Q1 2025 America's Car-Mart Inc Earnings Call

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Unknown Attendee: Good day, and thank you for standing by.

Unknown Attendee: Welcome to the America's Car-Mart's first quarter fiscal 2025 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your cell phone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded.

Speaker Change: Good day and thank you for standing by. Welcome to the America's Car Mart's first quarter fiscal 2025 results conference call. At this time, all participants are an illicit only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need a press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.

Speaker Change: To withdraw your question, please press star 1-1 again.

Speaker Change: Please be advised that today's conference is being recorded.

Vickie Judy: I would now like to hand the conference over to your speaker today, Vickie Judy, Chief Financial Officer of America's Car-Mart. Please go ahead.

Speaker Change: Oh, and now I'd like to hand the conference over your speaker today, Vickie Judy, chief financial officer of America's Cardemars. Please go ahead.

Vickie Judy: Good morning and welcome to America's Car-Mart's first quarter fiscal year 2025 earnings call for the period ending July 31st, 2024. Joining me today is Doug Campbell, our company's President and CEO. We issued our earnings release earlier this morning, and it is available on our website, along with a slide detailing our cash-on-cash returns.

Vickie Judy: Good morning, and welcome to America's Car Marks First Quarter fiscal year 2025 earnings call for the period ending July 31, 2024. Joining me today is that team will our company's president and CEO.

Speaker Change: We've issued our earnings release earlier this morning and it is available on our website along with a slide detailing our cash on cash returns.

Vickie Judy: We will post the transcript of our prepared remarks following this call, and the Q&A session will be available through the webcast after the call. During today's call, certain statements we may be considered forward-looking and inherently involved risk and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. The company cannot guarantee the accuracy of any forecast or estimates, nor does it undertake any obligation to update such forward-looking statements.

Speaker Change: We will post the transcript of our prepared remarks following this call, and the Q&A session will be available through the webcast after the call.

Speaker Change: During today's call, certain statements we might may be considered forward-looking and inherently involved risk and uncertainties that could cause actual results to differ materially from management's present view.

Speaker Change: These statements are made pursuant to the safe harbor provision of the private security litigation reform act of 1995. The company cannot guarantee the accuracy of any forecast or estimates nor does it undertake any obligation to update such forward-looking statements.

Vickie Judy: For more information, including important cautionary notes, please see part one of the company's annual report on Form 10-K for the fiscal year ended April 30 of 2024 and our current and quarterly reports furnished to or filed with the Securities Exchange Commission on Form 8-K and 10-Q. Doug will start us off with his thoughts on the business and strategies for the fiscal year.

Speaker Change: for more information including important cautionary notes.

Speaker Change: Please see part one of the company's annual report on Swarmton K for the fiscal year ended April 30, 2024, and our current and quarterly reports furnished to, or filed with the Securities Exchange Commission on Swarmton K.

Speaker Change: Doug will start us off with his thoughts on the business and strategies for this fiscal year.

Douglas Campbell: Thank you, Vicki. And thank you, everyone, for your interest in America's Carmer and for joining us to hear more about our first quarter results. As I mentioned in the earnings release, I'm pleased about the improvement in sales volume versus the prior year when viewed sequentially. If you recall, we were down almost 20% in the third quarter. We then finished down 13.6% in the fourth quarter and have closed the gap to be just under 10% now. We're pleased that website traffic increased both year-to-year and sequentially, indicating strong consumer demand. However, application volumes were slightly softer, contributing to the decline in sales.

Doug: Thank you, Vickie, and thank you everyone for your interest in America's Carmer and for joining us to hear more about our first quarter results.

Doug: As I mentioned in the earnings release, I'm pleased about the improvement in sales volume versus the prior year when viewed sequentially. If you recall, we were down almost 20% in third quarter.

Doug: We then finished down 13.6% in the fourth quarter and have closed the gap to be just under 10% now.

Doug: Replies at website traffic increased both year over year and sequentially indicating strong consumer demand.

Doug: However, application vines were slightly softer contributing to the decline in sales.

Douglas Campbell: We'll believe that part of this decline is the need for more affordable vehicles. We've been working hard to bring down the average retail price during the quarter. When viewed sequentially, we had a reduction of approximately $100 in the average retail price when you exclude ancillary products. Vehicle procurement prices are a good leading indicator for our average retail prices. And with the progress we've made during the quarter, we expect these benefits to both improve and continue. The biggest challenge for our industry and for us is ensuring we match inventory levels and pricing to the demand and the type of consumer we're seeing in the marketplace.

Doug: will believe that part of this decline is the mood for more affordable vehicles.

Doug: We've been working hard to bring down the average retail price during the quarter.

Doug: When viewed sequentially we had a reduction of approximately $100 in the average retail price when you exclude ancillary products.

Doug: Vehicle procurement prices are good leading indicator for our average retail prices.

Doug: and with the progress we've made during the quarter weeks, we expect these benefits to both improve and continue.

Doug: Gross Margin continues to be a positive story of 30 basis points for the quarter.

Doug: We remain very focused on gross margin improvement through pricing discipline, reduced transportation cost, and lower vehicle repair costs.

Doug: The biggest challenge for our industry and for us is ensuring we match inventory levels and pricing to the demand and type of consumer we're seeing in the marketplace.

Douglas Campbell: This is a value chain to lower vehicle acquisition costs, which means we can pass those savings on to our consumers. Our partnership with Cox Automotive is a key component in our plan to address affordability for consumers and improve those profit margins for the company. Recall that this partnership is centrally managed, removing the day-to-day burden from our location managers to oversee the complete process for the disposal of our assets. We've been optimizing agreements with vehicle repair shops and consolidating suppliers to lower acquisition and transportation costs. We've set new expectations for vehicle quality, especially with preferred vendors, and continue to consolidate vehicle vendors.

Doug: We've taken several actions in the value chain to lower vehicle acquisition costs, which means we can pass those savings on to our consumers.

Doug: Our partnership with Cox Automotive is a key component in our plan to address affordability for consumers and improve those profit margins for the company.

Doug: Recall that this partnership is centrally managed, removing the day-to-day burden from our location managers to oversee the complete process for the disposal of our assets.

Doug: We've been optimizing agreements with vehicle repair shops and consolidating suppliers to lower acquisition and transportation costs.

Doug: We've set new expectations for vehicle quality, especially with preventers and continue to consolidate vehicle vendors.

Douglas Campbell: The vendor consolidation process is also improving title flow, which speeds up the time in getting inventory to the sales line and then displayed online. For example, in fiscal year 23, we purchased an average of 10 vehicles from close to 400 vendors monthly. In fiscal year 24, we dropped that to roughly 270 vendors, and this year we plan to bring that down to under 200 vendors. While we still need local relationships in many markets that we operate, the partnership with Cox Automotive is giving us additional options. Like any transition, the onboarding process of a new partner for our business operations is not without its challenges.

Doug: The vendor consolidation process is also improving title flow, which speeds up the time in getting inventory to the sales line and then displayed online.

Doug: For example, in fiscal year 23, we've purchased an average of 10 vehicles from close to 400 vendors monthly.

Doug: In fiscal year 24, we dropped that to roughly 270 vendors, and this year we plan to bring that down to under 200 vendors.

Doug: While we still need local relationships in many markets that we operate, the partnership with Cox Automotive is giving us additional options.

Doug: Like any transition, the onboarding process of a new partner for business operations is not without its challenges. However, we believe those are mainly behind us now as it relates to the procurement and the marketing of vehicles.

Douglas Campbell: However, we believe those are mainly behind us now as it relates to the procurement and the remarketing of vehicles.

Douglas Campbell: I'll switch now to the consumer-facing aspects of our business. The LOS is fully in place at 147 of our 156 dealerships. The remaining nine dealerships, which were acquired, are still in their earn-out period or had yet to be integrated. As of July 31, almost 40% of our total portfolio dollars originated within the LOS. The speed of accomplishing sales and financing process is at least one hour faster for each customer. Because more of these sales are starting online, it allows for a better overall customer experience, and we're pleased to see this kind of adoption. And it gives us additional data on consumer preferences and the pre-qualification transfer scene.

Speaker Change: Us, which now to the Consumer Facing Aspects of our business.

Speaker Change: The LLS is fully in place at 147 of our 156 dealerships.

Speaker Change: The remaining nine dealerships, which were acquired, are still in their earnout period or had yet to be integrated.

Speaker Change: As of July 3rd, almost 40% of our total portfolio dollars originated within the LOS.

Speaker Change: The speed of accomplishing sales and financing process is at least one hour faster for each customer.

Speaker Change: Because more of these sales are starting online, it allows for a better overall customer experience, and we're pleased to see this kind of adoption. And it gives us additional data on consumer preferences and the pre-qualification transfer scene.

Douglas Campbell: The benefits from LOS that we discussed last quarter, which include curtailing, originating terms, generating better deal structures, and ultimately improving loss rates, continue to build momentum. Deals originated through the low and origination system versus our legacy system have a lower frequency and severity of loss, thus producing a lower overall cumulative net loss rate than loans originated during the same period. This improvement is also very much in contrast with our back book of originations, which are now approximately 33% of our portfolio when looking at overall dollars from fiscal year 21 through fiscal year 20. 23. I'll let Vickie get into more detail here in a moment on that.

Speaker Change: The benefits from LOS that we discussed last quarter, which include curtailing originating terms, generating better deal structures, and ultimately improving loss rates continue to build momentum.

Speaker Change: Deos originated through the lower-rich-ination system, versus our legacy system, have a lower-frequency and severity of loss, that's producing a lower-operall cumulative net loss rate in loans originated during the same period.

Speaker Change: This improvement is also very much in contrast with our back book of originations, which are now approximately 33% of our portfolio when looking at overall dollars from fiscal year 21 through fiscal year 2023.

Douglas Campbell: We're moving quickly to reshape our future without changing our core mission: keep customers on the road. Our initiatives are strengthening Car-Mart's competitive position, enhancing our ability to innovate, and increasing operational efficiency. I reported last quarter on the implementation of additional hope-to-year tech investments in our business, specifically an enterprise resource planning system, or ERP. This was a significant multi-year investment, and its way on our operating expense line. The benefits of this ERP conversion are designed to improve efficiency and operational flexibility within finance, accounting, and customer management functions, and provide capacity for growth. We went live on the system on May 1, and are confident that we can help provide leverage in SGNA.

Speaker Change: I'll let Vickie get into more detail here and moving on that.

Vickie Judy: We're moving quickly to reshape our future without changing our core mission.

Vickie Judy: Keep customers on the road.

Vickie Judy: Our initiatives are strengthening carmer's competitive position, enhancing our ability to innovate and increasing operational efficiency.

Vickie Judy: I reported last quarter on the implementation of additional help to hear tech investments in our business.

Vickie Judy: Specifically, an enterprise resource planning system or ERP.

Vickie Judy: This was a significant multi-year investment and it's weighing on our operating expense line.

Vickie Judy: The benefits of this ERP conversion are designed to improve efficiency and operational flexibility within finance, accounting and customer management functions and provide capacity for growth.

Vickie Judy: We went live on the system on May 1st and our confident that we can help provide leverage in SGNA.

Douglas Campbell: We also completed important enhancements to our CRM during the quarter, which are designed to assist us in credit application conversion. A better customer experience will drive higher conversions to sales.

Vickie Judy: We also completed important enhancements to our CRM during the quarter, which are designed to assist us in credit application conversion. A better customer experience will drive higher conversions to sales.

Douglas Campbell: We're very pleased with the recent addition of the two dealerships at Texas Auto Center, which delivered strong results as expected in the quarter, including a record month in July. We have ambitious plans to grow America's Car-Mart and become a more dominant company in their segment. This is evident in the turnaround we're beginning to see. Our teams will be a key component of our success.

Speaker Change: We're very pleased with the recent addition of the two dealerships at Texas Auto Center, which delivered strong results as expected in the court, including a record month in July.

Speaker Change: We have ambitious plans to grow America's commerce and become a more dominant company in their segment.

Speaker Change: This is evident in the turnaround we're beginning to see. Our teams will be a key component of our success.

Vickie Judy: Now turn the discussion over to Vicki for more details on our financials.

Speaker Change: Now turn the discussion over to Vickie for more details on our financials. Vickie?

Vickie Judy: Vicki? Thanks, Doug, and good morning, everyone. In my commentary, the comparison that I will cover will be the first quarter of fiscal 2025 versus the first quarter of fiscal 2024, and must otherwise note it. Total revenues decrease $19 million, or 5.2%, largely due to the decline in retail units sold. Interest income increased by 7.2%, primarily due to the increase in the consumer contract interest rate to 18.25%, which was increased from 18% in December of 2023. The weighted average interest rate was 17.4% at July 31st, 2024, compared to 17%.

Vickie Judy: Thanks Doug and good morning everyone. In my commentary, the comparison that I will cover will be the first quarter of the fiscal 2025 versus the first quarter of the fiscal 2024 and must otherwise note it.

Vickie Judy: Total revenue decreased $19 million or 5.2% largely due to the decline in retail units sold.

Vickie Judy: Interest income increased by 7.2% primarily due to the increase in the consumer contract Interest rate to 18.25% which was increased from 18% in December of 2023.

Vickie Judy: The weighted average interest rate was 17.4% at July 31, 2024 compared to 17%.

Vickie Judy: 23%. As Doug pointed out earlier, our priority in both sourcing and sales is on vehicle affordability, as our customers are persistently squeezed by several economic factors affecting their paycheck. Average units sold per dealership per month were down from 34.2 to 30.9, or 9.6%. The average retail sales price was up 2.4%, primarily attributable to increases in employee products. We continue to back the appropriate underwriting risk with sales volumes and have limited originations at a select number of dealerships to focus on collections and originating only the highest credit scoring applicants. This has contributed to lower productivity on average.

Vickie Judy: 23

Vickie Judy: As Doug pointed out earlier, our priority in both sourcing and sails is on vehicle affordability as our customers are persistently squeezed by several economic factors affecting their paycheck.

Doug: Aborigines sold per dealership per month or down from 34.2 to 30.9 or 9.6%.

Doug: The average retail sales price was up 2.4%.

Speaker Change: primarily attributable to increases in antibody products.

Speaker Change: We continue to back the appropriate underwriting risk with sales volumes and have limited originations at a select number of dealerships to focus on collections and originating only the highest credit scoring applicant.

Speaker Change: This has contributed to a well-wore productivity on average.

Vickie Judy: Earlier, Doug explained that the backbook of originations from fiscal 21 through fiscal 23 accounts for 33% of the portfolio and that 40% of the portfolio originated through our new underwriting system. We're pleased with the benefits we're seeing on downpayments and deal structures. Downpayments for the quarter were up 20 basis points to 5.2%. While this is not an enormous increase overall, the distribution of the downpayment by customer score is improved and is expected to be significant in terms of customer success. This also builds on last quarter's sequential increase of 40 basis points on downpayment. Our average originating term was 44.3 months, down from the prior year's quarter average of 44.7 months.

Douglas: Earlier, Douglas explained that the back book of originations from fiscal 21 through fiscal 23 accounts for 33% of the portfolio, and that 40% of the portfolio originated through our new and writing system.

Speaker Change: We're pleased with the benefits we're seeing on down payment and deal structures.

Speaker Change: Dam payments for the quarter were up 20 basis points to 5.2%. While this is not an enormous increase overall, the distribution of the Dam payment by customer score is improved and is expected to be significant in terms of customer success.

Speaker Change: This also builds on last quarter sequential increase of 40 basis points on downpages.

Speaker Change: Our average originating term was 44.3 months down from the prior year's quarter average of 44.7 months.

Vickie Judy: Like the downpayment, we continue to find teens and optimize the distribution of the term by customer score. At the end of the quarter, the weighted average total contract term for the portfolio is 48.1 months. The weighted average age is 12 months or up 16%. This should have positive impacts on the portfolio losses going forward and has contributed positively to the increased collections per active customer. Our management and dealer teams have worked hard to improve total collections, which increased 4.3% over last year. The monthly average total collected per active customer rose to $562 from $535. More customers are paying via digital channels, but it is valuable to leverage our hybrid approach because the local face-to-face relationship is a different maker when they need contract modifications or assistance.

Speaker Change: Like the damn payment, we continue to fine-tune and optimize the distribution of the term by customer score.

Speaker Change: At the end of the quarter, the weighted average total contract term for the portfolio is 48.1 months.

Speaker Change: The weighted average age is 12 months, or up 16%, this should have positive impacts on the portfolio loss is going forward and have contributed positively to the increased collections per active customer.

Speaker Change: Our management and dealer team have worked hard to improve total collection, which increased 4.3% over last year. The monthly average total collected per active customer rose to $562 from $535.

Speaker Change: More customers are paying the additional channels, but it is valuable to leverage our hybrid approach because the local face-to-face relationship is a different maker when they need contract modifications or assistance.

Vickie Judy: Net charge-off as a percentage of average finance receivables for the quarter or 6.4% compared to 5.8%. We experienced an increase in both the frequency and severity of losses, with severity accounting for approximately 65% of the increase. The majority of this increase continues to be from the back book of the fiscal year 22 and 23 originations. These originations now have a weighted average age of approximately 22 months at the end of July and are expected to have less of an impact on net charge-off as we move forward. The net charge-off percentage is trending back to pre-pandemic averages and is closer to the low end of our historical range of 5.9% to 8.7%.

Speaker Change: Net charge off as a percentage of average finance receivable for the quarter or 6.4% compared to 5.8%.

Speaker Change: We experienced and increased in both the frequency and severity of losses with severity accounting for approximately 65% of the increase.

Speaker Change: The majority of this increase continues to be from the back book of the fiscal year 22 and 23 origination.

Speaker Change: These are regulations now have awaited average age of approximately 22 months at the end of July and are expected to have less of an impact on that charge off as we move forward.

Speaker Change: The Nat Tarjoff percentage is trending back to pre-pandemic averages and is closer to the low wind of our historical range of 5.9% to 8.7%.

Vickie Judy: Our priority is customer success and to work with them to resolve payment delinquencies before repossessing the vehicle. We're pleased that our delinquencies or accounts of a 30-day pass do drop 90 basis points to 3.5% at quarter end, and our recent date was over 82% for the quarter. The results we're seeing from our LOS originations were the primary driver in a 30 basis point improvement in our allowance for credit losses, as the percentage of finance receivables now have deferred revenue and accident protection plan claims. This puts the allowance at 25% at quarter end, which resulted in a $4.3 million reduction in the provision for credit loss.

Speaker Change: Our priority is customer success and to work with them to resolve payment delinquency before we possessing the vehicle.

Speaker Change: We're pleased that our delinquents these or accounts over 30 days past do drop 90 basis points to three and a half percent quarter in and our recent date was over 82 percent for the quarter.

Speaker Change: The results we're seeing from our LOS originations were the primary driver in a 30 basis point improvement in our allowance for credit losses as the percentage of finance receivable net of deferred revenue and accident protection plan crimes.

Speaker Change: This fits the allowance at 25% at quarter-end, which resulted in a $4.3 million reduction in the provision for credit auction.

Vickie Judy: Inventory levels at quarter end were up $7.1 million compared to fiscal year end, primarily due to the addition of our most recent acquisition, which added approximately $5.1 million to the inventory balance. Despite this addition, we reduced inventory by $2.6 million compared to the prior year quarter end. We've been sharing our cash on cash returns profile during this past fiscal year, and our pleas that are originated contracts in the first quarter are expected to produce cash on cash returns of 72.4%. The supplemental material to the earnings release reflects our history of earning strong cash-on-cash returns in various market and macroeconomic conditions.

Speaker Change: Inventory levels at quarter-end were up $7.1 million compared to fiscal year-end, primarily due to the addition of our most recent acquisition, which added approximately $5.1 million to the inventory balance.

Speaker Change: Despite this addition, we reduced inventory by $2.6 million compared to the prior year of border end.

Speaker Change: We've been sharing our cash on cash returns for a file during this past fiscal year and our place that our originated contracts in the first quarter are expected to produce cash on cash returns of 72.4%.

Speaker Change: The Supplemental Materials to the earnings release reflects our history of earning strong cash on cash returns in various market and macro-economic conditions. We're very focused on the quality of originations and deal structures to maximize these returns and profitability.

Vickie Judy: We're very focused on the quality of originations and deal structures to maximize these returns and profitability. Moving to SGNA, SGNA expense was $46.7 million. This was a flight increase compared to last year's first quarter. As mentioned in the release, we had over $2 million in savings and payroll and related costs due to prior cost-cutting measures. This was offset by increases in the licensing and expenses related to our technology implementations, along with the increased SG&A related to the acquisition. Which created some headwind in leveraging the SGNA on a per customer basis. As we move forward and gain efficiency from the new technology and build the customer base associated with the acquisition, we expect to leverage the SGNA on a per customer count basis over the long term.

Speaker Change: Moving to FG&A.

Speaker Change: SG&A expense was $46.7 million. This was a fight increase compared to last year's first quarter. As mentioned in the release, we had over $2 million in...

Speaker Change: Savings in payroll and related costs due to prior cost cutting measures.

Speaker Change: This was offset by increases in the licensing and expenses related to our technology implementation, along with the increased SG&A related to the acquisition, which created some headwind in leveraging the SG&A on a per customer basis.

Speaker Change: As we move forward and gain efficiency from the new technology and build the customer base associated with the acquisition, we expect to leverage the SGNA on a per customer account basis over the long term.

Vickie Judy: We continue to focus on driving cost efficiencies and continue to execute on cost control measures. Interest expense increased by $4 million or 28.3% due to a rise in rates and secondarily an increase in debt. Our revolving credit facility and warehouse notes payable are floating rate debt, and we would benefit from lower rate if the prevailing thoughts on interest rate cuts come to fruition. As of July 31st, we have $4.7 million in unrestricted cash and approximately $33 million in additional availability under our revolving credit facilities, calculated on our borrowing base of receivables in inventory. Access to capital with our revolving credit facility and a successful securitization program give us flexibility and a distinct advantage over many of our smaller competitors.

Speaker Change: We continue to focus on driving cost efficiencies and continue to execute on cost control measures.

Speaker Change: Interest expense increased by $4 million or 28.3% due to a rise in rates and secondarily an increase in debt.

Speaker Change: Our revolving credit facility and warehouse news payable are floating right dead and we would benefit from all our rates if the prevailing thoughts on interest rate cuts come to fruition.

Speaker Change: As of July 31st, we have $4.7 million in unrestricted cash and approximately $33 million in additional availability under our revolving credit facilities calculated on our borrowing base of receivable thin inventory.

Speaker Change: Access to Capital with our Revolving Credit Facility and a Successful Securization Program Give us flexibility and a Distinguished Advantage over many of our smaller competitors.

Douglas Campbell: Now let me turn things back to debt. Thanks, Vicki. We know that the economy is challenging for consumers, and we're undertaking many operational initiatives to improve certain aspects of our business.

Speaker Change: Now let me turn things back to that.

Speaker Change: Thanks, Vickie.

Speaker Change: We know that the economy is challenging for consumers and we're undertaking many operational initiatives to improve certain aspects of our business.

Douglas Campbell: I'm proud of our associate value proposition and the dedication of our teams. Before we start the open Q&A, I'd like to reiterate our focus for the fiscal year. First, we want to continue to push for operational excellence on sales and collections as we leverage the technology recently installed and updated. This includes constantly looking at the return on invested capital at our stores and ensuring that we are focused on getting the best returns possible for our shareholders. to improve the affordability for our consumers by reducing the average retail price during the fiscal year. There are several components to this plan, but we're well underway and we'll continue to see benefits here.

Speaker Change: I'm proud of our social and value proposition and the dedication of our teams.

Speaker Change: Before we start the open Q&A, I'd like to reiterate our focus for the fiscal year.

Speaker Change: First, we want to continue to push for operational excellence.

Speaker Change: on Fills and Collections as we leverage the technology recently installed and updated.

Speaker Change: This includes constantly looking at the return on invested capital and our stores and ensuring that we are focused on getting the best returns possible for our shareholders.

Speaker Change: 2.

Speaker Change: to improve the affordability for our consumers by reducing the average retail price during the fiscal year. There are several components to this plan, but we'll run your way and we'll continue to see benefits here.

Douglas Campbell: Three, the continued optimization of our loan origination system. We're seeing its benefits, and I believe we're just scratching the surface. Our credit and underwriting teams are working to fully exploit the benefits of this system.

Speaker Change: 3.

Speaker Change: The continued optimization of our low-end origination system.

Speaker Change: We're seeing its benefits and I believe we're just scratching the surface.

Speaker Change: are credit and underwriting teams are working to fully exploit the benefits of this system.

Douglas Campbell: Four, to capitalize on our partnership with Cox on a motive, I believe this to be a long-term partnership and we're just getting out of the gates. I'm excited about the benefits for our shareholders and collective companies here.

Speaker Change: For to capitalize on our partnership with Cox on a motive, I believe this to be a long-term partnership and we're just getting out of the gates. I'm excited about the benefits for our shareholders and collective companies here.

Douglas Campbell: Five is to implement our strategic plan and focus on acquisitions. We're actively in the market looking at opportunities and believe this is still the best return for our shareholders.

Speaker Change: Five is to implement our strategic plan and focus on acquisitions. We're actively in the market looking in opportunities and believe this is still the best return for our shareholders.

Douglas Campbell: I'd be remiss if I didn't mention just how important people are to our success, both existing talent and new talent that will round out our leadership team.

Speaker Change: I'd be remiss if I didn't mention just how important people are to our success.

Speaker Change: both existing talent and new talent that will round our Louis XIV.

Unknown Attendee: Now, operator, please provide instructions to ask questions. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced to withdraw a quote. To withdraw your question, please press star 11 again. In the interest of time, yes, that you please want yourself to one question and one follow-up. Please stand by while we compile the Q&A roster.

Speaker Change: Now, operator, please provide instructions to ask questions.

Speaker Change: As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced.

Speaker Change: To withdraw a quote. To withdraw your question, please press star 1-1 again, and the interest of time, yes, which please let yourself to one question and one follow up. Please stand by while we compile the Q&A roster.

Vickie Judy: Operator, this is Vicki. We've gotten a couple of questions in from by-side investors that I'd like to take. Please proceed.

Speaker Change: Operator, this is Vickie. We've gotten a couple of questions and from Vy Inside Investors.

Speaker Change: that I'd like to take.

Douglas Campbell: The first one says, can you explain the headland in SGNA that's coming from your acquisition? Doug, I'll take this one. First of all, as we acquire these day one, we acquire their SGNA, of course, with all of their dealership costs, their associates, but we're not acquiring their portfolio of customers. So we're starting with the cost and no portfolio to go along with it.

Unknown Attendee: Good day and thank you for standing by.

Operator: Please proceed.

Unknown Attendee: Welcome to the America's Car-Mart's first quarter fiscal 2025 results conference call. At this time, all participants are in a listen-only mode.

Speaker Change: The first one says, can you explain the headland in SGNA that's coming?

Speaker Change: from your acquisition. Douglas, I'll take this one.

Douglas: First of all, as we acquire these day one, we acquire their SG&A, of course, with all of their dealership costs, there are those seats, but we're not acquiring their portfolio of customers.

Unknown Attendee: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need a press store 1-1 on your cell phone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.

Douglas: So we're starting with the cost and no portfolio to go along with it.

Douglas Campbell: This last one we did with TAC was a little more impactful due to the size, and we have visibility and to leverage once the book is filled out.

Speaker Change: This last one we did with TAC was a little more impactful due to the size and we have visibility into leverage once the book is filled out.

Unknown Attendee: Please be advised that today's conference is being recorded.

Unknown Attendee: I would now like to hand the conference over your speaker today, Vickie Judy, Chief Financial Officer of America's Car-Mart. Please go ahead.

Douglas Campbell: The second question is regarding the back book. It says you mentioned the back book and LOS origination several times. Can you explain how you think about the portfolio and how it sits today? Doug, I'll let you take that one.

Speaker Change: The second question is regarding the back book, it says you mentioned the back book in LOS originations several times. Can you explain how you think about the portfolio and how it fits today?

Vickie Judy: Good morning and welcome to America's Car-Mart's first quarter fiscal year 2025 earnings call for the period ending July 31, 2024. Joining me today is Doug Campbell, our company's president and CEO. We've issued our earnings release earlier this morning and it is available on our website, along with a slide, detailing our cash on cash returns. We will post the transcript of our prepared remarks following this call and the Q&A session will be available through the webcast after the call.

Douglas Campbell: Good morning, everybody. I think if I had to break it up, if you go back to the second quarter of last year, we noted the back book. I don't think we used the words back book, but we spoke in detail about the losses that we were seeing from some of the pools originated in fiscal years 21, 22, and 23. The effects on those and the severity that they had on the portfolio, and then the overall current environment which was driving a frequency of loss at that time. We still see that, but to a lesser effect.

Speaker Change: Don't go let you take that one.

Speaker Change: Okay, good morning everybody. I think if I had to break it up.

Speaker Change: I think if you go back to the second quarter of last year, we noted the back book, I don't think we use the word back book, but we spoke in detail about the losses that we were seeing from some of the pools originated in Fiscal Years 21, 22 and 23.

Vickie Judy: During today's call, certain statements we may be considered forward looking and inherently involved risk and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the Private Security's Litigation Reform Act of 1995. The company cannot guarantee the accuracy of any forecast or estimates, nor does it undertake any obligation to update such forward-looking statements. For more information including important cautionary notes, please see part one of the company's annual report on Form 10K for the fiscal year ended April 30, 2024, and our current and quarterly reports furnished to or filed with the Securities Exchange Commission on Form 8K and 10Q.

Speaker Change: and the effects on those and the severity that they had on the portfolio and then the overall current environment which was driving a frequency of loss at that time.

Speaker Change: and so we still see that but to a lesser effect. Back then those ones represented greater than 50% of the portfolio.

Douglas Campbell: In fact, then those loans represented greater than 50% of the portfolio. Today, as we said, they're less than 33% of the portfolio.

Speaker Change: Today as we sit there less than 33% of the portfolio and so as time goes on they represent a smaller and smaller portion of the book.

Douglas Campbell: As time goes on, they represent a smaller and smaller portion of the book, and so that's a really positive story. At the time, in the second quarter of last year, our LOS only accounted for about 10% of the portfolio. Today, that's about 40% of the portfolio.

Speaker Change: and so that's a really positive story and at the time, in the second quarter of last year, our LOS only accounted for about 10% of the portfolio.

Douglas Campbell: I'd like to look at those two chunks of business, call it the 73% of the book. The remaining portion of the book is really fiscal year 24 originations, and so those have a really interesting story because they're a combination of originations out of our legacy system and a combination of LOS originations towards the end of the year. What was interesting about fiscal year 24 is we had started tightening our underwriting standards at that time on our legacy system. and so the original projections for those, if you go back four quarters ago, they had cash on cash returns projected at 59%. the subsequent quarter produced projections at 61.3%, then 62.9%, and the most recent projections now at 64.4%.

Speaker Change: Today, that's about 40% of the portfolio, so I'd like to sort of like look at those two chunks of business, you know, call it the 73% of the book. The remaining portion of the book is really fiscal year 24 of Regenations.

Douglas Campbell: Doug will start us off with his thoughts on the business and strategies for the fiscal year. Thank you, Vicki, and thank you everyone for your interest in America's Carmer, and for joining us to hear more about our first quarter results. As I mentioned in the earnings release, I'm pleased about the improvement in sales volume versus the prior year when viewed sequentially. If you recall, we were down almost 20% in the third quarter.

Speaker Change: and so those have a really interesting story because they're a combination of a regionation out of our legacy system and a combination of LLS originations towards the end of the year. What was interesting about fiscal year 24 is we had started tightening or underwriting standards at that time on our legacy system.

Douglas Campbell: We then finished down 13.6% in the fourth quarter and have closed the gap to be just under 10% now. We're pleased that website traffic increased both year-to-year and sequentially indicating strong consumer demand. However, application volumes were slightly softer, contributing to the decline in sales. We'll believe that part of this decline is the need for more affordable vehicles. We've been working hard to bring down the average retail price during the quarter. When viewed sequentially, we had a reduction of approximately $100 in the average retail price when you exclude ancillary products.

Speaker Change: and so the original projections for those of you go back four quarters ago, they had cash on cash returns projected at 59%.

Speaker Change: The subsequent quarter-produced projections at 61.3%.

Speaker Change: then 62.9%.

Douglas Campbell: So we continue to see favorability in that remainder of the 27% of the portfolio.

Speaker Change: and the most recent projection is now at 64.4%.

Speaker Change: So we can continue to see favorability in that remainder of the 27% of the portfolio.

Douglas Campbell: So I'd like to sort of think about fiscal year 24 and fiscal year 25 as sort of being really positive and a return to the norm, and the fiscal year 21 through 23, which accounts for just a third, as sort of the back book and a much lesser extent. And as we move forward here into the next quarter, we project those to account for an even smaller portion, and a lot of us will account for greater than half of the portfolio. And we see those showing up both in the cash-on-cash returns and the favorability that we get in the provision adjustment.

Speaker Change: I'd like to sort of think about fiscal year 24.

Speaker Change: and Fiscal Year 25 has sort of been really positive and returned to the norm and the fiscal year 21 through 23 which accounts for just a third as sort of the back book and a much lesser extent and as we move forward here into the next quarter we project those to account for a new and smaller portion and I'll let us know that account for a greater than half of the portfolio.

Douglas Campbell: Vehicle procurement prices are a good leading indicator for our average retail prices. And with the progress we've made during the quarter, we expect these benefits to both improve and continue. The Gross Marching continues to be a positive story of 30 basis points for the quarter. We remain very focused on Gross March improvement through pricing discipline, reduced transportation costs, and lower vehicle repair costs. The biggest challenge for our industry and for us is ensuring we match inventory levels and pricing to the demand and the type of consumer we're seeing in the marketplace.

Speaker Change: and we see those showing up both in the cash on cash returns and the favorability that we get in the provision adjustment.

John Hecht: Yeah, I guess I'll turn it back over to the operator to see if there's any more live questions. Thank you. We do have a question from John Hecht with Jeffries. Your line is open. Hey, guys, thanks very much.

Speaker Change: and I guess I'll turn it back over to the opportunity if there's any more live questions.

Speaker Change: Thank you.

Speaker Change: We do have a question from John Heck with Jeffrey Use your lines open.

Douglas Campbell: Good to meet you, Doug and Vickie. Good to chat. So appreciate you guys taking my questions and all the details on the call. I have a couple questions. Number one is you guys cited, you know, affordability as a key factor in the business now. And I think we've heard that elsewhere in the market, too. And you guys have implemented a lot of strategies to reduce the cost, you know, the cost of car acquisition and refurbishment, and so forth. I'm wondering how much can that help affordability, just in things you can execute. And then the second question would be related to that is what do you guys expect would use car prices and how might that impact affordability issue?

John Heck: Hey guys, thanks very much, get to meet you, Doug, and Vickie, get to chat, so appreciate you guys taking my questions and all the details on the call. I have a couple of questions. Number one is, you guys said affordability as the key factor in the end.

Douglas Campbell: We've taken several actions in the value chain to lower vehicle acquisition costs, which means we can pass those savings on to our consumers. Our partnership with Cox Automotive is a key component in our plan to address affordability for consumers and improve Gross profit margins for the company. Recall that this partnership is centrally managed, removing the day-to-day burden from our location managers to oversee the complete process for the disposal of our assets.

Speaker Change: Business Now, and I think we've heard that elsewhere in the market too.

Speaker Change: and you guys have implemented a lot of strategies to reduce the cost of car acquisition and refurbishment.

Speaker Change: I'm wondering, how much can that help affordability just in things you can execute? And then the second question was related to that is, what do you guys expect with use car prices and how might that impact affordability issue?

Douglas Campbell: We've been optimizing agreements with vehicle repair shops and consolidating suppliers to lower acquisition and transportation costs. We've set new expectations for vehicle quality, especially with preferred vendors and continue to consolidate vehicle vendors. The vendor consolidation process is also improving title flow, which speeds up the time in getting inventory to the sales line and then display it online. For example, in fiscal year 23, we purchased an average of 10 vehicles from close to 400 vendors monthly.

Douglas Campbell: Yeah, great question. Good to be with you, John.

Douglas Campbell: So if I think about the affordability, we sort of started sketching out our fiscal year 25 business plan and affordability being a key component sort of last year, December, January, and the actions that we would take to sort of accelerate that. One of those things is the Cox partnership on how we could, you know, repurchase some of the vehicles that are entering the marketplace, have Cox do those repairs, and then produce units on our front lines that are going to help drive down the overall average in price. The affordability, why we sort of believe in that thesis that that's a bigger component and the biggest driver is that also, you know, we see that in the applicant side of the business.

Speaker Change: Yeah, a great question. Good to be with you, John. So...

Speaker Change: If I think about the affordability, we sort of started sketching out our fiscal year 25.

Speaker Change: Business Plan and affordability being a key component sort of last year December January and the actions that we would take to sort of accelerate that. One of those things is a cost partnership on how we could, you know, repurchase some of the vehicles that are entering the marketplace.

Douglas Campbell: In fiscal year 24, we dropped that to roughly 270 vendors, and this year we plan to bring that down to under 200 vendors. While we still need local relationships in many markets that we operate, the partnership with Cox Automotive is giving us additional options. Like any transition, the onboarding process of a new partner for our business operations is not without its challenges. However, we believe those are mainly behind us now as it relates to the procurement and the remarketing of vehicles.

Speaker Change: have Cox do those repairs and then produce units on our front lines that are going to help drive down the overall average in price.

Speaker Change: The affordability, why we sort of believe in that thesis that that's a bigger component and the biggest driver is that also, you know, we see that in the applicant side of the business when we look at credit applicants. We've seen some softness in both the applicant income.

Douglas Campbell: So when we look at credit applicants, we've seen some softness in both the applicant income. And so we want to address that we're trying to target getting where we have our loan origination system set and the PTI thresholds match to vehicles that would fit the consumers that are applying to us, and it's a moving target. And we do believe that they'll continue to be softest in the back half of the year in terms of pricing. You know, August is sort of a little bit of a stalling, and I think that's a combination of a couple different things: you know, from the CDK outage and having dealers sort of pull back and get back in the market, that it's creating a little bit of a blip on the radar.

Douglas Campbell: I'll switch now to the consumer-facing aspects of our business. The LOS is fully in place at 147 of our 156 dealerships. The remaining nine dealerships which were acquired are still in their earn out period or had yet to be integrated. As of July 31, almost 40% of our total portfolio dollars originated within the LOS. The speed of accomplishing sales and financing process is at least one hour faster for each customer. Because more of these sales are starting online, it allows for a better overall customer experience, and we're pleased to see this kind of adoption.

Speaker Change: and so we want to address that we're trying to target getting where we have our lunar regeneration system set and the PTI thresholds match to vehicles that would fit the consumers that are applying to us and it's a moving target.

Speaker Change: and we do believe that they'll continue to be scientists in the back half of the year in terms of pricing. You know, August is sort of a little bit of a stalling and I think that's a combination of a couple different things.

Speaker Change: from the CDK outage and having dealers sort of pull back and get back in the market that it's creating a little bit of a blip on the radar, but we do believe that prices are continue to fall in a normalized rate for the bounce of the year, John.

Douglas Campbell: But we do believe that prices continue to fall at a normalized rate for the bounce of the year. Great. That's very helpful. Thank you.

Vickie Judy: And then on credit, Vickie, I think you mentioned that you guys can identify a 30-day point improvement tied to the LOS systems. How much of the portfolio is that touching? Is there more to go on that perspective of executing better credit? Yeah, there's certainly more room there. So as of the end of July, 40% of our portfolio had been originated on LOS. And all of our dealerships, except for nine of our acquisition lots, are being originated. Their deals are being originated on our new system. So that's going to continue to have positive impacts and grow as we move forward each month.

Vickie Judy: Great, that's very helpful, thank you. And then on credit, Vickie, I can mention that you guys can identify a 30-based point improvement tied to the LOS system. How much of the portfolio is that touching is there more to go on that perspective of executing better credit?

Douglas Campbell: And it gives us additional data on consumer preferences and the prequalification transfer scene. The benefits from LOS that we discussed last quarter, which include curtailing originating terms, generating better deal structures, and ultimately improving loss rates, continue to build momentum. Deals originated through the low-enrichenation system versus our legacy system have a lower frequency and severity of loss thus producing a lower overall cumulative net loss rate than loans originated during the same period.

Vickie Judy: Yeah, there's certainly more room there, so as of the end of July, 40% of our portfolio had been originated on LOS, and all of our dealerships except for nine of our acquisition lots are being originated, their deal to being originated on our new system.

Douglas Campbell: This improvement is also very much in contrast with our backbook of originations, which are now approximately 33% of our portfolio when looking at overall dollars from fiscal year 21 through fiscal year 20. 23. I'll let Vickie get into more detail here in a moment on that. We're moving quickly to reshape our future without changing our core mission, keep customers on the road. Our initiatives are strengthening Car-Mart's competitive position, enhancing our ability to innovate and increasing operational efficiency.

Speaker Change: So that's going to continue to have positive impacts and grow as we move forward each month. Yeah, I've had Vickie one other thing.

Vickie Judy: Yeah, I think you want other thing. The, you know, that 30 basis point benefit, the result of that being the LOS. It's a combination of different factors, right? Both qualitative and quantitative in that Cecil analysis that are driving that. And the LOS had a more positive impact. But the net effect was the 30 basis points. And so, you know, absent other factors, that the increase would have been larger. But, you know, it's not how it works. We have to sort of look at all the factors there. But I hope that helps add some color to that as well.

Vickie Judy: you know that 30 basis point benefit.

Vickie Judy: The result of that being the LOS, it's a combination of different factors, both qualitative and quantitative in that seasonal analysis that are driving that and the LOS had a more positive effect. But the net effect was the 30 basis points.

Speaker Change: and so, you know, absent other factors that the increase would have been larger but, you know, it's not how works we have to sort of look at all the factors there but I hope that helps add some color to that as well.

Douglas Campbell: I reported last quarter on the implementation of additional hope-to-year tech investments in our business, specifically an enterprise resource planning system or ERP. This was a significant multi-year investment and its way on our operating expense line. The benefits of this ERP conversion are designed to improve efficiency and operational flexibility within finance, accounting, and customer management functions, and provide capacity for growth. We went live on the system on May 1st and are confident that we can help provide leverage in SGNA. We also completed important enhancements to our CRM during the quarter, which are designed to assist us in credit application conversion. A better customer experience will drive higher conversions to sales.

Vickie Judy: Oh, for sure. Thank you very much.

Douglas Campbell: And my final question is just sort of on the competitive market. I mean, we've heard that a lot of the kind of smaller channels or smaller networks have been, you know, having tough times getting financing. So I'm wondering if that's impacting kind of the competitive environment at all. It's similarly, you know, if there are more acquisition opportunities because of some of the, you know, stress in the market. Yeah, we continue to see that stress out there with some of the smaller competitors where they're just, you know, holding less inventory or financing less because of their ability to access credit.

Speaker Change: Oh, for sure. Thank you very much and my final question is...

Speaker Change: Just sort of on the competitive market. I mean, you know, we've heard that a lot of the kind of smaller channels or smaller networks have been, you know, having tough times for me getting financing. So I'm wondering if that's...

Speaker Change: Impact and kind of the competitive environment at all, and similarly, you know, is there more acquisition opportunities because of some of the stress in the market?

Speaker Change: Yeah, we continue to see that stress out there with some of the smaller competitors.

Speaker Change: where they're just holding less inventory or financing less because of their ability to access credit. So that's certainly playing role in this market.

Douglas Campbell: So that's certainly playing a role in this market. And yeah, we have visibility to several acquisition opportunities. You know, we always want to ensure that we're able to integrate them and digest them at the appropriate method and not disrupt their business. And that they're going to fit in well culturally with us and be accretive on day one. But we do have visibility into several fitting into our footprint; you know, is important as well so that we can ensure that we can service them and take care of them. But we continue to analyze those.

Douglas Campbell: We're very pleased with the recent addition of the two dealerships at Texas Auto Center, which delivered strong results as expected in the quarter, including a record month in July.

Speaker Change: and yeah, we have visibility to several acquisition opportunities, you know, we always want to ensure that we're able to integrate them and digest them at the appropriate method and not disrupt their business.

Douglas Campbell: We have ambitious plans to grow America's Car-Mart and become a more dominant company in their segment. This is evident in the turnaround we're beginning to see. Our teams will be a key component of our success.

Speaker Change: and that they're going to fit in well culturally with us and be a creative on day one. But we do have visibility into several fitting into our fit print, you know, as important as well so that we can ensure that we can serve a film and take care of them.

Vickie Judy: Now turn the discussion over to Vicki for more details on our financials. Vicki?

Vickie Judy: Thanks Doug and good morning everyone. In my commentary, the comparison that I will cover will be the first quarter of fiscal 2025 versus the first quarter of fiscal 2024 unless otherwise noted. Total revenues decrease 19 million dollars or 5.2 percent largely due to the decline in retail units sold. Interest income increased by 7.2 percent primarily due to the increase in the consumer contract interest rate to 18.25 percent, which was increased from 18 percent in December of 2023. The weighted average interest rate was 17.4 percent at July 31st, 2024 compared to 17 percent. 23.

Speaker Change: but we continue to analyze those.

Unknown Attendee: Wonderful, guys.

Unknown Attendee: Thank you so much.

Speaker Change: Wonderful guys, thank you so much.

Vincent Cainton: Thank you. Again, as a reminder, to ask a question, please press star 11 on your telephone. And wait for your name to be announced. Again, that is star 11 to ask a question. Our next question comes from Vincent Cainton with BTIG. Your line is open. Thank you, morning. Thanks for taking my questions.

Speaker Change: Thank you. Again, as a reminder to ask a question, please press star 1-1 on your telephone. And wait for your name to be announced. Again, that is star 1-1 to ask a question.

Speaker Change: Our next question comes from Vincent Cantic with BTIG, your line is open.

Vincent Cainton: First question is kind of a maybe broad industry question, but on the affordability point, is there a price or sort of like how much does used car prices have to come down in order to get the demand to show up? You know, we've talked about affordability for a while. So I'm just trying to get a sense for what's maybe the limiting factor or how much prices have to come down for the demand to really ramp back up again and then the visibility on your sales volume. So we have been seeing quarterly improvement to the year V or trajectory, but just wondering if you have that visibility into when we can expect. Thank you.

Vincent Cantic: Thank you, morning. Thanks for taking my questions. First question, kind of maybe brought into this your question, but on the affordability point is there.

Vincent Cantic: A um...

Speaker Change: A price or sort of like how much does he use car prices?

Speaker Change: have to come down in order to get the demand to...

Vickie Judy: As Doug pointed out earlier, our priority in both sourcing and sales is on vehicle affordability. As our customers are persistently squeezed by several economic factors affecting their paycheck. Average units sold per dealership per month or down from 34.2 to 30.9 or 9.6 percent. The average retail sales price was of 2.4 percent, primarily attributable to increases in salary products. We continue to back the appropriate underwriting risk with sales volumes and have limited originations at a select number of dealerships to focus on collections and originating only the highest credit scoring applicants.

Speaker Change: to show up, you know, we've talked about affordability for well, so I'm just trying to get a sense for, you know, what's maybe the limiting factor, how much prices have to come down.

Speaker Change: for the demand to really wrap back up again.

Speaker Change: and then the visibility on your sales volume. So we have this been seeing quarterly improvements in the year of the year trajectory, but just wondering if you have that visibility into when we can expect growth again.

Douglas Campbell: Vickie, I'll take that one. More than Vincent, how are you doing? So, in terms of visibility into sales, there's a ton there. We look at website traffic as a leading indicator, and so we feel really confident about that. We have probably five or six months in a row now, where website traffic is in excess of 25% growth year over year, and so that's certainly a leading indicator that expresses demand for the service and our offering. And we've seen credit applications sort of dovetail intet, but not the same level of strength. And those continue to bobble around a little bit.

Speaker Change: I'll take that one. Good morning, Vincent, how you doing? In terms of visibility into sales, there's like...

Speaker Change: There's a ton there. We look at website traffic as a leading indicator and so we feel really confident about that.

Vickie Judy: This has contributed to lower productivity on average. Earlier, Doug explained that the back of the- of Originations from fiscal 21 through fiscal 23 accounts for 33% of the portfolio and that 40% of the portfolio originated through our new underwriting system. We're pleased with the benefits we're seeing on down payment and deal structures. Down payments for the quarter were up 20 basis points to 5.2%. While this is not an enormous increase overall, the distribution of the down payment by customer score is improved and is expected to be significant in terms of customer success.

Speaker Change: You know we have probably five or six months in row now or website traffic is an excess of 25% growth year over year.

Speaker Change: and so that's certainly leading indicator that expresses demand for the service and our offering.

Speaker Change: and we've seen credit applications sort of dovetail end tap but not the same level of strength and those continue to wobble around a little bit. We see stronger online applications and then we grew applications at the lot level in the aggregate, the total application volume might be 5% or 8% off a year over year.

Douglas Campbell: We see stronger online applications, and then weaker applications at the lot level. In the aggregate, total application volume might be five or eight percent off year over year. From the sales side, we continue to convert at a better rate on those applications. And so we're really pleased with that, but we'd like to see conversion stronger. And when we look at website activity and analytics around that, a lot of this is you can see the customer searching for vehicles and clicking through vehicles, and we might not just have the right vehicles to serve them. And so that sort of ties into our thesis on affordability.

Speaker Change: From the sales side, we continue to convert at a better rate on those applications, and so we're really pleased with that, but, you know, we'd like to see conversion stronger. And when we look at website activity and analytics around that, a lot of this is you can see the customer searching for vehicles and clicking through vehicles. And we might not just have the right vehicles.

Vickie Judy: This also builds on last quarter's sequential increase of 40 basis points on down payment. Our average originating term was 44.3 months down from the prior year's quarter average of 44.7 months. Like the down payment, we continue to find teens and optimize the distribution of the term by customer score. At the end of the quarter, the weighted average total contract term for the portfolio is 48.1 months. The weighted average age is 12 months or up 16%.

Speaker Change: to serve them and so that sort of ties into our thesis on affordability.

Douglas Campbell: For us, given where we see application volumes, if we could take out five to $800 out of the and increase our addressable market.

Speaker Change: for us, given where we see application volumes.

Speaker Change: If we could take out five to eight hundred dollars out of the procurement cost of the vehicle that would put us in a really good spot.

Douglas Campbell: And so that's sort of what we're really focused on and thinking how quickly can we get that done in the balance of the calendar year. That is sort of like really where the teams are pushing hard and focused on. We started to see some of that price benefit show up here in the quarter when you look at just price by itself. Keep in mind our average retail selling price or a combination of both our ancillary products and the sales price of the vehicle. So we were able to take a hundred dollars out, and from a procurement standpoint, we should be able to see more benefits here in the upcoming quarters as well.

Speaker Change: and increase our addressable market.

Speaker Change: and so that's sort of what we're really focused on and thinking how quickly can we get that done.

Speaker Change: in the balance of the calendar year that is sort of like really where the teams are pushing hard.

Vickie Judy: This should have positive impacts on the portfolio losses going forward and has contributed positively to the increased collections per active customer. Our management and dealer teams have worked hard to improve total collections, which increased 4.3% over last year. The monthly average total collected per active customer rose to $562 from $535. More customers are paying via digital channels, but it is valuable to leverage our hybrid approach because the local face-to-face relationship is a difference maker when they need contract modifications or assistance.

Speaker Change: and Focus Dawn.

Speaker Change: We started to see some of that price benefit show up here in the quarter when you look at just price by itself. Keep in mind our average retail selling price or a combination of both our anti-lary products and the sales price of the vehicle. So we were able to take a hundred dollars out and from a procurement standpoint, we should be able to see more benefits here in the upcoming quarters as well.

Douglas Campbell: Aside from that, when I guess it's sort of, you know, Vincent, if I'm you and I'm looking at this, the sales volume piece is a really tough question to answer in terms of like, what does normal look like and how do we get back there? I don't think we've spoken as much on it, but like we've talked about performance managing locations. And to us, that's the restriction of capital when we see losses trending up. And we get really sensitive about around that because we want to get the best return on invested capital. And so we have, if I look back at fiscal year 24, we had a nine or 10% disconnect on sales from a year-over-year standpoint.

Speaker Change: Aside from that, when I guess it's sort of, you know, Vincent, if I'm you, and I'm looking at this, the sales volume piece is a really tough question to answer in terms of like, what does normal look like, and how do we get back there?

Speaker Change: I don't think we've spoken as much on it but like we've talked about performance managing locations.

Vickie Judy: Net charge off as a percentage of average finance receivables for the quarter were 6.4% compared to 5.8%. We experienced an increase in both the frequency and severity of losses with severity accounting for approximately 65% of the increase. The majority of this increase continues to be from the backbook of the fiscal year 22 and 23 origination. These originations now have a weighted average age of approximately 22 months at the end of July and are expected to have less of an impact on net charge off as we move forward. The net charge off percentage is trending back to pre-pandemic averages and is closer to the low end of our historical range of 5.9% to 8.7%.

Speaker Change: and to us that's the restriction of capital when we see losses trending up.

Speaker Change: and we get really sensitive about around that because we want to get the best return on a vested capital. And so we have, if I look back at fiscal year 24.

Douglas Campbell: Vicki, if I'm remembering correctly, a third of that was due to us performance managing locations and restricting capital. So you know, call that that's probably somewhere just north of 2000 units just from us performance managing locations. And so when you're looking at this sort of year-over-year comparison, it's both a combination of what we see in the marketplace and actions we're taking internally to restrict capital to our highest performing stores. And I think that's the best thing for our shareholders and for us. And then, of course, if you layer in the fact that we've been more selective on the underwriting side, we've talked about that extensively, and that's gotta be a piece of it, right?

Speaker Change: We had a 9 or 10% disconnect on sales from a year of year standpoint, Vickie, if I'm remembering correctly, a third of that was due to us performing, managing locations and restricting capital.

Vickie Judy: Call that that's probably somewhere just north of 2000 units just from us performance managing locations.

Vickie Judy: and so when you're looking at this sort of year or a year comparison, it's both a combination of what we see in the marketplace and actions we're taking internally to restrict capital to our highest performing stores, and I think that's the best thing for our shareholders and for us.

Vickie Judy: and then of course, if you layer in the fact that we've been more selective on their underwriting side, we've talked about that extensively and that's got to be a piece of it, right? There's certainly more customers we can take.

Vickie Judy: Our priority is customer success and to work with them to resolve payment delinquencies before repossessing the vehicles. We're pleased that our delinquencies or accounts of a 30 days past due dropped 90 basis points to 3.5% at quarter ends and our recent date was over 82% for the quarter. The results we're seeing from our LOS originations were the primary driver in a 30 basis point improvement in our allowance for credit losses as a percentage of finance receivables now that deferred revenue and accident protection plan claims.

Douglas Campbell: There's certainly more customers we can take, but given the backdrop and the context of higher loan delinquency rates and default rates in the industry, we're trying to make sure that we take care of the customers that we do have and that that is sort of front and center. And I think there's some positive tailwinds, right?

Speaker Change: but give in the backdrop and the context of...

Speaker Change: Higher-Lone, Delinquency rates and default rates in the industry.

Speaker Change: We're trying to make sure that we take care of the customers that we do have and that that is sort of front and center.

Vickie Judy: This puts the allowance at 25% at quarter end which resulted in a $4.3 million reduction in the provision for credit losses. Inventory levels at quarter-end were up $7.1 million compared to fiscal year-end primarily due to the addition of our most recent acquisition which added approximately $5.1 million to the inventory balance. Despite this addition, we reduced inventory by $2.6 million compared to the prior year quarter-end. We've been sharing our cash on cash returns profile during this past fiscal year and our pleas that are originated contracts in the first quarter are expected to produce cash on cash returns of 72.4%.

Douglas Campbell: We made an upgrade to our CRM during the quarter, which is also aiding conversion. We're working on sales price, which should help overall sales volume. And then I touched on the addition of our Head of Underwriting last quarter. And so the underwriting team is working on ways we can grow sales volume, which look like, you know, risk-based pricing, right? And so that would be another functionality of the LOS tool that we really haven't spoken about, but we expect to deploy that during the counter-year. And that would allow us to do a lot of things that would allow us to go deeper in price loans differently if we needed to go deeper down the funnel or to go up funnel to keep more of our repeat customers who might be defecting and looking at other competitors.

Speaker Change: and I think there's some positive tailwinds, right? We made an upgrade to our CRM during the order, which should also aid in conversion. We're working on sales price, which should help overall sales volume and then I touched on the addition of our head of underwriting last quarter.

Speaker Change: and so the underwriting team is working on ways we can grow sales volume, which look like, you know, risk-based pricing, right? And so that would be another functionality of the LOS tool that we really haven't spoken about, but we expect to deploy that during the counter year. And that would allow us to do a lot of things that would allow us to go deeper and price loans differently if we needed to go deeper down the funnel or to go up funnel to keep more of our repeat customers who might be affecting and looking at other competitors. And so, you know, we're excited about the levers that we have in the business now.

Douglas Campbell: And so, you know, we're excited about the levers that we have in the business now. Doug, I would just add, these should pay dividends as we move forward, particularly as we are a little more cautious on our underwriting and then we're still taking charge off on this back book due to the pricing from the prior two years. But as we move forward, this will really be a benefit in terms of net charge off, especially if we can build that retail units as well. That's a super helpful detail. Thank you for that. To that 500 to 800 cost for vehicle, if you can take that out, that's a good spot.

Speaker Change: Doug, I would just add, these should pay dividends as we move forward, particularly as we, you know, are a little more cautious on our underwriting, and then we're still, you know, taking charge off from this backbook.

Vickie Judy: The supplemental material to the earnings release reflects our history of earning strong cash on cash returns in various market and macro economic conditions. We're very focused on the quality of originations and deal structures to maximize these returns and profitability.

Doug: Due to the pricing from the prior two years, but as we move forward, this will really be a benefit.

Speaker Change: in terms of net charge off.

Vickie Judy: Moving to SGNA. SGNA expense was $46.7 million. This was a slight increase compared to last year's first quarter. As mentioned in the release, we had over $2 million in savings and payroll and related costs due to prior cost-cutting measures. This was offset by increases in the licensing and expenses related to our technology implementations along with the increased SGNA related to the acquisition which created some headwind in leveraging the SGNA on a per customer basis.

Speaker Change: especially if we can build that retail unit as well.

Speaker Change: Well, that's super helpful detail. Thank you for that. So that's 5800 cost for vehicle safety and take that out that's a good spot. And then

Douglas Campbell: And then actually if you could talk a little bit more about that performance managing location, so you know, restricting capital to that underperforming stores, that would have been 2000 units by your math. If you can talk about what you're doing there to get those underperforming stores to be better or otherwise using that capital, allocating that capital better, that would be helpful to understand. Thank you. Yeah, sure, Vincent; that part's not that complicated. We sort of restrict the amount of inventory and get really selective on their underwriting standpoint on what we're allowing them to put on the road because we're seeing default rates of those stores that are unacceptable.

Speaker Change: Actually, if you could talk a little bit more about that performance matching location, so, you know, restricting capital to that underperforming stores, that would have been 2,000 units by your math. If you can talk about what you're doing there to get those underperforming stores to be better or otherwise.

Vickie Judy: As we move forward and gain efficiency from the new technology and build the customer base associated with the acquisition, we expect to leverage the SGNA on a per customer account basis over the long term. We continue to focus on driving cost-efficiency and continue to execute on cost-control measures.

Speaker Change: They're using that capital, that housing that capital better, that would be helpful to understand. Thank you.

Speaker Change: Yeah, sure, and that part's not that complicated. We sort of restrict.

Speaker Change: The amount of inventory and get really selected on their unwriting standpoint.

Speaker Change: and what we're allowing them to put on the road because we're seeing default rates of those stores that are...

Douglas Campbell: And so we were trying to figure out, is that a function in the environment or what's going on in the town, or is that a lack of operational execution? And so once they sort of get added to the list, we become hyper focused on what that looks like, which has an impact on sales, right? And so that's that portion of it. When we see a turnaround in that, we will sort of take off the restriction in capital and then start to feather in underwriting standards that are a little bit looser. For the ones that we don't see turning around, then we'll wind down locations.

Speaker Change: Unacceptable. And so, we were trying to figure out, is that a functioning environment or what's going on in the town or is that an operational execution? And so, once they sort of get added to the list, we could become hyper-focused on what that looks like.

Vickie Judy: Interest expense increased by $4 million or 28.3% due to a rise in rates and secondarily an increase in debt. Our revolving credit facility and warehouse notes payable are floating rate debt and we would benefit from lower rate if the prevailing thoughts on interest rate cuts come to fruition. As of July 31st, we have $4.7 million in unrestricted cash and approximately $33 million in additional availability under our revolving credit facilities, calculated on our borrowing base that receive both an inventory. Access to capital with our revolving credit facility and a successful securitization program give us flexibility and a distinct advantage over many of our smaller competitors.

Speaker Change: which has an impact on sales, right, and so that's that portion of it. When we see a turnaround in that we will sort of take off the restriction in capital and then start to feather in underwriting standards that are a little bit looser. For the ones that we don't see turning around, then we'll wind down locations.

Douglas Campbell: And so we have a couple of those that are in that state. If you look just over the last year, we closed three locations, and that's got to be, you know, sort of a more active piece of our repertoire on how we manage the business going forward as far as I'm concerned. We need to be making sure we're looking out at that. And more closely at that, especially that all the tailwinds of the pandemic are gone. You know, you really have to sort of stay very close and attune to that. So that's a piece of our business down the operational side, for sure.

Speaker Change: and so we have a couple of those that are in that state. If you look just over the last year we closed three locations and that's gotta be sort of a more active piece of our repertoire on how we manage the business going forward as far as I'm concerned. We need to be making sure we're looking out at that and more closely at that, especially at all the tailwinds of the pandemic are going.

Douglas Campbell: Now let me turn things back to debt. Thanks, Vicki. We know that the economy is challenging for consumers and we're undertaking many operational initiatives to improve certain aspects of our business.

Speaker Change: and you really have to stay very close in attuned to that, so that's a piece of our business on the operational site for sure.

Unknown Attendee: Okay, great.

Vickie Judy: And then two final questions. And these are both just numbers of questions. But if you could so on in terms of your loss expectations between the fiscal 2022 and 2022 advantages, so the colon code backbook versus what you're underwriting to now in the 2024 and 2025 advantages, if you could maybe help us buy for care like what your expectations are for what you're underwriting to loss is there. And then the second last question is if you're able to separate out the SG&A expense by, you know, your normal operating expense versus the technology investments, and then the new store acquisitions, if you could maybe see what the normalized expenses would have been, that would be helpful to understand the SG&A.

Speaker Change: Thank you.

Speaker Change: Great, and I'm doing um

Speaker Change: Two final questions in these are both just numbers questions, but if you could so on in terms of your loss expectations between

Douglas Campbell: I'm proud of our associate value proposition and the dedication of our teams. Before we start the Open Q&A, I'd like to reiterate our focus for the fiscal year. First, we want to continue to push for operational excellence on sales and collections as we leverage the technology recently installed and updated. This includes constantly looking at the return on invested capital at our stores and ensuring that we are focused on getting the best returns possible for our shareholders, to improve the affordability for our consumers by reducing the average retail price during the fiscal year.

Speaker Change: the fiscal 2020 and 2020 Vintage so that the quote unquote back book.

Speaker Change: Nurses, what you're underwriting to now in the 2024 and 2025, I've been to use if you could maybe help us buy for a cave like when your expectations are for what you're underwriting to the losses there. And then the second last question is the...

Speaker Change: If you're able to separate out the FG&A expense by, you know, your normal operating expense versus the technology investments and then the new store acquisitions, if you could, if you could maybe have.

Douglas Campbell: There are several components to this plan but we'll well underway and we'll continue to see benefits here. Three, the continued optimization of our loan origination system. We're seeing its benefits and I believe we're just scratching the surface. Our credit and underwriting teams are working to fully exploit the benefits of this system. Four, to capitalize on our partnership with Cox on a motive. I believe this to be a long-term partnership and we're just getting out of the gates. I'm excited about the benefits for our shareholders and collective companies here.

Speaker Change: See what the normalized expenses would have been. That would be a helpful to understand this, June. Thank you.

Vickie Judy: Thank you. Sure, maybe I'll start with the question you had on the backbook, as we're calling it. You know, if you look at our cash on cash returns table, I would point to, you know, the difference in our projected cash on cash returns there, you know, for the book of 23 going from 49% now to 64% and 24% and 72% and 25% and then, as we mentioned, 33% or so of the portfolio relates to that back book and that they're now 22 months aged. So we're getting more than halfway through those contracts, and they become a smaller and smaller portion of the business. And so certainly, as we move forward, that becomes a smaller piece of those net charge off each quarter.

Speaker Change: Sure, maybe I'll start with the question you had on the back book as we're calling it. You know, if you look at our cash on cash returns table, I would point to, you know, the difference in our projected cash on cash returns there, you know, for...

Speaker Change: The book of 23 going from 49% now to 64% and 24% and 72% and 25 and then as we mentioned, you know, 33% or so, the portfolio relates to that back book and that they're now 22 months.

Douglas Campbell: Five, is to implement our strategic plan and focus on acquisitions. We're actively in the market looking at opportunities and believe this is still the best return for our shareholders.

Douglas Campbell: I'd be remiss if I didn't mention just how important people are to our success, both existing talent and new talent that will round out our leadership team.

Speaker Change: Aged.

Speaker Change: So we're getting, you know, more than halfway through those contracts.

Speaker Change: and they become a smaller and smaller portion of the business and so certainly as we move forward that becomes a smaller piece of those net charge off each quarter.

Unknown Attendee: Now operator, please provide instructions to ask questions. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced to withdraw a quote. To withdraw your question, please press star 11 again. In the interest of time, yes, that you please want yourself to one question and one follow up. Please stand by while we compile the Q&A roster.

Vickie Judy: Yeah, on the SG&A piece that is, so if you look in just absolute dollars here, Vincent, we were fairly flat during the quarter. It might have been a 200 grand difference in SG&A cost, and you know, it might not look that impressive, but if you consider any other year or five year running average, would normally have a sub 10 plus percent in SG&A. So the fact that we're relatively flat, I call that a win. That's largely driven by some of the actions that we took last December in terms of cost-cutting, which we anticipated to drive four or five million dollars for the benefit on an annualized basis.

Speaker Change: I'm the SGN APs, that is...

Speaker Change: So, if you look...

Speaker Change: In just absolute dollars here Vincent, we were fairly flat during the quarter, might have been a 200 grand difference in SGA cost.

Speaker Change: and, you know, it might not look that impressive, but if you consider any other year or five year running average would normally have a sub 10 plus percent.

Vickie Judy: Operator, this is Vicki. We've gotten a couple of questions in from by side investors that I'd like to take. Please proceed. The first one says, can you explain the headland in SGNA that's coming from your acquisition? Doug, I'll take this one. First of all, as we acquire these day one, we acquire their SGNA of course with all of their dealership costs, their associates, but we're not acquiring their portfolio of customers. So we're starting with the cost and no portfolio to go along with it. This last one we did with TAC was a little more impactful due to the size and we have visibility and to leverage once the book is filled out.

Speaker Change: and SGNA. So the fact that we're relatively flat, I call that a win. That's largely driven by some of the actions that we took last December in terms of cost cutting, which we anticipated to drive four or five million dollars for the benefit on an annualized basis.

Vickie Judy: And so we're seeing that materialized now more meaningfully, and so as an example, I think just on the payroll and payroll related cost-viggy for the quarter, we were down over two million dollars in the quarter, just a metric by itself. The technology piece that you mentioned, so all this technology now that is now stood up, that does have an impact and it shows up in SG&A, and so for us, I think that's probably a million dollars quarterly in terms of new expense that we're realizing, but that's been offset by some of the payroll cuts that we've taken in the past.

Speaker Change: and so we we're seeing that materialized now more meaningfully and so as an example I think just on the payroll and payroll related cost Vickie for the quarter we were down over $2 million in the quarter just I am metric by itself.

Speaker Change: The technology piece that you mentioned, so all this technology now that is...

Vickie Judy: is now stood up.

Vickie Judy: That does have an impact and it shows up in S.G.A. and so...

Vickie Judy: you know, for us I think you know that's...

Vickie Judy: Probably a million dollars quarterly in terms of new expense that we're realizing, you know, but that's been offset by some of the payroll cuts that we've taken in the past. I think there's more that we can do. We're hyper focused.

Vickie Judy: I think there's more that we can do; we're hyper-focused on the management of SG&A, and the acquisitions don't sort of help that story early because when you're just adding all the cost of new employees and you're buying multi-unit and multi-roof top operations, you get all of their costs today with none of the benefit of the accounts that they would have. And so this more recent acquisition should be able to take SG&A on a per account basis down fairly significantly, but we have to let their book build out. And so there's a lot going on there, sort of in the complexion of the SG&A.

Douglas Campbell: The second question is regarding the back book. It says you mentioned the back book and LOS origination several times. Can you explain how you think about the portfolio and how it sits today? Doug, I'll let you take that one.

Vickie Judy: Management of the SGNA and the acquisitions don't sort of help that story early because when you're just adding all the cost of new employees and you're buying multi unit and multi rooftop operations, you get all of their costs today.

Douglas Campbell: Good morning everybody. I think if I had to break it up, if you go back to the second quarter of last year, we noted the back book. I don't think we used the words back book but we spoke in detail about the losses that we were seeing from some of the pools originated in fiscal years 21, 22 and 23. And the effects on those and the severity that they had on the portfolio and then the overall and current environment which was driving a frequency of loss at that time.

Vickie Judy: with none of the benefits of the accounts that they would have and so.

Douglas Campbell: And so we still see that but to a lesser effect. In fact, then those loans represented greater than 50% of the portfolio. Today, as we said, they're less than 33% of the portfolio. And so as time goes on, they represent a smaller and smaller portion of the book. And so that's a really positive story. And at the time in the second quarter of last year, our LOS only accounted for about 10% of the portfolio.

Vickie Judy: this more recent acquisition should be able to take as Gina per account basis down fairly significantly, but we have to let their book build out, right? And so there's a lot going on there, sort of in the complexion of the SGNA, I appreciate your question. It's a thoughtful one, and you know, glad you asked.

Vickie Judy: I appreciate your question. It's a thoughtful one, and I'm glad you asked.

Douglas Campbell: Those are all super helpful. Thanks so much. You got it, Ben. Thank you.

Speaker Change: That is, uh, those are all super helpful. Thanks for much.

Unknown Attendee: This concludes the question and answer session.

Speaker Change: Thank you.

Douglas Campbell: I would now like to turn it back to Doug Campbell, President and CEO, for closing remarks. Yeah. We remain focused on our strategic priorities and improving our operational financial performance with all the technology and innovation updates that we've made, including streamlining our cost structure and delivering affordability to our customers, and looking forward to more acquisitions. Our management team is really committed to implementing these initiatives and to deliver additional value for our shareholders.

Speaker Change: This concludes the question and answer session.

Speaker Change: I would now like to turn it back to Doug Campbell, President and CEO for closing remarks.

Doug Campbell: Yeah, we remain focused on our strategic priorities and improving our operational financial performance with all the technology and innovation updates that we've made, including streamlining our cost structure and delivering affordability to our customers and looking forward to more acquisitions.

Speaker Change: Our Management team has really committed to implementing these initiatives and to deliver additional value for our shareholders. And I want to thank you guys for joining in the call today, Interest in America's Carme.

Douglas Campbell: And I want to thank you guys for joining the call today and your interest in America's carbon. Thank you.

Douglas Campbell: Today, that's about 40% of the portfolio. So I'd like to sort of like look at those two chunks of businesses, call it the 73% of the book. The remaining portion of the book is really fiscal year 24 originations. And so those have a really interesting story because they're a combination of originations out of our legacy system and a combination of LOS originations towards the end of the year. What was interesting about fiscal year 24 is we had started tightening our underwriting standards at that time on our legacy system, and so the original projections for those, if you go back four quarters ago, they had cash on cash returns projected at 59%, the subsequent quarter produced projections at 61.3%, then 62.9%, and the most recent projections now at 64.4%.

Unknown Attendee: This concludes today's conference call. Thank you for participating.

Speaker Change: Thank you.

Speaker Change: This concludes today's conference call.

Unknown Attendee: You may now disconnect tonight.

Speaker Change: Thank you for participating, you may now disconnect.

Douglas Campbell: So we continue to see favorability in that remainder of the 27% of the portfolio. So I'd like to sort of think about fiscal year 24 and fiscal year 25 as sort of being really positive and a return to the norm, and the fiscal year 21 through 23, which accounts for just a third as sort of the back book and much lesser extent. And as we move forward here into the next quarter, we project those to account for an even smaller portion, and a lot less will account for greater than half of the portfolio. And we see those showing up both in the cash on cash returns and the favorability that we get in the provision adjustment.

Unknown Attendee: I guess I'll turn it back over to the operator to see if there's any more live questions.

Unknown Attendee: Thank you.

John Hecht: We do have a question from John Hecht with Jeffries. Your line is open. Hey guys, thanks very much. I get to meet you Doug and Vickie get to chat. So appreciate you guys taking my questions and all the details on the call. I have a couple of questions. Number one is you guys cited a affordability as a key factor in the business now and I think we've heard that elsewhere in the market too.

John Hecht: And you guys have implemented a lot of strategies to reduce the cost, the cost of car acquisition and refurbishment and so forth. I'm wondering how much can that help affordability just in things you can execute. And then the second question will be related to that is, what do you guys expect would use car prices and how might that impact affordability issue? Yeah, great question. Good to be with you, John.

Douglas Campbell: So if I think about the affordability, we sort of started sketching out our fiscal year 25 business plan and affordability being a key component. Sort of last year, December, January and the actions that we would take to sort of accelerate that one of those things is the Cox partnership on how we could repurchase some of the vehicles that are entering the marketplace. Have Cox do those repairs and then produce units on our front lines that are going to help drive down the overall average in price.

Douglas Campbell: The affordability why we sort of believe in that thesis that that's a bigger component and the biggest driver is that also, you know, we see that in the applicant side of the business. So when we look at credit applicants, we've seen some softness in both the applicant income. And so we want to address that we're trying to target getting where we have our loan origination system set and the PTI thresholds match to vehicles that would fit the consumers that are applying to us and it's a moving target.

Douglas Campbell: And we do believe that they'll continue to be softness in the back half of the year in terms of pricing. You know, August is sort of a little bit of a stalling. And I think that's a combination of a couple different things, you know, from the CDK outage and having dealers sort of pull back and get back in the market that it's creating a little bit of a blip on the radar. But we do believe that price will continue to fall at a normalized rate for the bounce of the year job. Great. That's very helpful. Thank you.

Vickie Judy: And then on credit, Vickie, I think you mentioned that you guys can identify a 30-day point improvement tied to the LOS systems. How much of the portfolio is that touching? Is there more to go on that perspective of executing better credit? Yeah, there's certainly more room there. So as of the end of July, 40% of our portfolio had been originated on LOS. And all of our dealership, except for nine of our acquisition lots, are being originated.

Vickie Judy: Their deals are being originated on our new system. So that's going to continue to have positive impacts and grow as we move forward each month. Yeah, I think you want other thing. The, you know, that 30-basis point benefit, the result of that being the LOS. It's a combination of different factors, right? Both qualitative and quantitative in that Cecil analysis that are driving that. And the LOS had a more positive effect. Yeah, but the net effect was the 30-basis points.

Vickie Judy: And so, you know, absent other factors that the increase would have been larger. But, you know, it's not how it works. We have to sort of look at all the factors there, but I hope that helps add some color to that as well. Oh, for sure. Thank you very much.

Douglas Campbell: And my final question is just sort of on the competitive market. I mean, we've heard that a lot of the kind of smaller channels or smaller networks have been, you know, having tough times getting financing. So I'm wondering if that's impacting kind of the competitive environment at all. Similarly, you know, if there are more acquisition opportunities because of some of the stress in the market. Yeah, we continue to see that stress out there with some of the smaller competitors where they're just, you know, holding less inventory or financing less because of their ability to access credit.

Douglas Campbell: So that's certainly playing a role in this market. And yeah, we have visibility to several acquisition opportunities. You know, we always want to ensure that we're able to integrate them and digest them at the appropriate method and not disrupt their business. And that they're going to fit in well culturally with us and be accretive on day one. But we do have visibility into several fitting into our footprint, you know, is important as well so that we can ensure that we can service them and take care of them.

Douglas Campbell: But we continue to analyze those. Wonderful, guys. Thank you so much. Thank you. Again, as a reminder, to ask a question, please press star 1-1 on your telephone. And wait for your name to be announced. Again, that is star 1-1 to ask a question.

Vincent Caintic: Our next question comes from Vincent Kintit with BTIG. Your line is open. Thank you, morning. Thanks for taking my questions. First question is kind of a maybe broad industry question.

Vincent Caintic: But on the affordability point, is there a price or sort of like how much does you use car prices have to come down in order to get the demand to show up? You know, we've talked about affordability for a while. So I'm just trying to get a sense for, you know, what's the maybe the limiting factor or how much prices have to come down for the demand to really wrap back up again. And then the visibility on your sales volume.

Douglas Campbell: So we have been seeing quarterly improvements in the year v or trajectory, but just wondering if you have that visibility into when we can expect growth. Thank you. Vickie, I'll take that one. More than Vincent, how are you doing? So in terms of visibility into sales, there's a ton there. We look at website traffic as a leading indicator and so we feel really confident about that. We have probably five or six months in Rowan now where website traffic is an excess of 25% growth year over year and so that's certainly a leading indicator that expresses demand for the service and our offering.

Douglas Campbell: And we've seen credit applications sort of dovetail intet but not the same level of strength. And those continue to bobble around a little bit. We see stronger online applications and then weaker applications at the lot level. In the aggregate, they have total application volume might be five or eight percent off year over year. From the sales side, we continue to convert at a better rate on those applications and so we're really pleased with that.

Douglas Campbell: But, you know, we'd like to see conversion stronger and when we look at website activity and the analytics around that, a lot of this is you can see the customer searching for vehicles and clicking through vehicles and we might not just have the right vehicles to serve them and so that sort of ties into our thesis on affordability. For us, given where we see application volumes, if we could take out five to $800 out of the increase our addressable market.

Douglas Campbell: And so that's sort of what we're really focused on and thinking how quickly can we get that done in the balance of the calendar calendar year? That is sort of like really where the teams are pushing hard and focused on. We started to see some of that price benefits show up here in the quarter when you look at just price by itself. Keep in mind our average retail selling price or a combination of both our ancillary products and the sales price of the vehicle. So we were able to take a hundred dollars out and from a procurement standpoint, we should be able to see more benefits here in the upcoming quarters as well.

Douglas Campbell: Aside from that, when I guess it's sort of, you know, Vincent, if I'm you and I'm looking at this, the sales volume pieces are really tough question to answer in terms of like what does normal look like and how do we get back there? I don't think we've spoken as much on it but like we've talked about performance managing locations and to us, that's the restriction of capital when we see losses trending up and we get really sensitive about around that because we want to get the best return on invested capital.

Douglas Campbell: And so we have, if I look back at fiscal year 24, we had a nine or 10% disconnect on sales from a year-over-year standpoint, the key if I'm remembering correctly, a third of that was due to us performance managing locations and restricting capital. So, you know, call that that's probably somewhere just north of 2000 units, just from us performance managing locations. And so when you're looking at this sort of year-over-year comparison, it's both a combination of what we see in the marketplace and actions we're taking internally to restrict capital to our highest performing stores and I think that's the best thing for our shareholders and for us.

Douglas Campbell: And then of course, if you layer in the fact that we've been more selective on their underwriting side, we've talked about that extensively and that's got to be a piece of it, right? There's certainly more customers we can take but give in the backdrop and the context of higher loan, delinquency rates and default rates in the industry, we're trying to make sure that we take care of the customers that we do have and that that is sort of front and center.

Douglas Campbell: And I think there's some positive tailwinds, right? We made an upgrade to our CRM during the quarter, which should also aid in conversion. We're working on sales price, which should help overall sales volume and then I touched on the addition of our head of underwriting last quarter. And so the underwriting team is working on ways we can grow sales volume which look like, you know, risk-based pricing, right? And so that would be another functionality of the LOS tool that we really haven't spoken about but we expect to deploy that during the counter-year.

Douglas Campbell: And that would allow us to do a lot of things that would allow us to go deeper and price loans differently if we needed to go deeper down the funnel or to go up funnel to keep more of our repeat customers who might be defecting and looking at other competitors. And so, you know, we're excited about the levers that we have in the business now. Doug, I would just add, these should pay dividends as we move forward, particularly as we are a little more cautious on our underwriting, and then we're still, you know, taking charge off on this back book due to the pricing from the prior two years, but as we move forward, this will really be a benefit in terms of net charge-off, especially if we can build that retail units as well.

Vincent Caintic: That's a super helpful detail, thank you for that, to that 500-800 cost for vehicle, if you can take that out, that's a unit of good spot, and then, actually, if you could talk a little bit more about that performance-managing location, so, you know, restricting capital to that underperforming stores, that would have been 2,000 units by your math. If you can talk about what you're doing there to get those underperforming stores to be better or otherwise, you know, using that capital, allocating that capital better, that would be helpful to understand, thank you.

Vincent Caintic: Yeah, sure, Vincent, that part's not that complicated, we sort of restrict the amount of inventory and get really selective on their underwriting standpoint on what we're allowing them to put on the road, because we're seeing default rates at those stores that are unacceptable, and so, we were trying to figure out, is that a function in the environment or what's going on in the town, or is that an offer, a lack of operational execution, and so, once they sort of get added to the list, we become hyper-focused on what that looks like, which has an impact on sales, right, and so, that's that portion of it. When we see a turnaround in that, we will sort of take off the restriction in capital, and then start to feather in underwriting standards that are a little bit looser.

Vincent Caintic: For the ones that we don't see turning around, then we'll wind down locations, and so, we have a couple of those that are in that state. If you look just over the last year, we closed three locations, and that's got to be, you know, sort of a more active piece of our repertoire on how we manage the business going forward as far as I'm concerned. We need to be making sure we're looking out at that, and more closely at that, especially that all the tailwinds of the pandemic are going, you know, you really have to sort of stay very close and attune to that, so that's a piece of our business on the operational side for sure.

Vincent Caintic: Great.

Vickie Judy: And then, two final questions, and these are both just numbers of questions, but if you could, so, in terms of your loss expectations between the fiscal 2022 and 2022, 2024 and 2025, if you could maybe help us buy for care like what your expectations are for what you're underwriting to loss is there. And then the second last question is, if you're able to separate out the SG&A expense by, you know, your normal operating expense versus the technology investments, and then the new store acquisitions, if you could maybe see what the normalized expenses would have been, that would be helpful to understand the SG&A.

Vickie Judy: Thank you. Sure. Maybe I'll start with the question you had on the back book as we're calling it. You know, if you look at our cash-on-cash returns table, I would point to, you know, the difference in our projected cash-on-cash returns there, you know, for... The Book of 23, going from 49% now to 64% and 24% and 72% and 25% and then as we mentioned, 33% or so of the portfolio relates to that back book and that they're now 22 months aged.

Vickie Judy: So we're getting more than halfway through those contracts and they become a smaller and smaller portion of the business and so certainly as we move forward that becomes a smaller piece of those net charge off each quarter. Yeah, on the SGNA piece that is, so if you look in just absolute dollars here Vincent, we were fairly flat during the quarter, it might have been a 200 grand difference in SGNA cost and it might not look that impressive but if you consider any other year or five year running average would normally have a sub 10 plus percent in SGNA.

Vickie Judy: So the fact that we're relatively flat, I call that a win, that's largely driven by some of the actions that we took last December in terms of cost cutting which we anticipated to drive four or five million dollars for the benefit on an annualized basis. And so we're seeing that materialized now more meaningfully. And so as an example, I think just on the payroll and payroll related cost biggie for the quarter, we were down over two million dollars in the quarter just a metric by itself.

Vickie Judy: The technology piece that you mentioned, so all this technology now that is now stood up, that does have an impact and it shows up in SGNA and so for us I think that's probably a million dollars quarterly in terms of new expense that we're realizing but that's been offset by some of the payroll cuts that we've taken in the past. I think there's more that we can do, we're hyper focused on the management of SGNA and the acquisitions don't sort of help that story early because when you're just adding all the cost of new employees and you're buying multi-unit and multi-roof top operations you get all of their costs today with none of the benefit of the accounts that they would have.

Vickie Judy: And so this more recent acquisition should be able to take SGNA on a per account basis down fairly significantly but we have to let their book build out. And so there's a lot going on there sort of in the complexion of the SGNA. I appreciate your question. It's a thoughtful one. And I'm glad you asked.

Vincent Caintic: Those are all super helpful. Thanks so much. You got it, Ben. Thank you.

Unknown Attendee: This concludes the question and answer session.

Douglas Campbell: I would now like to turn it back to Doug Campbell, president and CEO for closing remarks. Yep. We remain focused on our strategic priorities and improving our operational financial performance with all the technology and innovation updates that we've made including streamlining our cost structure and delivering affordability to our customers and looking forward to more acquisitions. Our management team is really committed to implementing these initiatives and to deliver additional value for shareholders. And I want to thank you guys for joining the call today and your interest in America's carbon. Thank you.

Unknown Attendee: This concludes today's conference call. Thank you for participating. You may now disconnect tonight.