Well boys and girls it’s that time again: $CACC earnings are a day away, and we have lots to cover.

This qtr I’m going to make every effort to detail my expectations so that the “it’s impossible to predict CACCs earnings” crowd sees just how formulaic non-GAAP earnings are.

My goal with this thread is to enlighten those not involved in $CACC to how screwed up their adj earnings methodology is. The number doesn’t depend how CACCs collections track to their expectations, the only thing that matters is what their adj capital base and level yield are.

With that out of the way, let’s get started. Here’s what we already know: adj earnings results will be determined by multiplying a “level yield” (disclosed as 17.8% at the end of last Q) by CACCs “adjusted capital” base (ended last qtr at $6.8 bn)

We also know that 1) April collections were down 1.1% YOY 2) May collections were up 4.9% 3) loan volume in April was down 22.3% YOY 4) loan volume in May was up 21.8% YOY.

Now, let’s assume June went as well as May did, and collections were up 5% and volume up 22% YOY.

That would mean that for the quarter, collections would be up 2.9% and loan volume up 7.2%. In the same quarter last year, $CACC had $1,097 in collections and $955.2 in advances, implying $1,127 in collections and $1,025 in advances for this quarter.

Here’s where things get really tricky: in order for us to estimate CACCs earnings, we need to know the level yield and average capital levels over the quarter in order to calculate revenue. The picture attached is my estimate for those figures.

Which brings us to my final estimates for “adjusted earnings”: revs of $283, costs of $131 (same as last q), and earnings of $117 mil, or $6.43/share.

Where will I be wrong? 1) the level yield for the quarter will undoubtedly be different than the 17.8% disclosed last Q.

It is likely that number will have been right for April, too high for May, and too low for June. In the end, I suspect my estimate is close enough not to make a material difference in earnings.

2)Collections and originations will likely be lower than my estimates for June.

From an adjusted earnings perspective, that’s essentially meaningless. Accretion is pre-determined entering a month (May ending capital balance times the level yield).

So what should your takeaways be from this:

1) $CACC will see positive adj earnings this quarter, despite growing collections coming in nearly 13% below expectations entering the year.

2) CACCs adj earnings are essentially predetermined, and will likely come in around $6.50/sh

3) With the SEC cracking down on companies who are attempting to use non-GAAP earnings to obscure the impact of CECL, $CACC should be near the top of the list of offenders whose practices will be sanctioned. My expectation is this may be the last quarter CACC will be allowed...

To even disclose this non-GAAP number. Without that inflated, and frankly irrelevant, metric for investors to benchmark to, I suspect the stock will begin to re-rate to levels that are more reasonable for a cash-constrained sub-prime auto lender with immense competition. END