Consumer Portfolio Services at Planet MicroCap: Strategic Growth and Innovation

On Wednesday, 23 April 2025, Consumer Portfolio Services (NASDAQ:CPSS) presented at the Planet MicroCap Showcase: VEGAS 2025. The company highlighted its strategic transition from a value-focused to a growth-oriented subprime auto lender, leveraging technology to enhance its operations. While boasting record portfolio and origination numbers, the company also faces challenges such as low stock valuation compared to its book value.

Key Takeaways

• CPS achieved a record $3.8 billion managed portfolio.
• The company targets a 25% increase in originations this year.
• CPS utilizes AI and machine learning for credit approvals and dealer rankings.
• Operating expenses have been reduced to 5.35% of the average portfolio size.
• CPS’s stock trades significantly below its book value of $13 per share.

Financial Results

• Revenues have steadily increased from $305 million in 2022 to $363 million in 2024.
• Originations hit a record $1.85 billion in 2022, with a projected $1.95 billion for 2025.
• The average loan-to-value ratio stands at 119%, with an APR of 20.3%.

Operational Updates

• CPS operates with 13,000 dealer contracts, using AI to approve credit applications within three seconds.
• The company ranks dealers based on performance, influencing credit concessions.
• AI also directs the efforts of 500 bill collectors in servicing and collections.

Future Outlook

• CPS aims for a 20-25% year-over-year growth in originations.
• The company expects unemployment rates to stabilize, benefiting its subprime customer base.
• Despite low trading volume, CPS remains hesitant to incur debt for privatization.

Q&A Highlights

• During the 2008-2009 financial crisis, CPS paused originations and delayed securitizations, showcasing its resilience.
• The average CPS customer is 41 years old with a household income of $74,000.
• CPS maintains a low overall turnover rate of 13%, with higher turnover among collectors at 23%.

Readers are encouraged to refer to the full transcript for a more detailed analysis.

Full transcript - Presents at Planet MicroCap Showcase: VEGAS 2025:

Mike Lavin, President, Chief Operating Officer, and Chief Legal Officer, Consumer Portfolio Services: Good afternoon. Hope you guys are having a nice conference. My name is Mike Lavin. I am the President, Chief Operating Officer, and the Chief Legal Officer of Consumer Portfolio Services. Our ticker symbol is CPSS.

We’re traded on NASDAQ. The primary focus of CPS is we are publicly traded, independent, subprime auto lender. That’s all we do. We lend from the near prime space down through the subprime space. Things that we’re sort of known well for in the industry is that we’ve been in business for thirty thirty four years.

So we’ve been through, three recessions, many presidential administrations, bad credit years, good credit years. We’ve basically seen everything at CPS and very few companies have been in this line of business for as long as we have. So we’re headquartered in Las Vegas, Nevada. We have operating call centers in California, obviously Nevada, Illinois, Florida, and Virginia. We’ve got 950 employees.

We have an extremely low turnover rate. Another thing that most investors like about CPS is the average tenure of our management team is twenty five years. I’m actually one of the babies on the executive management team and I’ve been there for twenty three years. So most of the people reporting to me have been in this business a lot longer than me. So they’re great at their specific jobs.

I’m sort of good at everything, but most investors love the long tenure of the management team. There’s probably 30 of us on the executive management team, and when you add up all of our years of experience, it’s over three hundred three hundred years of experience in strictly the subprime auto space. So a lot of experience there. We have a $3,800,000,000 managed portfolio, which is an all time record for CPS. It’s never been bigger.

That managed that managed portfolio consists of active outstanding loan balances on their auto contracts. We do service our own paper. Our business model is we’re a straight up ABS issuer in the market. We do four securitizations every year. Quarterly, we work with Citigroup and Cap One that generally leads our deals.

So basically, we’re selling a quarter’s worth of originations to bond investors and then we retain servicing for a fee. So we make money on the front end on interest. We make money on the back end on a servicing fee. And then with each secure ABS deal that we do, we have a residual. That’s really where the money’s at.

The residual is after all the investors have gotten their principal and interest back, there’s money left over for us, and that’s what we call our residual income. Amazingly, I do go to the ABS conferences and we just hit our one hundred and fourth ABS deal. I actually didn’t think that was a big deal, but in talking to the ABS investors, their jaws dropped because that is just a consistent ABS issuer. One of my favorite things to say is in the thirty three years and 104 ABS deals we’ve done, the investors have got their principal and interest back every single time. So we’re a solid we’re a solid ABS issuer.

One of the things that we’ve sort of been doing is we’ve always been kind of known in the equity market as a value company, kind of like a turtle instead of a hare. However, coming out of COVID, we’ve kinda transitioned to a growth company. We’ve never originated over 1,000,000,000 in auto contracts a year before COVID. So we went, whatever, twenty eight years with doing 500,000,000 a year, 900,000,000 a year. But coming out of COVID, we really increased our originations.

You can think of originations as sales as well. That’s the amount that’s the dollar value of the auto contracts that we purchase from the dealers. In 2022, we did 1,850,000,000.00, which was an all time record for us in thirty four years. We did tighten credit quite a bit from 2022 to 2023, but we still did 1,350,000,000.00, which was obviously the second best year. And then last year, we ramped it back up to 1,700,000,000.0, which is something like a 25% increase year over year in sales.

This year, we’re targeting another 25% increase year over year in originations. And so with that, our revenues have grown as well. So in 2022, we did $3.00 5,000,000 in revenue. In 2023, we did about $327,000,000 in revenue. And last year, we did $363,000,000 in revenue.

One of the things that sort of stands out for CPS, and I know everybody claims this these days, but we really are technically a fintech. Nobody really knows us as a FinTech in the industry because we’ve been in business for thirty four years, but the reality is we have the technicalities that these so called new startup FinTechs have, one of which is our use of machine learning and artificial intelligence in our modeling. So the biggest the biggest piece of technology quote unquote that we have is our originations model and we use machine learning decision tree segmentation. We have risk department of 10 data analytics and every eighteen months we update what is known as our algorithm and we use machine learning to do that. What that does is that takes a credit application, it pulls bureaus, It hits our algorithm and it’s able to give an approval or a decline within three seconds.

And that goes right back to the dealer and then we can negotiate back and forth and purchase the contract. So that’s the biggest piece of technology that we have. That’s the secret sauce. I’ve had many people approach me wanting to buy that secret sauce not for sale. That’s how we make our money.

We filtered in other AI functions in our business. We have relationships with over 13,000 dealers in the country. We have contracts with over 13,000 dealers in the country, and we have an algorithm that ranks these dealers a, b, c, and d with d being worst. That algorithm looks at performance, tenure in our system, volume, look to book, return contracts. There’s all kinds of factors.

And based on that algorithm and your grade, you can get credit concessions, less stipulations, it’s easier to buy with us, etcetera, etcetera. So that’s a good piece of our technology. Then on the servicing side, we do have 500 what we’ll call bill collectors and we’ve instituted a collection collections model for them. Whereas, you know, six years ago, they used to come in and do whatever they wanted. Now the AI tells them who to call, when to call, how to contact them, text message them, email them, get them on the chatbot, etcetera, etcetera.

That’s helped our credit performance immensely. So we’ll skip So like I said, our leadership team, we really have a triumvirate, a trio of us kind of around the company. Our CEO has been with us for thirty three years. He’s essentially the founder. He’s a big picture guy, a visionary, works with our Wall Street Bankers a lot.

There’s me. You know, I’ve been there for like twenty two twenty four years, I guess. I’m losing track. I run the day to day operations of the company. If you like lawyers running your business, our CEO is a lawyer.

I’m a lawyer. So we do look at things very analytically, which is unique for the industry and the CFO has been there for twenty eight years. Moving on. Sort of what’s the subprime market? Well, it’s pretty big.

So according to who is it? I think it’s TransUnion. The outstandings for auto finance outstandings is 1,500,000,000,000.0 as of the March 2025. They estimate that about 15% of the outstandings are subprime. Subprime generally is defined as anything from five eighty FICO, know, on downward to I mean, some people buy at $4.50 FICO.

And so what’s interesting about our about the subprime business is it’s really not that competitive. And there’s only about six or seven of us that are big nationally, And the rest is very, very segmented. Maybe some credit unions, maybe some mom and pop shops, maybe some buy here, pay here, but there really only is six or seven competitors, which is weird because most businesses that you might talk to today is, Oh, it’s so competitive. It’s so competitive. Ours isn’t.

It’s weird. You know, so we’re probably around, you know, the $4.06 range in market share for competition. You know, probably the biggest reason why it’s not competitive is there’s a high barrier to entry into the business. It’s capital intensive. It’s highly regulated.

And probably the most important thing is I mentioned that we have contracts with 13,000 dealers. It’s literally taken us thirty four years to come up with those 30 13,000 what we call clients. The dealers are our clients. And so so to start to start an auto subprime company from scratch is nearly impossible. I’ve had offers to do it and I’m just not doing it.

It would ruin my life. And so, you know, it’s just a it’s just a really a really good business to be in. A lot of business for everybody. It’s not cutthroat. We’re not really beating each other on fees and rates.

We’re actually competing on who’s who has the best customer service, who has the best ease of use to work with, I e, who has the less stipulations. And and certainly there’s there’s enough business for everyone. In fact, one of our big partners is Ally and we get a lot of Ally turndowns for subprime. All six of our competitors are on the Ally platform, and there’s enough business for everyone, which is totally bizarre. Here’s our programs.

Really really nothing of note, but our originations characteristics are interesting. Our average LTV is right around one nineteen. That’s pretty good. A lot of our competitors run at $1.25 to $1.30. So the loan to value at one nineteen sounds big, but in our in our mathematical calculation that’s right where we need to be to make money.

The payment to income, the only thing that’s interesting about this graph from September 18 through March is it’s very steady. And that’s a big part of our secret sauce is payment to income and debt to income. And as long as these graphs are steady, that means we’re keeping our credit criteria very conservative and safe. And so it’s very steady. Our FICO for us is 5574.

Some people, you know, are right around $5.90, like I said. Some people go crazy into the four fifty to 500 ranges. We’re more of a conservative subprime lender. We could last year we did $1,700,000,000 If we felt like it, we could do $3,000,000,000 if we really wanted to. But for us, our approval percentage on the applications is 48%.

So we’re being very, very selective. And that goes to, you know, our ABS investors love to hear that. You know, our equity investors love to hear that. Our APR is a whopping 20.3%. I don’t have any friends and family wanting to get a loan from us.

But one thing that’s interesting about the APR is in 2022, it was 17%, and we were getting 10,000 applications a day for subprime auto. Today, we’ve been able to raise the rate from 17% to 20% and the demand is higher. So we’re getting 13,000 applications a day today with a 48% approval ratio. So the supply is massive in subprime auto. Not a lot of competition.

We’re being very picky with a 48 approval rate, and we’re originating exactly what we want, which is about a 20 to 30% growth rate year over year. Anything else above that, you might get into trouble with some credit performance. All right. We’ve sort of already talked about this. Again, one of the things that sets us apart is we’ve got 13,000 contracts with dealers, strong demand.

What’s our customer look like? Surprisingly, the subprime customer’s pretty solid. 41 years old, seven or eight years of credit history, seven years length of residence, you know, $74,000 in household income. I mean, that’s fairly strong. That’s a little bit better than the average Joe.

So our profile’s a little bit stronger within the subprime space. So when I say our approval percentage is only 48%, that’s because we’re actually targeting the top third of the subprime space. You know, there’s a couple of risks to the auto subprime business that our team is very well aware of. One is unemployment rate and the other is if there’s going to be a recession. Those kind of those are really the two silver bullets that put a hurt into the business.

Now, Department of Labor has said, I think we’re at 4.4% unemployment rate. That’s pretty good. And they’re actually thinking it’s only going to drop to 4.6% through 2026, so that looks pretty good. Of course, the last week’s been a little sketchy with uncertainty and throwing darts with tariffs. It’s unpredictable.

And whenever I see recession, that’s a little scary. But I will tell you what’s interesting is we code the jobs of all of our customers and, you know, what we find is the subprime customer is extremely resilient. More resilient than, you know, probably most of us in here are prime customers, you know, and white collar people. You know, it’s it’s, you know, we need a car for work, but we might have two or three cars. These people need a car to get to work to pay their bills.

They live paycheck to paycheck. And, oh, by the way, most of them are service industry workers and it’s easier to find a job if you lose a job as a service industry worker than as an investment banker. So we take we take some headway with that. You know, what are we financing? Most most is used cars, 90% used cars, 10% new cars.

We do give deals on certified pre owned cars, get a little bit better treatment. Interestingly for us, there’s two types of dealerships. There’s a franchise dealership and a non franchise dealership, a franchise dealership being, you know, Mike Levin Ford and independent being, you know, Mike Levin’s used cars on the, on the, on the side lot there on the street. We target the franchise dealers mostly. We found that the paper performs better from the franchise dealers and there’s less fraud.

We’ve been doing that for thirty four years and that’s one of the main reasons why we’re we’re still in business. Credit performance has been a big has been sort of a big issue the last three or four years coming out of COVID. Twenty twenty two was rough for the industry. In fact, maybe the second or third worst credit performing year that we’ve seen in our history. A lot of macroeconomic things in play.

That’s not to blame things that we don’t control, but that is that it is what it is. Now what we’ve seen though is vast improvement. The second half of twenty twenty three has been performing better. We just finished our analysis. You want to wait about fourteen to fifteen months for the loans to be on the books to evaluate the performance.

We just finished our analysis of twenty twenty four a, and it’s doing quite well. And so what we’re seeing is the second half of twenty twenty three all the way through 2024, each vintage of originations is performing better and better and better and better. And that goes along with we track defaults. That’s a very important metric in our business. And the quarterly defaults are going down quarter after quarter after quarter, 2023 into 2024.

A couple of, financial things of note. Sort of the the the return on assets sort of golden figure for our business, at least what I’ve been told, is anywhere between 3% to 4% of our portfolio. In 2022, I think we were at were at five or six, but that was clearly COVID at work with the government. Basically, the government gave CPS money because they gave our customers money and then they paid their debt really fast. And so that pumped up our income, our net interest margin, our return on assets.

There’s probably like six or seven levers that we use to control the ROA. Obviously, first one is the APR and we’re holding strong there. The second one is our cost of funds. It’s what we what it costs for us to get the money to then loan the money. And that is strictly controlled by the ABS market.

And unfortunately for us, the only thing we can control in the ABS market is when we go to the ABS market and the markets are with the markets. We do negotiate. Most of our deals are oversubscribed in the ABS market, but what we’ve seen the last year has been tough. We’ve gone from 3.5% cost of funds up to 8% cost of funds a year ago. And I think our last deal we finished off at right around 5.88% cost of funds.

And so that affects our ROA as well. And of course, you know, OpEx is a big deal in our business and we’ve been we’ve been driving it down from roughly 6.5% a couple years ago, and that’s a percentage of the average portfolio size, down to 5.35% now. Okay. A couple other final financial things. We’ve got a strong balance sheet.

We’re rich in cash. I did talk about the the residual and the securitizations. It’s kind of the hidden asset the CPS has. That is the money and all the quarterly ABS deals that we have. We estimate that we have about 450,000,000 coming out of those pools over the next two to three years.

Interestingly enough, if you liquidated the company tomorrow, that hidden asset is worth $18 a share. Right now, we’re trading at an unfortunate $8.70 a share. I think a year ago, we were at $13 a share. The book value is roughly $13 a share. So yeah, we’re a publicly traded company that’s been in business for thirty four years with good revenue.

We’ve posted 54 straight profitable quarters with a book value of 13, and we trade for 8 and a half. So you go figure. I don’t know. Other than that, I think I think that’s probably all the material stuff that I have. Any questions?

Unidentified speaker: Yes. So how did you feel with the subprime prices 02/2008 and ’9?

Mike Lavin, President, Chief Operating Officer, and Chief Legal Officer, Consumer Portfolio Services: ’2 thousand and ’8 and ’9, we shut originations down for six months. We delayed our securitization for ten months and we survived. And we were one of the only companies during that time that survived. And all of our investors got their P and I back. So quite well.

Unidentified speaker: So of all that, I’m estimating maybe there was seven subprime auto loan providers and you are the only one who survived.

Mike Lavin, President, Chief Operating Officer, and Chief Legal Officer, Consumer Portfolio Services: There was like, no, there was like maybe 15 at the time and we were one of maybe one or two that survived, those six or seven started up after the great recession.

Unidentified speaker: And what made you different from those 14 to 19?

Mike Lavin, President, Chief Operating Officer, and Chief Legal Officer, Consumer Portfolio Services: Well, mean, it wasn’t me. I have to give our CEO credit. I mean, he kind of foresaw the recession based on his experience. Remember, we’ve been through a couple before, so he had had experience with it. So we kind of got ahead of it and stopped originating the paper, delayed the securitization.

We had a couple other financial tricks up our sleeve and then did the plan. I wish I I wish I was the the leader, but I wasn’t.

Unidentified speaker: I think you said you’re you’re more group oriented now. Yeah.

Mike Lavin, President, Chief Operating Officer, and Chief Legal Officer, Consumer Portfolio Services: I think we I think we deliberately changed our strategy. I think we saw that the market share was there to attack. A lot of our competitor or some of our competitors that sit right on top of us were doing poorly to the extent that they were hemorrhaging a little bit. So we kind of decided to put our foot on the throat a little bit. And I think, I mean, just the opportunity was there and the market, the demand was there.

You have to have the demand and there was low supply. And we took advantage of that and we increased our our APR the entire time. So it’s just a it was almost like a perfect storm. I mean, it’s not in our nature to be an Uber growth company. We’re more and surgical with how we do it, which I think is why we’ve been in business for so long.

Yes? What’s the last ten years growth last ten years growth rate is I can tell you that the last four have been well above 10%, but I think going back ten years, you’re going to see super conservative growth rate. Maybe 5% ish year over year. Very tepid. What’s the projected date for fifteen years?

Yeah. So so we did 1,700,000,000.0 last year. We’re projected to do 1,950,000,000.00 this year, which again would be a record. And based on the first quarter, we’re there. Based on the sub based on the demand for our product, we’re there.

It’s just a matter of executing. I think going forward with our sort of our new strategy, we’re we’re looking at 20 to 25% growth year over year going forward as much as we can financially handle. We’re not owned by a hedge fund or private equity firm, so we’re not sitting on a mountain of gold. So we’re kind of self funded. So we do have to be careful with our cash burn.

Unidentified speaker: Yes? Yep.

Mike Lavin, President, Chief Operating Officer, and Chief Legal Officer, Consumer Portfolio Services: I don’t know. I mean, I wish I knew. I think I mean, you got you guys can all type in CPSS and and see that we’re very thinly traded. Low volume. I think that’s might be like one of the bigger weaknesses.

But otherwise, it’s just getting the story out there, and I think our story’s improved over the last five years versus the prior twenty five years. But, I mean, if you could tell me, I’d I’d love to know. We have. We have, actually. But I think I think I think our CEO is hesitant to take on the debt that would that would be required to take the company private.

You’re talking about, I think, 70 or $80,000,000 it would take us to buy out shares and go private. I think we’re better off as a public company and showing growth and giving shareholder value that way. Hold on a second. Get you in a second.

Unidentified speaker: Question about the turnover rate. What is the turnover rate?

Mike Lavin, President, Chief Operating Officer, and Chief Legal Officer, Consumer Portfolio Services: For us, it’s about 13%. Very low in sales. The collectors of course are right about 23%. Nobody leaves in management. It’s like the mafia.

Nobody leaves. So yeah, pretty low. Yeah. So we don’t we have no marketing budget. Like we don’t have to there’s no money spent on identifying customers.

Our budget is to just enhance our relationships with those dealers. So the customer goes in, buys a car, goes into the back office. The application comes to us, goes back to the dealer, and they’re like, here’s your financing. And so the customer doesn’t have a choice. It’s whatever whatever deal the dealer gets to get them the most profit and the customer the lowest payment.

So it’s pretty cool. We have no marketing budget. Yeah. Yes, sir.

Unidentified speaker: So does any of your customers, do they do Uber or Lyft? And is it possible if they lose a job, can they sustain the interest payments or

Mike Lavin, President, Chief Operating Officer, and Chief Legal Officer, Consumer Portfolio Services: Yeah. We we do have a gig, what’s called a gig program. It’s very lightly used. We don’t have a lot of gig customers, but we’re but we do it. Yeah.

Anything else? Alright. Thanks guys for coming. Appreciate it.

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