our Loan portfolio from the first quarter of 2024 to $7.9 billion, which is our largest ever. • A decline in Consumer Loan assignment unit and dollar volumes of 10.1% and 15.5%, respectively, as compared to the first quarter of 2024. • The repurchase of approximately 329,000 shares, or 2.7% of the shares outstanding at the beginning of the quarter. • The enrollment of 1,617 new Dealers with 10,789 active Dealers during the quarter. • $68.0 million in Dealer Holdback and accelerated Dealer Holdback payments to Dealers. • Maintained a strong liquidity position, with over $2.2 billion in unrestricted cash and cash equivalents and unused and available revolving lines of credit as of March 31, 2025. • Named a Top Workplaces USA award winner for the fifth year in a row, with a #2 ranking among companies of our size. 40 Table of Contents Critical Success Factors Critical success factors include our ability to accurately forecast Consumer Loan performance, access capital on acceptable terms, and maintain or grow Consumer Loan volume at the level and on the terms that we anticipate, with the objective to maximize economic profit over the long term. Economic profit is a non-GAAP financial measure we use to evaluate our financial results and determine profit-sharing for team members. We also use economic profit as a framework to evaluate business decisions and strategies. Economic profit measures how efficiently we utilize our total capital, both debt and equity, and is a function of the return on capital in excess of the cost of capital and the amount of capital invested in the business. Consumer Loan Metrics At the time a Consumer Loan is submitted to us for assignment, we forecast future expected cash flows from the Consumer Loan. Based on the amount and timing of these forecasts and expected expense levels, an advance or one-time purchase payment is made to the related Dealer at a price designed to maximize economic profit. We use a statistical model to estimate the expected collection rate for each Consumer Loan at the time of assignment. We continue to evaluate the expected collection rate for each Consumer Loan subsequent to assignment. Our evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our forecast. By comparing our current expected collection rate for each Consumer Loan with the rate we projected at the time of assignment, we are able to assess the accuracy of our initial forecast. The following table compares our aggregated forecast of Consumer Loan collection rates as of March 31, 2025, with the aggregated forecasts as of December 31, 2024, 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, 2025 December 31, 2024 Initial Forecast December 31, 2024 Initial Forecast 2016 63.9 % 63.9 % 65.4 % 0.0 % -1.5 % 2017 64.8 % 64.7 % 64.0 % 0.1 % 0.8 % 2018 65.5 % 65.5 % 63.6 % 0.0 % 1.9 % 2019 67.2 % 67.2 % 64.0 % 0.0 % 3.2 % 2020 67.9 % 67.7 % 63.4 % 0.2 % 4.5 % 2021 63.9 % 63.8 % 66.3 % 0.1 % -2.4 % 2022 60.0 % 60.2 % 67.5 % -0.2 % -7.5 % 2023 64.3 % 64.3 % 67.5 % 0.0 % -3.2 % 2024 66.3 % 66.5 % 67.2 % -0.2 % -0.9 % 2025 66.0 % — 66.2 % — -0.2 % (1) Represents the total forecasted collections we expect to collect on the Consumer Loans as a percentage of the repayments that we were contractually owed on the Consumer Loans at the time of assignment. Contractual repayments include both principal and interest. 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. For the three months ended March 31, 2025, forecasted collection rates improved for Consumer Loans assigned in 2020, declined for Consumer Loans assigned in 2022, 2024, and 2025, and were generally consistent with expectations at the start of the period for all other assignment years presented. 41 Table of Contents The changes to our forecast of future net cash flows from our Loan portfolio (forecasted collections less forecasted Dealer Holdback payments) for each of the last five quarters are shown in the following table: (Dollars in millions) Decrease in Forecasted Net Cash Flows Three Months Ended Total Loans % Change from Forecast at Beginning of Period March 31, 2024 $ (30.8) -0.3 % June 30, 2024 (189.3) -1.7 % September 30, 2024 (62.8) -0.6 % December 31, 2024 (31.1) -0.3 % March 31, 2025 (20.9) -0.2 % The following table presents information on Consumer Loan assignments for each of the last 10 years: Average Total Assignment Volume Consumer Loan Assignment Year Consumer Loan (1) Advance (2) Initial Loan Term (in months) Unit Volume Dollar Volume (2) (in millions) 2016 $ 18,218 $ 7,976 53 330,710 $ 2,635.5 2017 20,230 8,746 55 328,507 2,873.1 2018 22,158 9,635 57 373,329 3,595.8 2019 23,139 10,174 57 369,805 3,772.2 2020 24,262 10,656 59 341,967 3,641.2 2021 25,632 11,790 59 268,730 3,167.8 2022 27,242 12,924 60 280,467 3,625.3 2023 27,025 12,475 61 332,499 4,147.8 2024 26,497 11,961 61 386,126 4,618.4 2025 (3) 25,188 11,096 60 100,278 1,112.7 (1) Represents the repayments that we were contractually owed on Consumer Loans at the time of assignment, which include both principal and interest. (2) Represents advances paid to Dealers on Consumer Loans assigned under the Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under the Purchase Program. Payments of Dealer Holdback and accelerated Dealer Holdback are not included. (3) Represents activity for the three months ended March 31, 2025. Information in this table for each of the years prior to 2025 represents activity for all 12 months of that year. 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. Forecasting collection rates accurately at Loan inception is difficult. With this in mind, we establish advance rates that are intended to allow us to achieve acceptable levels of profitability across our portfolio, even if collection rates are less than we initially forecast. 42 Table of Contents 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, 2025, 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). The table includes both Dealer Loans and Purchased Loans. Forecasted Collection % as of Spread % as of Consumer Loan Assignment Year March 31, 2025 Initial Forecast Advance % (1) March 31, 2025 Initial Forecast % of Forecast Realized (2) 2016 63.9 % 65.4 % 43.8 % 20.1 % 21.6 % 99.6 % 2017 64.8 % 64.0 % 43.2 % 21.6 % 20.8 % 99.3 % 2018 65.5 % 63.6 % 43.5 % 22.0 % 20.1 % 98.8 % 2019 67.2 % 64.0 % 44.0 % 23.2 % 20.0 % 97.5 % 2020 67.9 % 63.4 % 43.9 % 24.0 % 19.5 % 93.9 % 2021 63.9 % 66.3 % 46.0 % 17.9 % 20.3 % 86.3 % 2022 60.0 % 67.5 % 47.4 % 12.6 % 20.1 % 70.6 % 2023 64.3 % 67.5 % 46.2 % 18.1 % 21.3 % 49.3 % 2024 66.3 % 67.2 % 45.1 % 21.2 % 22.1 % 22.9 % 2025 66.0 % 66.2 % 44.2 % 21.8 % 22.0 % 2.5 % (1) Represents advances paid to Dealers on Consumer Loans assigned under the Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under the Purchase Program as a percentage of the initial balance of the Consumer Loans. Payments of Dealer Holdback and accelerated Dealer Holdback are not included. (2) Presented as a percentage of total forecasted collections. The risk of a material change in our forecasted collection rate declines as the Consumer Loans age. For 2020 and prior Consumer Loan assignments, the risk of a material forecast variance is modest, as we have currently realized in excess of 90% of the expected collections. Conversely, the forecasted collection rates for more recent Consumer Loan assignments are less certain as a significant portion of our forecast has not been realized. The spread between the forecasted collection rate as of March 31, 2025 and the advance rate ranges from 12.6% to 24.0%, 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 spreads with respect to 2021 through 2023 Consumer Loans have 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 2025 Consumer Loans relative to 2024 Consumer Loans as of March 31, 2025 was primarily a result of Consumer Loan performance, as the performance of 2024 Consumer Loans has been lower than our initial estimates by a greater margin than 2025 Consumer Loans. 43 Table of Contents The following table compares our forecast of aggregate Consumer Loan collection rates as of March 31, 2025 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, 2025 Initial Forecast Variance March 31, 2025 Initial Forecast Variance 2016 63.1 % 65.1 % -2.0 % 66.1 % 66.5 % -0.4 % 2017 64.1 % 63.8 % 0.3 % 66.4 % 64.6 % 1.8 % 2018 64.9 % 63.6 % 1.3 % 66.8 % 63.5 % 3.3 % 2019 66.9 % 63.9 % 3.0 % 67.9 % 64.2 % 3.7 % 2020 67.7 % 63.3 % 4.4 % 68.1 % 63.6 % 4.5 % 2021 63.6 % 66.3 % -2.7 % 64.4 % 66.3 % -1.9 % 2022 59.2 % 67.3 % -8.1 % 61.9 % 68.0 % -6.1 % 2023 63.0 % 66.8 % -3.8 % 67.7 % 69.4 % -1.7 % 2024 65.2 % 66.3 % -1.1 % 70.6 % 70.7 % -0.1 % 2025 64.7 % 64.9 % -0.2 % 70.5 % 70.7 % -0.2 % (1) The forecasted collection rates presented for Dealer Loans and Purchased Loans reflect the Consumer Loan classification at the time of assignment. The forecasted collection rates represent the total forecasted collections we expect to collect on the Consumer Loans as a percentage of the repayments that we were contractually owed on the Consumer Loans at the time of assignment. Contractual repayments include both principal and interest. 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. 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, 2025 for Dealer Loans and Purchased Loans separately. All amounts are presented as a percentage of the initial balance of the Consumer Loan (principal + interest). Dealer Loans Purchased Loans Consumer Loan Assignment Year Forecasted Collection % (1) Advance % (1)(2) Spread % Forecasted Collection % (1) Advance % (1)(2) Spread % 2016 63.1 % 42.1 % 21.0 % 66.1 % 48.6 % 17.5 % 2017 64.1 % 42.1 % 22.0 % 66.4 % 45.8 % 20.6 % 2018 64.9 % 42.7 % 22.2 % 66.8 % 45.2 % 21.6 % 2019 66.9 % 43.1 % 23.8 % 67.9 % 45.6 % 22.3 % 2020 67.7 % 43.0 % 24.7 % 68.1 % 45.5 % 22.6 % 2021 63.6 % 45.1 % 18.5 % 64.4 % 47.7 % 16.7 % 2022 59.2 % 46.4 % 12.8 % 61.9 % 50.1 % 11.8 % 2023 63.0 % 44.8 % 18.2 % 67.7 % 49.8 % 17.9 % 2024 65.2 % 44.1 % 21.1 % 70.6 % 48.9 % 21.7 % 2025 64.7 % 42.8 % 21.9 % 70.5 % 49.1 % 21.4 % (1) The forecasted collection rates and advance rates presented for Dealer Loans and Purchased Loans reflect the Consumer Loan classification at the time of assignment. (2) Represents advances paid to Dealers on Consumer Loans assigned under the Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under the Purchase Program as a percentage of the initial balance of the Consumer Loans. Payments of Dealer Holdback and accelerated Dealer Holdback are not included. Although the advance rate on Purchased Loans is higher as compared to the advance rate on Dealer Loans, Purchased Loans do not require us to pay Dealer Holdback. The spread as of March 31, 2025 on 2025 Dealer Loans was 21.9%, as compared to a spread of 21.1% on 2024 Dealer Loans. The increase was primarily a result of Consumer Loan performance, as the performance of 2024 Dealer Loans has been lower than our initial estimates by a greater margin than 2025 Dealer Loans. 44 Table of Contents The spread as of March 31, 2025 on 2025 Purchased Loans was 21.4%, as compared to a spread of 21.7% on 2024 Purchased Loans. The decrease was primarily a result of a lower initial spread on 2025 Purchased Loans, due to a higher advance rate. Access to Capital Our strategy for accessing capital on acceptable terms needed to maintain and grow the business is to: (1) maintain consistent financial performance; (2) maintain modest financial leverage; and (3) maintain multiple funding sources. Our funded debt to equity ratio was 3.9 to 1 as of March 31, 2025. We currently utilize the following primary forms of debt financing: (1) our revolving secured line of credit facility; (2) Warehouse facilities; (3) Term ABS financings; and (4) senior notes. Consumer Loan Volume The following table summarizes changes in Consumer Loan assignment volume in each of the last five quarters as compared to the same period in the previous year: Year over Year Percent Change Three Months Ended Unit Volume Dollar Volume (1) March 31, 2024 24.1 % 20.2 % June 30, 2024 20.9 % 16.3 % September 30, 2024 17.7 % 12.2 % December 31, 2024 0.3 % -4.9 % March 31, 2025 -10.1 % -15.5 % (1) Represents advances paid to Dealers on Consumer Loans assigned under the Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under the Purchase Program. Payments of Dealer Holdback and accelerated Dealer Holdback are not included. Consumer Loan assignment volumes depend on a number of factors including (1) the overall demand for our financing programs and (2) the amount of capital available to fund new Loans. Our pricing strategy is intended to maximize the amount of economic profit we generate, within the confines of capital constraints. Unit and dollar volumes declined 10.1% and 15.5%, respectively, during the first quarter of 2025 as the number of active Dealers declined 0.1% and the average unit volume per active Dealer declined 9.7%. Dollar volume declined by more than unit volume during the first quarter of 2025 due to a decrease in the average advance paid, resulting from decreases in the average size of Consumer Loans assigned and the average advance rate. Unit volume for the 28-day period ended April 28, 2025 decreased 9.8% compared to the same period in 2024. 45 Table of Contents The following table summarizes the changes in Consumer Loan unit volume and active Dealers: For the Three Months Ended March 31, 2025 2024 % Change Consumer Loan unit volume 100,278 111,488 -10.1 % Active Dealers (1) 10,789 10,805 -0.1 % Average volume per active Dealer 9.3 10.3 -9.7 % Consumer Loan unit volume from Dealers active both periods 80,926 93,406 -13.4 % Dealers active both periods 7,067 7,067 — Average volume per Dealer active both periods 11.5 13.2 -13.4 % Consumer Loan unit volume from Dealers not active both periods 19,352 18,082 7.0 % Dealers not active both periods 3,722 3,738 -0.4 % Average volume per Dealer not active both periods 5.2 4.8 8.3 % (1) Active Dealers are Dealers who have received funding for at least one Consumer Loan during the period. The following table provides additional information on the changes in Consumer Loan unit volume and active Dealers: For the Three Months Ended March 31, 2025 2024 % Change Consumer Loan unit volume from new active Dealers 4,229 5,193 -18.6 % New active Dealers (1) 1,195 1,310 -8.8 % Average volume per new active Dealer 3.5 4.0 -12.5 % Attrition (2) -16.2 % -16.0 % (1) New active Dealers are Dealers who enrolled in our program and have received funding for their first Loan from us during the period. (2) Attrition is measured according to the following formula: decrease in Consumer Loan unit volume from Dealers who have received funding for at least one 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: Unit Volume Dollar Volume (1) Three Months Ended Dealer Loans Purchased Loans Dealer Loans Purchased Loans March 31, 2024 78.2 % 21.8 % 76.6 % 23.4 % June 30, 2024 78.5 % 21.5 % 77.3 % 22.7 % September 30, 2024 79.5 % 20.5 % 78.4 % 21.6 % December 31, 2024 78.7 % 21.3 % 77.7 % 22.3 % March 31, 2025 77.0 % 23.0 % 75.1 % 24.9 % (1) Represents advances paid to Dealers on Consumer Loans assigned under the Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under the Purchase Program. Payments of Dealer Holdback and accelerated Dealer Holdback are not included. As of March 31, 2025 and December 31, 2024, the net Dealer Loans receivable balance was 72.7% and 72.3% , respectively, of the total net Loans receivable balance. 46 Table of Contents Results of Operations The net Loan income (finance charge revenue less provision for credit losses expense) that we recognize over the life of a Loan equals the cash we collect from the underlying Consumer Loan less the cash we pay to the Dealer. We believe the economics of our business are best exhibited by recognizing net Loan income on a level-yield basis over the life of the Loan based on expected future net cash flows. Under the GAAP methodology we employ, which is known as the current expected credit loss model, or CECL, we are required to recognize: • a significant provision for credit losses expense at the time of the Loan’s assignment to us for contractual net cash flows we do not expect to realize; and • finance charge revenue in subsequent periods that is significantly in excess of our expected yield. 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, including our results of operations, financial condition, and financial leverage. 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. 47 Table of Contents Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 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 Three Months Ended March 31, 2025 2024 $ Change % Change Revenue: Finance charges $ 526.7 $ 469.2 $ 57.5 12.3 % Premiums earned 23.5 21.9 1.6 7.3 % Other income 20.9 16.9 4.0 23.7 % Total revenue 571.1 508.0 63.1 12.4 % Costs and expenses: Salaries and wages 88.6 78.5 10.1 12.9 % General and administrative 22.1 23.7 (1.6) -6.8 % Sales and marketing 24.8 23.9 0.9 3.8 % Total operating expenses 135.5 126.1 9.4 7.5 % Provision for credit losses on forecast changes 76.3 87.2 (10.9) -12.5 % Provision for credit losses on new Consumer Loan assignments 85.6 98.8 (13.2) -13.4 % Total provision for credit losses 161.9 186.0 (24.1) -13.0 % Interest 114.7 92.5 22.2 24.0 % Provision for claims 16.1 17.0 (0.9) -5.3 % Loss on extinguishment of debt 1.2 — 1.2 — % Total costs and expenses 429.4 421.6 7.8 1.9 % Income before provision for income taxes 141.7 86.4 55.3 64.0 % Provision for income taxes 35.4 22.1 13.3 60.2 % Net income $ 106.3 $ 64.3 $ 42.0 65.3 % Net income per share: Basic $ 8.79 $ 5.15 $ 3.64 70.7 % Diluted $ 8.66 $ 5.08 $ 3.58 70.5 % Weighted average shares outstanding: Basic 12,091,027 12,481,139 (390,112) -3.1 % Diluted 12,279,446 12,646,529 (367,083) -2.9 % Finance Charges. The increase of $57.5 million, or 12.3%, 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, 2025 2024 Change Average net Loans receivable balance $ 7,882.4 $ 7,101.3 $ 781.1 Average yield on our Loan portfolio 26.7 % 26.4 % 0.3 % 48 Table of Contents The following table summarizes the impact each component had on the overall increase in finance charges for the three months ended March 31, 2025: (In millions) Year over Year Change Impact on finance charges: For the Three Months Ended March 31, 2025 Due to an increase in the average net Loans receivable balance $ 51.6 Due to an increase in the average yield 5.9 Total increase in finance charges $ 57.5 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. Operating Expenses. The increase of $9.4 million, or 7.5%, was primarily due to an increase in salaries and wages expense of $10.1 million, or 12.9%. The increase was primarily due to increases in (i) 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, (ii) stock-based compensation expense, primarily due to equity awards granted to our executive officers and senior leaders, and (iii) fringe benefits, primarily due to higher medical claims. Provision for Credit Losses . The decrease of $24.1 million, or 13.0%, was due to decreases in provision for credit losses on forecast changes and provision for credit losses on new Consumer Loan assignments. 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 decrease in provision for credit losses related to forecast changes was due to a smaller decline in Consumer Loan performance during the first quarter of 2025 compared to the first quarter of 2024. During the first quarter of 2025, we decreased our estimate of future net cash flows by $20.9 million, or 0.2%, to reflect a decline in forecasted collection rates during the period and slowed our forecasted net cash flow timing to reflect lower-than-expected Consumer Loan prepayments, which remained below historical averages. Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit. 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 lower-than-expected Consumer Loan prepayments. The decrease in provision for credit losses related to new Consumer Loan assignments was due to a 10.1% decrease in Consumer Loan assignment unit volume and a 3.7% 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 2025 Consumer Loans. 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. Interest. The increase in interest expense of $22.2 million, or 24.0%, was primarily due to an increase in our average outstanding debt balance, 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 March 31, 2025 as compared to the three months ended March 31, 2024: (Dollars in millions) For the Three Months Ended March 31, 2025 2024 Change Interest expense $ 114.7 $ 92.5 $ 22.2 Average outstanding debt balance 6,398.3 5,306.8 1,091.5 Average cost of debt 7.2 % 7.0 % 0.2 % 49 Table of Contents Provision for Income Taxes . For the three months ended March 31, 2025, the effective income tax rate decreased to 25.0% from 25.6% for the same period in 2024. The decrease was primarily due to a decrease in the impact of state and local income taxes on our effective income tax rate, primarily related to uncertain tax position estimates, and was partially offset by the recognition of a tax deficiency in the current quarter compared to an excess tax benefit recognized during the first quarter of 2024. For additional information, see Note 1 0 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. Liquidity and Capital Resources We need capital to maintain and grow our business. Our primary sources of capital are cash flows from operating activities, collections of Consumer Loans, and borrowings under: (1) our revolving secured line of credit facility; (2) Warehouse facilities; (3) Term ABS financings; 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, 2025. For information regarding these financings and the covenants included in the related documents, see Note 9 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 28, 2025, we issued $500.0 million of 6.625% senior notes due 2030 (the “2030 senior notes”). We used a portion of the net proceeds from the 2030 senior notes to redeem all of the $400.0 million outstanding principal amount of our 6.625% senior notes due 2026 (the “2026 senior notes”). We used the remaining net proceeds from the 2030 senior notes for general corporate purposes. During the first quarter of 2025, we recognized a pre-tax loss on extinguishment of debt of $1.2 million related to the redemption of the 2026 senior notes. On March 27, 2025, we completed a $400.0 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 5.6% (including upfront 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 $528.8 million as of March 31, 2025 and $343.7 million as of December 31, 2024. As of March 31, 2025 and December 31, 2024, we had $1,733.6 million and $1,734.9 million, respectively, in unused and available revolving lines of credit. Our total balance sheet indebtedness increased to $6,705.2 million as of March 31, 2025 from $6,352.9 million as of December 31, 2024, primarily due to borrowings used to fund the growth of our Loan portfolio and stock repurchases. A summary of our scheduled principal debt maturities as of March 31, 2025 is as follows: (In millions) Year Scheduled Principal Debt Maturities (1) Remainder of 2025 $ 1,090.4 2026 2,161.0 2027 2,137.9 2028 858.8 2029 — Over five years 500.0 Total $ 6,748.1 (1) The principal maturities of certain financings are estimated based on forecasted collections. Based upon anticipated cash flows, management believes that cash flows from operations and our various financing alternatives will provide sufficient financing for debt maturities and for future operations. Our ability to borrow funds may be impacted by economic and financial market conditions. If the various financing alternatives were to become limited or unavailable to us, our operations and liquidity could be materially and adversely affected. 50 Table of Contents Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we review our accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 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 critical accounting estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2024. Forward-Looking Statements We make forward-looking statements in this report and may make such statements in future filings with the Securities and Exchange Commission (“SEC”). We may also make forward-looking statements in our press releases or other public or shareholder communications. Our forward-looking statements are subject to risks and uncertainties and include information about our expectations and possible or assumed future results of operations. When we use any of the words “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “assume,” “forecast,” “estimate,” “intend,” “plan,” “target,” or similar expressions, we are making forward-looking statements. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of our forward-looking statements. These forward-looking statements represent our outlook only as of the date of this report. While we believe that our forward-looking statements are reasonable, actual results could differ materially since the statements are based on our current expectations, which are subject to risks and uncertainties. Factors that might cause such a difference include, but are not limited to, the factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, other risk factors discussed herein or listed from time to time in our reports filed with the SEC, and the following: Industry, Operational, and Macroeconomic Risks • Our inability to accurately forecast and estimate the amount and timing of future collections could have a material adverse effect on results of operations. • Due to competition from traditional financing sources and non-traditional lenders, we may not be able to compete successfully. • 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. • Reliance on third parties to administer our ancillary product offerings could adversely affect our business and financial results. • We are dependent on our senior management, and the loss of any of these individuals or an inability to hire additional team members could adversely affect our ability to operate profitably. • Our reputation is a key asset to our business, and our business may be affected by how we are perceived in the marketplace. • An outbreak of contagious disease or other public health emergency could materially and adversely affect our business, financial condition, liquidity, and results of operations. • The concentration of Dealers in several states could adversely affect us. • Reliance on our outsourced business functions could adversely affect our business. • Our ability to hire and retain foreign engineering personnel could be hindered by immigration restrictions. • We may be unable to execute our business strategy due to current economic conditions. • 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. • Governmental or market responses to climate change and related environmental issues could have a material adverse effect on our business. • A small number of our shareholders have the ability to significantly influence matters requiring shareholder approval and such shareholders have interests which may conflict with the interests of our other security holders. 51 Table of Contents Capital and Liquidity Risks • We may be unable to continue to access or renew funding sources and obtain capital needed to maintain and grow our business. • The terms of our debt limit how we conduct our business. • A violation of the terms of our asset-backed secured financings or revolving secured warehouse facilities could have a material adverse impact on our operations. • Our substantial debt could negatively impact our business, prevent us from satisfying our debt obligations, and adversely affect our financial condition. • We may not be able to generate sufficient cash flows to service our outstanding debt and fund operations and may be forced to take other actions to satisfy our obligations under such debt. • Interest rate fluctuations may adversely affect our borrowing costs, profitability, and liquidity. • Reduction in our credit rating could increase the cost of our funding from, and restrict our access to, the capital markets and adversely affect our liquidity, financial condition, and results of operations. • We may incur substantially more debt and other liabilities. This could exacerbate further the risks associated with our current debt levels. • The conditions of the U.S. and international capital markets may adversely affect lenders with which we have relationships, causing us to incur additional costs and reducing our sources of liquidity, which may adversely affect our financial position, liquidity, and results of operations. Technology and Cybersecurity Risks • Our dependence on technology could have a material adverse effect on our business. • 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. • Our use of electronic contracts could impact our ability to perfect our ownership or security interest in Consumer Loans. • Failure to properly safeguard our proprietary business information or confidential consumer and team member personal information could subject us to liability, decrease our profitability, and damage our reputation. • The development and use of artificial intelligence presents risks and challenges that may adversely impact our business. Legal and Regulatory Risks • Litigation we are involved in from time to time may adversely affect our financial condition, results of operations, and cash flows. • Changes in tax laws and the resolution of uncertain income tax matters could have a material adverse effect on our results of operations and cash flows from operations. • The regulations to which we are or may become subject could result in a material adverse effect on our business. Other factors not currently anticipated by management may also materially and adversely affect our business, financial condition, and results of operations. We do not undertake, and expressly disclaim any obligation, to update or alter our statements whether as a result of new information, future events, or otherwise, except as required by applicable law. 52 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Refer to our Annual Report on Form 10-K for the year ended December 31, 2024 for a complete discussion of our market risk. There have been no material changes to the market risk information included in our Annual Report on Form 10-K for the year ended December 31, 2024.