Q4 2025 Carmax Inc Earnings Call

April 10, 2025

Operator: To all locations on hold. We do appreciate your patience, and please continue to stand by. We will begin shortly.

Bill Nash: Sa.

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Operator: Sam, please stand by. Your program is about to begin. If you should require operator assistance, please press star zero. Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter fiscal year 2025 CarMax earnings release 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Lowenstein, VP of Investor Relations. Please go ahead.

Please fan by, your program is about to begin. If you should require operator assistance, please press star zero.

Ladies and gentlemen, thank you for standing by. Bye.

Speaker Change: Welcome to the fourth quarter of fiscal year 2025 Carmax earnings release 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. David Lowenstein, VP, Investor Relations, please go ahead.

David Lowenstein: Thank you.

Jon Daniels: Madison.

David Lowenstein: Good morning everyone, and thank you for joining our fiscal 2025 fourth quarter earnings conference call. I'm here today with Bill Nash, our President and CEO, Enrique Mayor-Mora, our Executive Vice President and CFO, and John Daniels, our Executive Vice President, CarMax Auto Finance Operations. Let me remind you our statements today that are not statements of historical fact, including but not limited to statements regarding the company's future business plans, prospects, and financial performance, are forward looking statements we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our current knowledge, expectations, and assumptions and are subject to substantial risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward looking statements, we disclaim any intent or obligation to update them.

David Lowenstein: Thank you, Madison. Good morning, everyone, and thank you for joining our Piscos 2025 fourth quarter earnings conference call.

Speaker Change: I'm here today with Bill Nash, our President and CEO , Enrique Mayor Moore, our Executive Vice President and CFO , and Jon Daniels, our Executive Vice President, Carmax Auto Finance Operations.

Speaker Change: Our forward-looking statements we make pursuant to the safe harbor provisions of the Private Security's litigation reform act of 1995.

Speaker Change: These statements are based on our current knowledge, expectations and assumptions, and are subject to substantial risks and uncertainties that could cause actual results to differ materially from our expectations.

Speaker Change: In providing projections and other forward-looking statements, we disclaim any intent or obligation to update them.

David Lowenstein: For additional information on important factors and risks that could affect these expectations, please see our Form 8-K filed with the SEC this morning, our annual report on Form 10-K for fiscal year 2024, and our quarterly reports on Form 10-Q previously filed with the SEC. Should you have any follow up questions after the call, please feel free to contact our Investor Relations Department at 804-747-0422, extension 7865. Lastly, let me thank you in advance for asking only one question and getting back in the queue for more follow ups.

Speaker Change: for additional information on important factors and risks that could affect these expectations.

Speaker Change: Police, CR form 8K, followed with the SEC this morning.

Speaker Change: Our Inner Report on Form 10K for Fiscal Year 2024, and our quarterly reports on Form 10Q previously filed with the SEC.

Speaker Change: Should you have any follow-up questions after the call, please feel free to contact our Investor Relations Department at 804-747-0422 extension 7865

Phil: Lastly, let me thank you in advance for asking only one question and getting back in the queue for more follow-ups.

Bill Nash: Great. Thank you. Good morning, everyone, and thanks for joining us. We're very pleased with the continuing momentum across our diversified business during the fourth quarter. Our results reflect solid execution and the strength of our business model. We delivered robust year-over-year EPS growth as we drove unit volume, increases in sales and buys, materially increased gross profit, grew GAP income, and realized additional cost efficiencies. Our associates, stores, technology, and digital capabilities all seamlessly tied together enable us to provide the most customer-centric car buying and selling experience. This is a key differentiator that gives us the right to win and access to the largest total addressable market in the used car space. This also positions us to drive sales, gain market share, and deliver significant year-over-year earnings growth for years to come.

Phil: Great. Thank you, David. Good morning, everyone, and thanks for joining us.

Phil: We're very pleased with the continuing momentum across our diversified business during the fourth quarter.

Phil: Our results reflect solid execution in the strength of our business model. We delivered robust year-ever-year EPS growth as we drove unit volume increases in sales and buys, materially increased gross profit, grew cap income, and realized additional cost efficiencies. We delivered robust year-ever-year EPS growth

Phil: Our Associates, Stores, Technology, and Digital Capabilities, all seamlessly tied together, enable us to provide the most customer-centric carbying and selling experience.

Phil: This is a key differentiator that gives us the right to end and access to the largest total addressable market in the used car space. This also positions us to drive sales, gain market share, and deliver significant year-to-year earnings growth for years to come.

Bill Nash: In the fourth quarter on a year-over-year basis, we grew retail and wholesale unit volume. We delivered strong retail, wholesale, and EPP GPUs and materially improved service gross profit. We bought more vehicles from both consumers and dealers, achieving an all-time record with dealers. We grew CAF's net interest margin and continued to advance our full credit spectrum underwriting model. We materially leveraged SG&A as a percent of gross profit, and we also achieved double-digit EPS growth for the third consecutive quarter. For the fourth quarter of FY25, we delivered total sales of $6 billion, up 7% compared to last year, primarily driven by higher volume in our retail business. Total unit sales increased 6.2%, and used unit comps were up 5.1%.

Phil: In the fourth quarter, on a year-over-year basis, we grew retail and wholesale unit volume. We delivered strong retail, wholesale and EPPGPUs and materially improved service growth profit.

Phil: We've bought more vehicles from both consumers and dealers, achieving an all-time record with dealers.

Phil: We grew calf's net interest margin and continued to advance our full credit spectrum underwriting model. We materially leveraged SGNA as a percent of gross profit, and we also achieved double-digit EPS growth for the third consecutive quarter.

Phil: For the fourth quarter of FY25, we delivered total sales of $6 billion, up 7% compared to last year, primarily driven by higher volume.

Phil: In a retail business, total unit sales increased 6.2% and used unit comps were up 5.1%, despite having one less selling day, increment weather and a delayed start to this year's tax season.

Bill Nash: Despite having one less selling day, inclement weather, and a delayed start to this year's tax season, average selling price was in line with last year's fourth quarter. For the full year, total retail unit sales increased 3.1% and used unit comps were up 2.2% with a decline in Q1 more than offset by gains across Q2, Q3, and Q4. Our market share data indicates that our nationwide share of age 0- to 10-year-old used vehicles was 3.7% in calendar 2024, consistent with 2023. External title data shows year over year, while our share came under pressure during H1 2024. It then recovered as we achieved accelerating gains through H2, with particular strength in age 0- to 4-year-old vehicles, which grew for the entire year.

Phil: Average selling price was in line with last year's fourth quarter.

Phil: For the full year, total retail unit sales increased 3.1% and used unit comps grew up 2.2%. With a decline in the first quarter, more than offset by gains across the second, third and fourth quarters.

Phil: Our market share data indicates that our nationwide share of a 0-10-year-old use vehicle was 3.7% in calendar, 2024, consistent with 2023.

Phil: External title data shows year-to-year, while our share came under pressure during the first half of 2024, it then recovered as we achieved accelerating gains through the second half, with particular strength in age zero to four vehicles which grew for the entire year.

Bill Nash: The data indicates that our market share continued to grow year over year during January 2025, the latest period for which information is available. While I do not intend to provide another update until this time next year, we remain confident in our ability to achieve further market share gains across 2025 and beyond. Fourth quarter retail gross profit per used unit was $2,322, a fourth quarter record up from last year's $2,251. Wholesale unit sales were up 3.1% versus the fourth quarter last year. Average selling price was flat year over year. Fourth quarter wholesale gross profit per unit was $1,045, which is historically strong though down from the $1,120 a year ago. We bought approximately 269,000 vehicles during the quarter, up 15% from last year. We purchased approximately 223,000 vehicles from consumers, with more than half of those buyers coming through our online Instant Appraisal experience.

Phil: The data indicates that our market share continue to grow year by year during January 2025, the latest period for which information is available.

Phil: While I do not intend to provide another update until this time next year, we remain confident in our ability to achieve further market share gains and across 2025 and beyond.

Phil: 4th quarter retail gross profit per unit was $2,322, a 4th quarter record up from last year's $2,251, [inaudible]

Phil: Hulsow unit sales were up 3.1% versus the fourth quarter last year. Average selling price was flat year-over-year.

Phil: Fourth quarter wholesale gross profit per unit was $1,045, which is historically strong, though down from the 11-20 a year ago.

Phil: We bought approximately 269,000 vehicles during the quarter up 15% from last year. We purchased approximately 223,000 vehicles from consumers with more than half of those buyers coming through a online instant appraisal experience.

Bill Nash: With the support of our Edmunds sales team, we sourced the remaining approximately 46,000 vehicles through dealers, which is up 114% from last year. For Q4, approximately 15% of retail unit sales were online, up from 14% last year. Total revenue from online transactions was approximately 29%, compared with 30% last year. All of our wholesale auctions and sales were virtual and are considered online transactions, which represented 17% of the total revenue for the quarter. Approximately 58% of retail unit sales were omnichannel sales for this quarter, up from 55% in the prior year.

Phil: With the support of our Edmund Tails Team, resource the remaining approximate 46,000 vehicle through dealers, which is up 114 percent from last year.

Phil: For the fourth quarter, approximately 15% of retail unit sales were online, up from 14% last year.

Phil: Total revenue from online transactions was approximately 29% compared with 30% last year. All of our wholesale auctions in sales were virtual and are considered online transactions which represented 17% of the total revenue for the quarter.

Phil: Approximately 58% of retail unit sales were on sales for this quarter, up from 55% in the prior year.

Bill Nash: As a reminder, our omnichannel sales definition incorporates customers who complete some but not all of the following transactional activities online: reserving the vehicle, financing the vehicle if needed, trading in or opting out of a trade in, and creating a sales order to better reflect the ways customers are utilizing our digital capabilities to buy a car. Going forward, we are updating our definition of an omnichannel sale to also include customers who complete any of the following steps online: pre-qualifying for financing, setting appointments, and signing up for notification on cars coming soon. Based on this updated definition, approximately 67% of our retail unit sales were omnichannel this quarter, up from 64% last year. Of note, this does not impact how we calculate online sales, since the steps to complete an online retail transaction remain the same across omnichannel and online.

Phil: As a reminder, our omnichannel sales definition incorporates customers who complete some but not all of the following transactional activities online. Reserving the vehicle, financing the vehicle if needed, trading in or opting out of a trade-in and creating a sales order.

Phil: To better reflect the ways customers are utilizing our digital capabilities to buy a car, going forward we are updating our definition of an army channel sale to also include customers who complete any of the following steps online. Pre-qualifying for financing, setting appointments and signing up for notification on cars coming soon.

Phil: Based on this updated definition, approximately 67% of our retail unit sales were on me this quarter up from 64% last year.

Phil: Of note, this does not impact how we calculate online sales since the steps to complete an online retail transaction remain the same.

Bill Nash: Our digital capabilities supported over 80% of our sales during Q4. We expect that our mix of digitally supported sales will continue to grow over time as we add further enhancements to our online tools, customers become more accustomed to leveraging them, and as we improve our ability to track their user. Turning to finance, CarMax Auto Finance, or CAF, delivered income of $159 million, up 8% from the same quarter last year. In a few moments, John will provide more detail on customer financing, the loan loss provision, and CAF contribution, as well as our progress on full credit spectrum lending and increasing CAF penetration. At this point, I'd like to turn the call over to Enrique, who will share more information on our Q4 financial performance.

Phil: We expect that our mix of digitally supported sales will continue to grow over time as we add further enhancements to our online tools, customers become more accustomed to leveraging them, and as we improve our ability to track their use.

Phil: Turning to finance, Carmax out of finance or CAF delivered income of $159 million, up 8% from the same quarter last year.

Phil: In a few moments, Jon will provide more detail on customer financing, the loan loss division, and cap contribution, as well as our progress on full credit spectrum lending and increasing

Phil: At this point, I'd like to turn the call over to Enrique School, share more information on our fourth quarter financial performance. Enrique? Thanks Bill and good morning everyone. The momentum we built over the last few quarters continued into the fourth quarter.

Enrique Mayor-Mora: Enrique, thanks Bill, and good morning everyone. The momentum we built over the last few quarters continued into the fourth quarter. We achieved positive growth in retail and wholesale units, increased per unit and total dollar margin, grew CAF income, and had strong flow through to our bottom line. Fourth quarter net earnings per diluted share was $0.58, up 81% versus a year ago, adjusted for a $12 million non-cash impairment with another expense related to an Edmunds lease. EPS was $0.64, which has doubled from a year ago. Total gross profit was $668 million, up 14% from last year's fourth quarter. Used retail margin of $424 million increased by 9% with higher volume and per unit margins. Wholesale vehicle margin of $125 million declined by 4% with an increase in volume offset by a reduction in per unit margins.

Phil: We achieved positive growth in retail and wholesale units, increased per unit and total dollar margin, grew cap income and had strong flow through to our bottom line.

Phil: Fourth quarter net earnings per diluted share was 58 cents, up 81% versus a year ago.

Phil: Adjusted for a $12 million non-cash impairment within other expense related to an Edmunds lease, EPS was $0.64, which is doubled from a year ago.

Phil: Total gross profit with $668 million, up 14% from last year's fourth quarter, used retail margin of $424 million increased by 9%.

with higher volume and per-unit margins.

Phil: We'll see a vehicle margin of $125 million declined by 4% with an increase in volume offset by a reduction in per unit margins.

Enrique Mayor-Mora: Other gross profit was $119 million, up 72% from a year ago. This was driven primarily by a combination of EPP and service. EPP increased by $8 million or $10 per retail unit, and as we lapped over the initial rollout of margin increases that took place in last year's fourth quarter, Service recorded a $1 million loss, which was a $44 million improvement over last year's fourth quarter. We achieved this performance improvement through successful cost coverage, efficiency measures, and growth in sales. On the SG&A front, expenses for the fourth quarter were $611 million, up 5% or $30 million from the prior year. SG&A leveraged by 770 basis points, driven by growth in gross profit and our ongoing actions to improve expense efficiency. SG&A dollars for the fourth quarter versus last year were mainly impacted by two factors. First, total compensation and benefits increased by $22 million.

Phil: Another gross profit was $119 million, up 72% from a year ago. This was driven primarily by a combination of PPP and service.

Phil: EPP increased by $8 million or $10 per retail unit as we laughed over the initial rule out of the margin increases that took place in last year's fourth quarter.

Phil: Service recorded a $1 million loss, which was a $44 million improvement over last year's fourth quarter. We achieved this performance improvement through successful cost coverage, efficiency measures, and growth in sales.

Phil: On the SGNA front, expenses for the fourth quarter was $611 million, up 5% or $30 million from the prior year.

Phil: S-GNA leveraged by 770 basis points, driven by growth and growth profit and are ongoing actions to improve expense efficiency.

Phil: SGNA dollars for the fourth quarter versus last year were mainly impacted by two factors.

Enrique Mayor-Mora: Over half of this increase was due to our corporate bonus accrual, with the majority of the balance driven by unit volume growth. Second, advertising was up by $9 million due to timing. This was in line with the guidance we provided last quarter with respect to capital allocation. During the fourth quarter, we repurchased approximately 1.2 million shares for a total spend of $99 million. As of the end of the quarter, we had approximately $1.94 billion of repurchase authorization remaining. As we look ahead, I'll highlight a few key areas which support our earnings model that Bill will speak to shortly. We are testing EPP product enhancements that will focus on increasing penetration and per unit margins. These enhancements are expected to drive a small year-over-year increase in per unit EPP margin in FY26, with the potential for more expansion in fiscal 27.

Phil: First, total compensation and benefits increased by $22 million. Over half of this increase was due to our corporate bonus accrual with the majority of the balance driven by unit volume growth.

Phil: Second, advertising was up by $9 million due to timing. This was in line with the guidance we provided last quarter.

Phil: In respect to capital allocation during the fourth quarter, we repurchase approximately 1.2 million shares for a total spend of $99 million.

Phil: As of the end of the quarter, we had approximately $1.94 billion of repurchase authorization remaining.

Phil: As we look ahead, highlight a few key areas which support our earnings model that Bill will speak to shortly.

Phil: We are testing EPP product enhancements that will focus on increasing penetration and per-unit margins. These enhancements are expected to drive a small year-over-year increase in per-unit EPP margin in FY26, with the potential for more expansion in fiscal 27.

Enrique Mayor-Mora: We expect service margin in FY26 to grow year over year, predominantly in the first half of the year, and to deliver a slight positive profit contribution for the full year as governed by sales performance, given the leverage deleveraged nature of service. Additionally, we expect service to continue to serve as a slight profit lever beyond FY26 in respect to SGA. In the near term, we expect to require low single digit gross profit growth to lever on an annual basis, including in FY26. This will be supported by our goal of hitting full year Omni cost neutrality in FY26 for the first time with continued improvement thereafter. We expect all three metrics per used unit, per total units, and as a percent of gross profit to be more efficient than pre Omni for the full year.

Phil: We expect Service Margin and FY26 to grow year over year, predominantly in the first half of the year, and to deliver a slight positive profit contribution for the full year, as governed by sales performance given the leverage to the leverage nature of service.

Phil: Additionally, we expect service to continue to serve as a slight profit lever beyond FY27.

Phil: In respect to S-GNA, in the near term, we expect to require low single-digit gross profit growth to lever on an annual basis, including in FY26.

Phil: This will be supported by our goal of hitting full-year omnicost neutrality in FY26 for the first time with continued improvement thereafter.

Phil: We expect all three metrics per unit, per total units, and as a percent of gross profit to be more efficient than pre-omnie for the full year.

Enrique Mayor-Mora: This reinforces our pathway back to a lower SG&A leverage ratio with the initial goal of returning to the mid-70% range over time. As we see healthier consumer demand in FY26, we expect that marketing spend will be approximately the same as in FY25 on a total unit basis. With regard to capital expenditures, we anticipate approximately $575 million in FY26. The increase is primarily driven by the timing of land purchases as we experience favorability to our FY25 outlook due to the timing of certain deal closures similar to FY24 and FY25. The largest portion of our CapEx investment is related to the land and build-out of facilities for long-term growth capacity in off-site reconditioning and options.

Phil: This reinforces our path way back to a lower SGA leverage ratio with the initial goal of returning to the mid-70% range over time as we see help your consumer demand.

Phil: In FY26, we expect that marketing spend will be approximately the same as in FY25 on a total unit basis.

Phil: With regard to capital expenditures, we anticipate approximately $575 million in FY26.

Phil: Same with the FY-24 and FY-25, the largest portion of our CAPEX investment is related to the land and buildout of facilities for long-term growth capacity in off-site reconditioning in auctions.

Enrique Mayor-Mora: In FY26 we plan to open six new store locations up from five in FY25, and four stand-alone reconditioning and auction centers up from two in FY25. Our extensive nationwide footprint and logistics network continue to be a competitive advantage for CarMax. Now I'd like to turn the call over to John.

Phil: In FY26, we plan to open six new store locations, up from five in FY25, and four stand-alone reconditioning and auction centers, up from two in FY25.

Phil: Our extensive nationwide footprint and logistics network continue to be a competitive advantage for Carmax

Jon Daniels: Thanks, Enrique, and good morning, everyone. During the fourth quarter, CarMax Auto Finance originated approximately $1.9 billion resulting in sales penetration of 42.3% net of three-day payoffs, which was in line with last year's fourth quarter. The weighted average contract rate charged to new customers was 11.1%, a decrease of 40 basis points from a year ago, which was reflective of credit tightening and APR reductions executed prior to Q4. Third-party tier 2 penetration in the quarter was 17.6% of sales, down 110 basis points from last year, while third-party tier 3 volume accounted for 7.9% of sales, down 30 basis points from last year. CAF income for the quarter was $159 million, which was up $12 million from FY 2024.

Now I'd like to turn the call over to you.

Thanks Enrique, good morning everyone.

Phil: During the fourth quarter, Carmax auto finance originated approximately $1.9 billion, resulting in sales penetration of 42.3% net of three-day payoffs, which was in line with last year's fourth quarter.

Phil: The weighted average contract rate charged to new customers was 11.1%, a decrease of 40 basis points from a year ago, which was reflective of credit tightening and APR reductions executed prior to Q4.

Phil: Third party Tier 2 penetration in the quarter was 17.6% of sales down 110 basis points from last year, while third party Tier 3 volume accounted for 7.9% of sales down 30 basis points from last year.

Phil: Caffing come for the quarter was $159 million, which was up 12 million from FY 24.

Jon Daniels: This increase was driven by net interest margin, which remained steady from the third quarter at 6.2%, but is up 30 basis points from last year's fourth quarter. Provision for loan losses was $68 million and results in a total reserve balance of $459 million, which is 2.61% of managed receivables. This sequential improvement in the reserve to receivable ratio reflects an additional quarter with a more normalized provision along with the continuation of previous credit tightening. Regarding our full spectrum lending initiative, we remain excited about CAF's continued efforts in this space as well as the tremendous growth potential unlocked by the broadening of our securitization program. During the month of March, CAF began measured expansion by recapturing profitable portions of Tier 1 originations that we had shifted to our Tier 2 lenders as we tightened lending standards.

Phil: This increase was driven by net interest margin, which remained steady from the third quarter at 6.2%, but is up 30 basis points from last year's fourth quarter.

Phil: Provision for loan losses with $68 million and results in a total reserve balance of $459 million or 2.61% of managed receivables.

Phil: This sequential improvement in the reserve to receivable ratio reflects an additional quarter with a more normalized provision along with the continuation of previous credit tightening.

Phil: Regarding our full spectrum lending initiative, we remain excited about CAPS continued efforts in this space as well as the tremendous growth potential unlocked by the broadening of our securitization program.

Phil: During the month of March, CAP began measured expansion by recapturing profitable portions of Tier 1 originations that we had shifted to our Tier 2 lenders as we tightened lending standards.

Jon Daniels: This adjustment is targeted to grow our penetration by 100 to 150 basis points in the near term and is enabled by our non prime securitization program, which allows us to efficiently fund these non prime receivables while retaining the full economic value of the contracts. We were also pleased to successfully execute our second non prime ABS transaction, which closed in late March and was well received in the market. We continue to learn from our new underwriting models and corresponding tests currently in place and anticipate capturing additional volume across Tier 2 and Tier 3 during the back half of the fiscal year. But as always, we will carefully monitor the consumer and the broader economy, and we'll adjust our origination strategy as needed.

Phil: This adjustment is targeted to grow our penetration by 100 to 150 basis points in the near-term and is enabled by our non-prime securitization program, which allows us to efficiently fund these non-prime receivables while retaining the full economic value of the contracts.

Phil: We were also pleased to successfully execute our second non-prime ABS transaction, which closed in late March and was well received in the market.

Phil: We continue to learn from our new underwriting models and corresponding tests currently in place and anticipate capturing additional volume across Tier 2 and Tier 3 during the back half of the fiscal year. But, as always, we will carefully monitor the consumer and the broader economy and will adjust our origination strategy as needed. [inaudible]

Jon Daniels: It is worth noting that in Q1 we are forecasted to have a larger provision sequentially and year over year driven by new origination volume. This stems from seasonally higher sales and a lower credit quality period plus the need for additional reserve given the profitable but higher loss nature of the recaptured receivables that I mentioned a few moments ago. As a reminder, we expect this initial impact from building the loss reserve as we grow CAF penetration to be materially offset by future income over time. Now I'll turn the call back over to Bill.

Phil: This worth noting that in the first quarter, we are forecasted to have a larger provision sequentially and year over year driven by new origination volume.

Phil: This stems from seasonally higher sales and a lower credit quality period plus the need for additional reserve given the profitable but higher loss nature of the recapture receivables that I mentioned a few moments ago.

Phil: As a reminder, we expect this initial impact from building the loss reserve as we grow cap penetration to be materially offset by future income over time.

Bill Nash: Thank you, John and Enrique. As I mentioned at the start of the call, I'm pleased with the momentum we are seeing across our business. The associate and customer-facing tools we launched during fiscal 25 are contributing to our results and to providing the most customer-centric car buying and selling experience. I'm proud of the steps we took during the year to further differentiate our offering and drive incremental operational efficiencies. Some examples include, for retail, we rolled out a number of new systems that enhance consumer shopping experiences, support conversion, and enable our associates to be more efficient. These include order processing in our stores, customer accounts, online AI-driven knowledge management in our CECs, and EV research and shopping tools on the Edmunds and CarMax websites. Our digital tools enhancements have made it easier for consumers to self-progress in their shopping journey.

Speaker Change: and I'll turn the call back over to Bill. Thank you, Jon, and Enrique.

Speaker Change: As I mentioned at the start of the call, I'm pleased with the momentum we are seeing across our business. The associate and customer facing tools we launched during fiscal 25 are contributing to our results into providing the most customer centric, car buying and selling experience.

Speaker Change: I'm proud of the steps we took during the year to further differentiate our offering and drive incremental operational efficiencies.

Speaker Change: Some examples include, for retail we wrote out a number of new systems that enhance consumer shopping experiences, support conversion and enable our associates to be more efficient.

Speaker Change: These include order processing in our stores, customer accounts online, AI-driven knowledge management in our CECs, and EV research and shopping tools on the Edmonds and Carmax website.

Bill Nash: Sky, our AI-powered virtual assistant, is now able to independently answer over half of the questions our customers ask it, reflecting more than a 20% year-over-year improvement. Additionally, the rate of fully self-progressed online sales grew by 25% across fiscal 2025. For supply, we enhanced both our consumer- and dealer-facing appraisal experiences. We are now able to give digital offers to approximately 99% of the customers who come to CarMax.com for an appraisal, and we made MaxOffer even easier to use. This has attracted more dealers to the offering and has driven strong, record sourcing volume each quarter. For finance, we began testing new credit scoring models and corresponding strategies across the full credit spectrum, which positions us to further grow CAF income modestly in the near term and more materially over time.

Speaker Change: Our digital tools enhancements have made it easier for consumers to self-progress in their shopping journey.

Speaker Change: Sky, our AI-powered virtual assistant, is now able to independently answer over half of the questions our customers ask it, reflecting more than a 20% year-over-year improvement. Additionally, the rate of fully self-progress online sales grew by 25% across fiscal 2025.

Speaker Change: For supply, we enhanced both our consumer and dealer-facing appraisal experiences.

Speaker Change: We are now able to give digital offers to approximately 99% of the customers who come to Carmax.com for an appraisal and we made Max offer even easier to use. This is attracted more dealers to the offering and has driven strong record sourcing volume each quarter.

Speaker Change: Our finance would be in testing new credit scoring models and corresponding strategies across the full credit spectrum, which positions us to further grow cap income modestly in the near term and more materially over time. We also released an update to our finance-based shopping experience that seamlessly incorporates existing incentive-raising offers into our prequalification offering, giving customers more precise credit terms.

Bill Nash: We also released an update to our finance-based shopping experience that seamlessly incorporates existing Instant Appraisal offers into our prequalification offering, giving customers more precise credit terms, and finally, we continue to focus on driving down Cost of Goods Sold by pursuing incremental efficiency opportunities across our logistics network and reconditioning operations. We achieved savings of approximately $125 per unit this year and anticipate that we will achieve at least another $125 per unit in fiscal 2026. This exceeds the initial $200 target we set at the beginning of fiscal 2025. These efficiencies support affordability as we pass savings on to our customers and also support our margins. In fiscal 2026, we will leverage and enhance our capabilities to drive growth through better execution, innovative offers, innovative efforts, and up-leveled experiences.

Speaker Change: And finally, we continue to focus on driving down costs of goods sold by pursuing incremental efficiency opportunities across our logistics network and reconditioning operations.

Speaker Change: We achieved savings of approximately $125 per unit this year and anticipate that we will achieve at least another $125 per unit in fiscal 2026.

Speaker Change: This exceeds the initial $200 target we set at the beginning of fiscal 2025. These efficiency support affordability as we pass savings on to our customers and also support our margins.

Speaker Change: At Fiscal 2026, we will leverage and enhance our capabilities to drive growth through better execution, innovative offers, innovative efforts and upleveled experiences.

Bill Nash: Some examples include, for retail, we will continue leveraging data science and AI to offer even better digital experiences for our associates and consumers. Driving conversion and efficiency, we plan to improve our online vehicle transfer experience and to expand Sky's functionality with additional data and new architecture. In recognition of the breadth and seamlessness of our best-in-class offering, we will also launch a new marketing campaign over the summer that will bring our omnichannel experience and our digital capabilities to the forefront for a broad set of consumers. For supply, we plan to streamline the online appraisal checkout process and expand appraisal pickup availability to new markets. We will also further enhance MaxOffer to attract new dealers, expanding our access to directly sourced vehicles for credit.

Speaker Change: Some examples include for retail, we will continue leveraging data science and AI to offer even better digital experiences for our associates and consumers driving conversion and efficiency.

Speaker Change: We plan to improve our online vehicle transfer experience into expand skies functionality with additional data and new architecture.

Speaker Change: In recognition of the breadth and seamlessness of our best-in-class offering, we will also launch a new marketing campaign over the summer that will bring our omnichannel experience and our digital capabilities to the forefront for a broad set of consumers.

Speaker Change: For supply, we plan to streamline the online appraisal checkout process and expand appraisal pick-up availability to new markets.

Speaker Change: We will also further enhance Mac's offer to attract new dealers expanding their access to directly source vehicles.

Bill Nash: As John mentioned, we plan to continue expanding CAF participation across the credit spectrum to grow penetration and capture profitable returns. Additionally, we plan to modernize the ownership experience on CAF's digital platform, which will enhance customer experience and drive operating efficiencies. Looking ahead, we position the company to achieve ongoing growth in retail and wholesale unit sales and market share with double-digit EPS growth for years to come. We're excited about the power of the earning model we have built. Our model is designed to deliver an earnings per share growth CAGR in the high teens when retail unit growth is in the mid-single digits. In addition to retail and wholesale unit growth, other key inputs driving our model are strength in other gross profit, CAF's, credit spectrum expansion, continued operating efficiencies, SG&A leverage, and our share repurchase program.

Speaker Change: For credit, as John mentioned, we plan to continue expanding cast participation across the credit spectrum to grow penetration and capture profitable returns.

Speaker Change: Additionally, we plan to modernize the ownership experience on CAF's digital platform, which will enhance customer experience and drive operating efficiencies.

Speaker Change: Looking ahead, we've positioned the company to achieve ongoing growth in retail and wholesale unit sales and market share with double digit EPS growth for years to come.

Speaker Change: We're excited about the power of the earning model we have built. Our model is designed to deliver an earnings per share growth

Speaker Change: In addition to retail and wholesale unit growth, other key inputs driving our model are strength and other gross profit, CAF's credit spectrum expansion, continued operating efficiencies, SNA leverage and our share repurchase program.

Bill Nash: Regarding our long-term goals, we are focused on growing the business, and we continue to make progress towards those goals. However, at this point we are moving the timeframes associated with them given the potential impact of broader macro factors. Before turning to Q and A, I want to recognize two significant milestones. First, Fortune magazine recently named CarMax as one of its 100 Best Companies to Work For for the 21st year in a row. I am incredibly proud of this recognition. It's due to our associates' commitment to supporting each other, our customers, and our communities every day. Second, we opened up our 250th store during Q4. Reaching 250 stores across the country is a fantastic accomplishment. I want to thank and congratulate all of our associates for the work that they do. They are our differentiator and the key to our success.

Speaker Change: Regarding our long-term goals, we are focused on growing the business and we continue to make progress towards those goals. However, at this point, we are moving the timeframes associated with them given the potential impact of broader macro factors.

Speaker Change: Before turning to Q&A, I want to recognize two significant milestones. First, Fortune Magazine, recently named Carmax, is one of its 100 best companies to work for for the 21st year in a row. I am incredibly proud of this recognition. It's due to our social commitment to supporting each other, our customers and our communities every day.

Speaker Change: Second, we opened up our 250th store during the fourth quarter, reaching 250 stores across the country as a fantastic accomplishment. I want to thank and congratulate all of our associates for the work that they do. They are a differentiator and the key to our success.

Bill Nash: In closing, we're excited about the strength of the business model and the opportunities that lie ahead to grow sales and earnings. We are proud to offer customers the ability to progress seamlessly through and across online and in-store channels, delivering what our research affirms is the most customer-centric buying and selling experience. This competitive advantage gives us access to the largest total addressable market in the used car space and provides a strong runway for future growth. With that, we'll be happy to take your questions. Madison, thank you.

Speaker Change: In closing, we're excited about the strength of the business model and the opportunities that I had to grow sales and earnings. We are proud to offer customers the ability to progress seamlessly through and across online and in-store channels, delivering what our research affirmed is the most customer-centric buying and selling experience.

Speaker Change: This competitive advantage gives us access to the largest total addressable market in the use car space and provides a strong runway for future growth.

Operator: And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing 2. In the interest of time, we ask that you limit your questions to one at a time. Once again, that is star and one to ask a question. And your first question comes from the line of Sharon Zackfia with William Blair. Your line is open. You may now ask your question.

Thank you.

Speaker Change: End at this time if you would like to ask a question, please press the star and wine on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2.

Speaker Change: and the interest of time, we ask that you limit your questions to one at a time. Once again, that is star and line to ask a question, and your first question comes from the line of Sharon Zackfia with William Blair. Your line is open, you may now ask your question.

Enrique Mayor-Mora: Hi, good morning.

Bill Nash: Good morning. As we think about fiscal 2025 and kind of that tale of two halves where there were some share losses in the first half followed by the accelerating.

Hi, good morning.

Enrique Mayor-Mora: Gains in the second half.

Bill Nash: As you kind of diagnose that, can.

Enrique Mayor-Mora: You give us some insight into kind.

Bill Nash: Of what you think the drivers were.

Speaker Change: As you kind of diagnose that, can you give us some insight into kind of what you think the drivers were between the first half and the second half and why you kind of saw that inflection and

Operator: Between the first half and the second.

Enrique Mayor-Mora: Half, and why you kind of saw that inflection?

Operator: I guess secondarily, as we're kind.

Bill Nash: Of staring down this idea of maybe.

Enrique Mayor-Mora: Used car prices going up again with.

Speaker Change: I guess, secondarily, as we're kind of staring down this idea of maybe use car prices going up again.

Bill Nash: Tariffs, I mean, what lessons did you?

Enrique Mayor-Mora: Learn over the past several years that could maybe help the business more if.

Speaker Change: with tariff. What lessons did you learn over the past several years that could maybe help the business more if affordability becomes more challenged again in the industry? Thank you.

Bill Nash: Affordability becomes more challenged again in the industry?

Operator: Thank you.

Bill Nash: Okay, Sharon, on the first question about kind of first half versus second half, look, the main driving factor that we talked about that at the beginning of the year is we were coming off of, if you remember last calendar, last calendar year, that last quarter there was a big price correction. Remember it was the third, last and third one that we saw. And when you have those big price corrections, I think if I remember correctly, it was probably around $3,000 in a very short period of time of depreciation that impacts us a little bit differently. So I think you had that, that kind of really worked into the fourth quarter that masked a lot of the things that were providing benefit for the rest of the year.

Speaker Change: Okay, Sharon. On the first question about kind of first half versus second half, look, the main driving factor that we talked about that being in the years, we were coming off if you remember last.

Speaker Change: Last calendar year, that last quarter, there was a big price correction. Remember it was the third, last and third one that we saw and when you have those big price corrections, I think it was our remember correct, it was probably around $3,000 and a very short period of time of depreciation. That impacts us a little bit differently. So, I think you had that that kind of really worked into the fourth quarter that masked. [inaudible]

Bill Nash: If you think about the improvements, and I cited a lot of them on the call today, but I think there's just a lot of factors you take we're continuing to make the experience better for the consumers and our associates. We've got better execution. You've got the benefit of efficiency gains and kind of flexibility that gives you both in your pricing and your margin, making sure that you're competitively priced. Our inventory acquisition expansion, we've continued to set new records with our Max Offer. It just gives you a wider variety of inventory. And then I think the other thing is this year we've also just seen a more normal price environment. So I think there's a lot of things going on there. But I, I do think that the actions that we've taken are really what's driving the momentum.

Speaker Change: and a lot of the things that we're providing benefit for the rest of the year. If you think about the improvements, and I cited a lot of them on the call today, but I think there's just a lot of factors, you know, you take...

Speaker Change: We'll continue to make the experience better for the consumers and our associates. We've got better execution. You've got the a benefit of efficiency gains and kind of flexibility that gives you both in your pricing and your margin, making sure that you're competitively priced.

Speaker Change: You know, our inventory acquisition expansion, we continue to set new records with our max offer, just gives you a wider variety of inventory.

Speaker Change: And then I think the other thing is this year we've also just seen more normal pricing environments. So I think there's a lot of things going on there, but I do think that the actions that we've taking are really what's driving the momentum. And I think they were masked a little bit in the first quarter because we were coming off of a big macro factor. And I think we're going to be able to do that in the next quarter.

Bill Nash: I think they were masked a little bit in Q1 because we were coming off of a big macro factor. As far as your second question goes, I think it was just kind of, if I remember correctly, it's what have we kind of learned? How are we better positioned now versus previous? And again, I think there's a lot of things that we learned in the last two or three years. One of them obviously is we've sharpened our skills. When we came out of COVID, our 6- to 10-year-old cars just wasn't a big focus for us, as big a focus, and that's not really what customers were looking for. And so we had to build that muscle up so we have more 6- to 10-year-old cars that over time I think other things we've expanded.

Speaker Change: As far as your second question goes, I think it was just kind of, if I remember correctly, it's

Speaker Change: You know, what have we kind of learned? You know, how are we better positioned?

Speaker Change: and now the versus previous. And again, I think there's a lot of things that we learned in the last two or three years. You know, one of them obviously is...

Speaker Change: We've sharpened our skills when we came out of COVID. Our six to ten-year-old cars just wasn't a big focus for us as big a focus and that's not really what customers were looking for us. We had to build that muscle up so we have more six to ten-year-old cars that over time.

Bill Nash: The sourcing which I just talked about, I think just John spoke about the ABS bifurcation. You know, if you remember coming out of COVID there's a lot of profitable loans out there, but we couldn't, we had to pass them on to lenders because we had one ABS that required a certain return and certain loss ratios. So, you know, now having a second ABS I think absolutely helps us preserve some of those sales. You like to think all of them get picked up, but some of them won't get picked up. So I think that's another one.

Speaker Change: I think other things we've expanded the sourcing which I just talked about. I think Jon spoke about the ABS bi-frication, if you remember.

Speaker Change: and I was just coming out of COVID. There's a lot of profitable loans out there, but we couldn't, we had to path them on to lenders because we had one ABS that required a certain return and certain loss ratio. So, you know, now having a second ABS I think absolutely helps us preserve from those sales. You like to think all of them get picked up, but some of them won't get picked up. So I think that's...

Bill Nash: You've got the cost improvements that we've been focused on over the last couple years, the work that John and his team have done on the FBS and making sure that we make it very easy for customers to understand their monthly payment and look for options that fit that monthly payment. So I think there's just a lot of great things as well as just the overall omni experience. We didn't slow down during the last few years. We kept plugging along at it because we knew this is where we wanted to get. So I think there's a lot that goes into that. Thank you.

Speaker Change: That's another one you got the cost improvements that we've been focused on over the last couple years. The work that John and his team have done on the FPS and making sure that we make it very easy for customers to understand their monthly payment and look for options that fit that monthly payment. So I think there's just a lot of...

Speaker Change: of great things as well as just the overall on the experience. We didn't slow down during the last few years, we kept plugging along at it because we knew this is where we wanted to get. So I think there's a lot that goes into that. [inaudible]

Operator: Your next question comes from the line of Seth Basham with Wedbush Securities. Your line is open.

Speaker Change: Thank you. Thank you. And your next question comes from the line of Seth Basham with Bloodbush Securities. Your line is open.

Enrique Mayor-Mora: Thanks a lot, and good morning. Bill, if you wouldn't mind commenting on.

David Lowenstein: Quarter to date used comp trends, that would be great.

Seth Basham: Thanks a lot, and good morning. Bill, if you wouldn't mind commenting on on quarter to date, use...

Enrique Mayor-Mora: And then as you think about this macro environment and the potential for new car tariffs driving double-digit increases in new car prices, what does that mean?

Speaker Change: Comp Trends, that would be great. And then as you think about this macro environment and the potential for new car tariffs driving, double digit increases in new car prices, what does that mean for you guys from a share game perspective and from a used car industry growth perspective? Thank you.

Bill Nash: For you guys from a share gain.

Enrique Mayor-Mora: Perspective and from a used car industry growth perspective?

Bill Nash: Thank you. Good morning, Seth. On the comp trends, look, if I look at the fourth quarter, December and January were very strong. February was a little softer, which we expected given that we had leap day last year. I also think February was slightly impacted by the delay of refunds. And what I mean by that is if you remember, probably halfway through February, refunds were off significantly year over year. Now they caught up pretty much by the end of February, but I think it pushed a little bit into March as well as we had some weather impacts. Then we get into March and we saw a step up that was a little stronger than the fourth quarter comp.

Good morning, Seth, on the

Speaker Change: The Comp Trends. Look, if I look at the fourth quarter, December and January , we're very strong. February was a little softer, which we expected, given that we had leap day last year.

Speaker Change: We also think February is slightly impacted by the delay of refunds and what I mean by theirs, if you remember, probably halfway through February , refunds were all significantly year by year. Now they caught up pretty much by the end of February , but I think it pushed a little bit into March as well as we had some weather impacts. [inaudible]

Bill Nash: It continued the whole month until the end of March, where we saw some strength, some additional strength, which continued and then accelerated into the first few days of April, which obviously, we're early into April right now. You know, from a comp standpoint, first quarter to date we're running high single digits. Your second question, I think it was on tariffs, is that correct? Yeah. New car tariffs.

Speaker Change: Then we get into March and we saw a step up that was a little stronger than the fourth quarter comp, and it continued the whole month until the end of March where we saw

some strength. [inaudible]

Speaker Change: some additional strength which continued and accelerated into the first few days of April , which obviously were early into April right now. You know, from a comp standpoint, first quarter to date, we're running high single visits.

Speaker Change: Your second question, I think it was on tariffs, is that correct?

David Lowenstein: If they drive double-digit increases in.

Jon Daniels: New car prices, what does that mean?

Enrique Mayor-Mora: For the used car industry and your ability to gain market share in that environment?

Speaker Change: Yeah, new car, cars, if they drive double-digit increases in new car prices, what does that mean for the use car industry and your ability to gain market share in that environment?

Bill Nash: Yes, I think it's, you know, there's a lot of moving pieces here, and I'm sure it's probably changed even while we've been on this call. But there's a lot to watch. You want to look at the new car pricing, the supply parts cost, used vehicle supply, and just market volatility in general with consumer sentiment. Obviously, as you pointed out, new car prices are definitely going to go up. I think certainly as new car prices go up, that'll put a bigger spread between late model used and new cars. So obviously just the speculation of the tariffs and now the tariffs actually being out there, it's driven demand. I mean, you're seeing it in the franchise dealers. We're seeing it just based off of the step up that I just spoke to.

Speaker Change: Yeah, you know, I think there's a lot of moving pieces here and-

Speaker Change: I'm sure it's probably changed even while we've been on this call, but there's a lot to watch. You want to look at the new car pricing, the supply.

Speaker Change: Parts Costs, Use Vehicle Supply, just market volatility in general with consumer sentiment.

Speaker Change: Obviously, as you pointed out, new car prices are definitely going to go up. I think, you know, certainly as new car prices go up, that will put a bigger spread between late model used and new cars.

Speaker Change: and obviously just the speculation of the tariffs and now the tariffs.

Speaker Change: and, actually, being out there, it's driven demand. I mean, you're seeing it in the franchise dealers. We're seeing it just based off of the step up that I just spoke to.

Bill Nash: I think it will push some folks into looking at used cars, late model used cars, which is interesting, because that's what we're seeing a lot of interest in right now. Now I think over time what could happen is that the used car prices will also go up. Now the question is how much will they go up over what period of time? I think the other thing to think about on the tariffs that impacts our business as well as anybody that sells used cars is just the parts piece. When it comes to reconditioning, the parts will be going up, and it just makes our work that much more important on the efficiencies that we're going after on cost of goods sold to offset those increases.

Speaker Change: It will push some folks into looking at use cars, late model use cars.

Speaker Change: which is interesting because that's what we're seeing a lot of interest in right now. Now, I think over time what could happen is that the used car prices will also go up. Now, the question is how much will they go up over what period of time? I think the other thing to think about on the tarot.

Speaker Change: that impacts our business as well as anybody that sells used cars. It's just the parts piece. When it comes to reconditioning, the parts will be going up. And it just makes our work that much more important on the efficiencies that we're going after on cost of goods sold to offset those increases.

Enrique Mayor-Mora: Thank you very much.

Operator: Yep, thank you. Your next question comes from the line of John Murphy with Bank of America. Please go ahead.

Thank you very much. Yep.

Speaker Change: Thank you. And your next question comes from the line of John Murphy with Bank of America. Please go ahead.

John Murphy: Good morning guys. I mean I love hearing about the investment in the recon centers and the auctions because it gives you more throughput and production capacity. I'm just curious, Bill, as you think about that, does that give you the ability to stay and maintain this presence in the six- to 10-year-old car segment of the car population? And could that actually be increased over time? And sort of along that same line, you talk about the 200 in COGS savings going, at it sounds like, now 250. How much of that do you think you're going to be able to maintain as you kind of go through this reconditioning and other efficiencies? And is 2,300 to 2,400 the new 2,200?

John Murphy: Good morning, guys. I love hearing about the investment in the recon centers and the auctions because it gives you more throughput and production capacity.

Speaker Change: I'm just curious Bill, as you think about that, does that give you the ability to stay and maintain this presence in the six to ten-year-olds?

Speaker Change: You know, sort of car, you know, segment of the car population, and could that actually be increased?

Speaker Change: Over time, and sort of kind of, you know, along that same line, you know, he talked about the 200, you know, in cogs savings going on, it sounds like now 250, you know, how much of that do you think you're going to be able to maintain as you kind of go through this, the reconditioning and other efficiencies, and is, you know, 23 to 2400 the new 2200.

Bill Nash: Okay. Good morning, John. So on the reconditioning and the auctions. Yeah, look, we're thrilled. I mean that's going to give us additional capacity, which is why you're seeing that we open up more. Certainly we want to have the cars out on the lot. You know, we sell 0- to 10-year-old cars. We want to have what the consumers are looking for. And if they're looking for six to 10, we're certainly going to continue to try to move that mix without sacrificing the quality. I mean, that's something that you and I, we've talked about in the past is we don't want to push cars out there to meet an age parameter that don't meet our quality standards. Because quite honestly, we're fine with taking those cars and wholesaling them and we just, we don't get the retail market share for them.

Okay, good morning, John , so-

Speaker Change: Re-conditioning in the auctions. Yeah, look, we're thrilled. I mean, that's going to give us additional capacity, which is why you're seeing that we open up more. Certainly, we want to have the cars out on the lot. You know, we sell zero to 10-year-old cars. We want to have what the consumers are looking for, and if they're looking for six to 10, we're certainly going to continue to try to move that mix without sacrificing the quality. I mean, that's something that you and I, we've talked about in the past, is we don't want to push cars out there to meet an age parameter that don't meet our quality standards, because quite honestly, we're fine with taking those cars . . . . .

Bill Nash: But it's a great business when you're turning an $8,000 car making $1,000 every seven days. So. So interestingly, if I look at the sales mix this last quarter, we actually sold a little bit more zero to four cars than we did older cars. That's not to say we're not pushing on the older cars and putting out those at the consumers. It's just an interesting anecdote that actually the consumers are looking a little bit more for the younger cars this quarter. I think on the $250 efficiency that we're going after, look, I think the big wild card there is just how much tariffs end up impacting parts. I feel great about the fact that, you know, we're getting these efficiencies, you know, across the system, in old stores, in old production centers, in new stores. So I feel good about getting those.

Speaker Change: and Holesailing. We don't get the retail market share for them, but it's a great business when you're turning $8,000 a car, making $1,000 every seven days. Interestingly, if I look at the sales mix,

Speaker Change: This last quarter, we actually sold a little bit more zero to four cars than we did older cars.

Speaker Change: That's not to say we're not pushing on the older cars and putting out those if the consumers, it's just an interesting anecdote that actually the consumers are looking a little bit more for the younger cars this quarter. I think on the $250 efficiency that we're going after.

you know, across the system in old stores. [inaudible]

Bill Nash: Then the question becomes, how much will tariffs kind of offset that? Which again, we're going to continue to focus and go after that. The other thing I would tell you on these reconditioning centers, these off-site reconditioning centers, the additional benefit that you get from that is that you now have the cars closer to the stores and the markets. And we put them in, you know, we're putting them in markets where we have capacity challenges. And so we're having to pull cars from further distance for retail. Now, with these auction, these production centers being closer, you cut down on your logistics, which is a savings that, you know, we're going to continue to get whether, you know, there's tariffs or not.

Speaker Change: and old production centers and new stores. So I feel good about getting those. Then the question becomes how much will tariffs kind of offset that? Which again, we're going to continue to focus and go after that. The other thing I would tell you on these reconditioning centers, these offset reconditioning centers,

Speaker Change: The additional benefit that you get from that is that you now have the cars closer to the stores in the markets and we put them in markets where we have capacity challenges and so we are having to pull cars from further distance.

Speaker Change: for Retail. Now with these, these oxygen, these production centers being closer, you've cut down in your logistics, which is a savings that, you know, we're going to continue to get whether, you know, there's tariffs or not.

Brian Nagel: Good to hear.

John Murphy: Thank you very much.

Bill Nash: Thank you, John.

Operator: Thank you. Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open.

Speaker Change: It's good to hear. Thank you very much. Thank you, Jon

Brian Nagel: Good morning.

Bill Nash: Nice quarter. Congratulations. Thank you, Brian.

Brian Nagel: I think Seth asked the question about.

Good morning. Nice quarter, congratulations. Thank you, Brian .

Brian Nagel: I think Seth asked the question about.

John Murphy: The quarter to trend business and you.

Brian Nagel: Said, you know, Bill, you're running high.

Speaker Change: So I want to, I'm going to, I can step ask the question about the quarterly trend business and you said, you know, Bill, you're running high high civil digits would, would be a step up from, you know, what we, what you did in two, four, and then particularly as you talked about February , so I guess I know you're not, I know you don't give guidance, but what I want to ask is, is you're looking at the business. [inaudible]

John Murphy: Single digits would be a step up.

Brian Nagel: From what you did in Q4 and then particularly as you talked about February. I guess I know you're not.

Bill Nash: I know you don't give guidance, but what I want to ask is, I mean, as you're looking at the business.

Brian Nagel: You know, how should we think, particularly?

Bill Nash: Against what is a very fluid macro backdrop?

Brian Nagel: I mean, how should you think about?

Bill Nash: How should we think about the sustainability of that early fiscal Q1 performance? I mean, do you think, is it, is it a catch up from maybe February? Is it, does it reflect, you know, potentially people buying cars ahead of time because of tariffs or is this overall sustainability from your standpoint? Yes, first of all, I don't think it's a catch up for February. I think we probably got a little bit of benefit there because again, you're not going to get the catch up on the leap day miss, which you will get a little catch up on: is the tax refunds, a little bit of weather. But that's very small in the scheme of things. So I wouldn't look at it as nearly like a catch up as you said. We don't give guidance for the full year.

Speaker Change: How should we say, particularly against what is a very fluid macro about dropping? How should you think about, how should we think about the sustainability of that? Thank you very much.

Speaker Change: Holy Fiscal Q1 performance. Do you think it is a catch-up from maybe February ? Does it reflect potentially people buying cars ahead of time because of tariffs? There's overall sustainability from your standpoint. [inaudible]

Speaker Change: Yeah, first of all, I don't think it's a catch up for Fedura. I think we probably got a little bit of benefit there because...

Speaker Change: because again, you're not going to get the catch up on the lead day this, which you will get a little catch up on is the tax refunds a little bit of weather, but that's very small in the scheme of things. So I wouldn't look at it nearly as nearly like a catch up. And as you said, we don't give guys for the full year, but I will tell you, Brian , I mean. [inaudible]

Bill Nash: But I will tell you, Brian, I mean we expect that momentum that we've been seeing for the last three quarters. We're coming into the year very strong, and we've got some good momentum, and we would expect to continue that momentum. Obviously you alluded to it. I mean there's a lot that's going on in the macro right now, and it's changing. It's a very fluid situation. We're constantly monitoring it. We're looking at mitigation plans from a part standpoint, all kinds of things. So it's a little hard to speak on the whole year. But I will tell you that we feel good about the momentum coming into this year. That's helpful. I appreciate it. Thank you. Sure.

You know, we expect-

Speaker Change: That momentum that we've been seeing for the last three quarters we're coming into the year very strong and we've got some good momentum and we would expect to continue that momentum obviously you alluded to I mean there's a lot that's

Speaker Change: I'm going on in the macro right now, and it's changing. It's a very fluid situation. We're constantly monitoring it. You know, we're looking at mitigation plans from a park stamp when all kinds of things. So it's a little hard to speak on the whole year, but I will tell you that we feel good about the momentum coming into this year.

Operator: Thank you. And your next question comes from the line of Scott Ciccarelli with Truist. Your line is open.

Bits helpful, I appreciate it. Thank you. Sure.

Speaker Change: Thank you. And your next question comes from the line of Scot Ciccarelli with Truist. Your line is open.

Bill Nash: Hi, good morning guys.

John Murphy: Josh Young on for Scott.

Bill Nash: So Josh, you talked a bit about.

John Murphy: The improving market share here in the.

Bill Nash: Back half of the year, but with it sitting just under 4% today, curious.

John Murphy: What do you think you have to do from here and what has to happen to get closer to that 5% target over time?

Bill Nash: Yes, I think everything that they're working on that I've highlighted earlier on this call. This look, our big focus right now is growing sales and robust EPS, and if you do those things, all the other stuff is going to work out great, including market share. If I look at the market share for this last year, we're gaining market share; we're taking it from other dealers. The interesting thing is you also see where P2P is growing market share when you look at that 0- to 10-year span base, and the PMP strength is really in kind of the older vehicles which you would expect. So I think we're, you know, we've got all the steps in place to continue, as I said, you know, January, which is the latest title data that we have at this point, we're continuing that share gain.

Speaker Change: Yeah, I think everything that they're working on that I've highlighted earlier on this call this continue look our big focus right now is growing sales and robust EPS and if you do those things all the other stuff is going to work out great including

Speaker Change: Marketshire. If I look at the market share for this last year, we're gaining market share, we're taking it from other dealers.

Speaker Change: The interesting thing is you also see where P to P is growing market share when you look at that zero to the 10 space.

Speaker Change: and the PNPD strength is really kind of the older vehicles which you would expect.

Speaker Change: So I think we've got all the steps in place to continue, as I said, January , which is the latest title data that we have at this point. We're continuing that share gain. And like I said,

Bill Nash: Like I said, you know, with Brian, we like the momentum that we're on and we would expect to continue to gain market share.

Speaker Change: You know, with Brian , we like the momentum that we're on and we would expect to continue to gain market share.

Jon Daniels: Got it.

John Murphy: That's helpful.

Bill Nash: Thanks.

Operator: Thank you, thank you. Your next question comes from the line of Jeff Lick with Stephens Inc. Your line is open.

Got it, that's helpful, thanks. Thank you.

Speaker Change: Thank you. And your next question comes from the line of Jeff Lick with Steven Sink. Your line is open.

John Murphy: Good morning, guys. Congrats on a nice quarter. I was wondering if we could talk about sourcing. You know, in this quarter you bought 46,000 units from dealers, which is the most you've ever done on a percent basis in terms of improvement or even unit basis, you know, and also your overall purchase, you know, of 269 was 89% of the combined units. I think a big thing going forward, especially in this tariff scenario, is going to be your ability to source. Could you talk about, you know, both on the dealer front and the consumer front, and any evolutions or changes, and what drove the kind of pickup there and improvement in Q4?

Good morning guys, congrats on a nice quarter.

Jeff Lick: I was wondering if we can talk about sourcing, you know, in this quarter, you need about 46,000 units from dealers, which is the most you've ever done on a percent basis in terms of improvement or even unit basis.

Jeff Lick: You know, and also your overall purchase, you know, of $2.69 was 89%.

Speaker Change: The Combined Yes. I think a big thing going forward, especially in this terror scenario is going to be your ability to source. Could you talk about, you know, both on the dealer front and the consumer front and any evolutions or changes in what what drove the kind of pick up there and improvement in Q4?

Bill Nash: Yeah, yeah, it's a great question. You're right. I think sourcing is critical. We're very pleased with the MaxOffer product. I think it's a solution that works well for dealers, obviously with the expansion. When I think about the performance there over the last year, it's being driven by first and foremost, just dealer expansion. This quarter we were up, from an active dealer standpoint, 40% year over year. As I said in my prepared remarks, we also made it very easier for them to use. If you look at the last year, we've got a great instant offer program for them. We also have one that allows them to take pictures if they'd like us to see some of the pictures that might be unique to that vehicle. We consolidated the vehicle condition information, making it faster and easier. We've made improvements.

Speaker Change: Yeah, yeah, it's a great question and you're right, I think sourcing is critical, we're very pleased.

Speaker Change: with the Max Offer product. I think it's a solution that works well for dealers, obviously, with the expansion. When I think about the performance there over the last year,

Speaker Change: It's been driven by, first and foremost, just dealer expansion. [inaudible]

Speaker Change: You know, this quarter we were up from active dealer standpoint 40% year over year. As I said in my prepare remarks, we also made it very easier for them to use. You know, if you look at the last year, we've got a great ins and offer program form. We also have one that allows them to take pictures that they'd like us to see some of the pictures that might be unique to that vehicle. We consolidate the vehicle condition information making it faster and easier. We've made improvements so, because you realize...

Bill Nash: So because you realize a dealer may start this MaxOffer on the desktop, but then need a mobile device to go see the car or whatever. So we've made a very seamless transition to go from device to device. So this past year was really about trying to make that experience better. The other thing that I would add is that we've also started to embed it in their inventory management systems in the dealership, which just makes it more convenient. And as I look forward to the upcoming year, I think we can still. We've got some improvements. We're working on some landing page improvements, and I think some more integrations into dealers, which will continue to attract dealers. So we feel good about it. Feel good about the momentum possible. Yeah.

Speaker Change: Dillon may start this max offer on the desktop, but then need a mobile device to go to the car or whatever, so we've made a very seamless transition to go from device to device. So, this past year was really about trying to make that experience better.

Speaker Change: Inventory Management Systems in the dealership, which just makes it more convenient. As I look forward to the upcoming year, I think we can still, we've got some improvements, we're working on some landing page improvements, and I think some more integrations into dealers, which will continue to attract dealers, so we feel good about it, feel good about the momentum. Thank you very much.

Bill Nash: I think you also asked about the consumers, and again, the consumers, as I said in my prepared remarks, we pretty much can give you an offer online now. There's very few cars that we can't. There is a small subset that we really need to see the car. But essentially 99%. You can get those offers. We've made it easier. I think there's progress. We've got some things chewed up there again with Appraisal Express, drop off, appraisal, pickup. There's some other things that we're working on there again, just to enhance that experience and continue to drive incremental buys.

Speaker Change: That's all I have to do. Yeah, I think you also add about the consumers. And again, the consumers that I said my preferred remarks, we pretty much can give you an awful online now. There's very few parts that we can't. There's a small subset that we really need to...

Speaker Change: I don't know if you need to see the car, but, you know...

Speaker Change: Essentially, 99% you can get those offers. We've made it easier. I think there's progress. We've got some things chewed up there, again, you know, with appraisal express drop off, appraisal pickup. There's some other things that we're working on there, again, just to enhance that experience. And can...

John Murphy: Then the last two weeks have been kind of crazy. There's been a pickup in conversion at the auction lanes in general. Any comments in terms of just looking at what we just talked about with Q4, any changes with the last two weeks?

and continue to drive incremental bars.

Speaker Change: And then the last two weeks have been kind of crazy. There's been a pick up and conversion at the auction lanes in general. Any comments in terms of just looking at what we just talked about with Q4. Any changes with the last two weeks.

Bill Nash: Yeah, well, I think you hit. I think you hit the nail on the head. You know, if you look at the wholesale the last couple weeks, there's a lot of folks out there trying to bid, which again, I think just makes me feel really good about all of our initiatives on supply and sourcing directly versus having to go that route.

Speaker Change: Yeah, well I think you hit the nail and the head. If you look at the wholesale the last couple weeks, there's a lot of folks out there trying to bid which again I think it just makes me feel really good about all of our initials on supply and sourcing directly versus having to go that route.

John Murphy: Awesome. Well, congrats and good luck on the next quarter.

Bill Nash: Thank you, Jeff.

Operator: Thank you. Your next question comes from the line of Rajat Gupta of J.P. Morgan. Your line is open.

Speaker Change: Awesome. We'll congrats and good luck on the next quarter. Okay, thanks, Jeff.

Speaker Change: Thank you. And your next question comes from the line of Rajat Gupta, would JP Morgan your line is open?

Brian Nagel: Great. Thanks for the question. I just had a follow up to Jeff's question earlier, Bill. I was trying to understand how are you as an organization trying to manage inventory acquisition over the next few weeks, couple months given firstly, there is already a lot of uncertainty around the tariffs. It may happen, it may go away. You know, you're hearing a lot about the auction lien activity. I mean, I'm curious, like, how are you managing your inventory acquisition in that backdrop? I mean, you think you need to be aggressive or you're just being cautious just in case tariffs actually don't stick? Ultimately, I'm just curious like, how is the company strategizing around that and have a very quick follow up on service, gross profit?

Rajat Gupta: Great. Thanks for thanking the question. I just had the follow-up to Jeff's question earlier. Bill, Janice, I understand how are you as an organization trying to manage an inventory acquisition over the next few weeks, a couple months?

Rajat Gupta: And given, firstly, there's already a lot of uncertainty around the terrace. It may happen. It may go away. You know, you're hearing a lot about the auction in activity. I mean, I'm curious like, how are you managing? I'm doing.

Rajat Gupta: Your Inventory Acquisition, in that backdrop, I mean, you think you need to be aggressive or you just being cautious, you know, just in case, you know, like status actually don't stick ultimately. I'm just curious like how the company strategizing around that and have a very quick follow up on service.

Bill Nash: Yeah, well, look, I think we manage inventory better than anybody in the business. We've been doing it for over 30 years. We are very familiar with operating and changing a fluid type of environment. Keep in mind we have the benefit of professional buyers who are on the ground. They're seeing things, coupled with data that we're getting, coupled with our own auctions. So I feel really good about where we are both from an inventory on the ground and our inventory going forward. And I have no doubt that the team will continue to execute at a very high level. And then you said you had a question on service as well. Yeah.

Rajat Gupta: Yeah, well look, I think we manage inventory better than anybody in the business. We've been doing it for over 30 years. We are very familiar with operating and changing a fluid type of environment. Keep them on. We have the benefit of professional buyers who are on the ground. They're seeing things coupled with data that we're getting coupled with our own auctions. We've been doing it for over 30 years. We've been doing it for over 30 years. We've been doing it for over 30 years.

Rajat Gupta: So, you know, I feel really good about where we are both from an inventory on the ground and our inventory going forward. And I have no doubt that the team will continue to execute it at a very high level. And then you should get a question on service as well.

Enrique Mayor-Mora: Curious.

Brian Nagel: What drove the significance? I mean, typically seasonally, you know, we see like a big drop in like service, gross profit. I'm curious what drove, you know, the improvement? Was it just, you know, just better productivity, you know, you know, just maybe some like cost takeout. Just trying to understand, you know, the cadence there.

Speaker Change: Well, yeah, Curest One Drill, the Significant, I mean, typically seasonally, you know, we see like a big drop in like service growth for outfit, a Curest One Drill, you know, the improvement, it was a just...

Speaker Change: You know, just better productivity, you know, you know, just maybe some like cost takeout Just trying to understand, you know the cadence there. I know I think

Bill Nash: I know.

Brian Nagel: I think Enrique talked about like flattish gross profit a little more than flattish.

Bill Nash: For the full year.

Speaker Change: and we get out about like slavish grotesque profit, a little more than slavish for the foyer. So, does it mean that, you know, this is going to be less seasonal from here on, on just that cadence? Just curious if you can add any more color on the service grotesque profit. [inaudible]

Brian Nagel: So does it mean that this is going to be less seasonal from here on? On just that cadence? Just curious if you could add any more color on the per-unit gross profit?

Enrique Mayor-Mora: I'll start maybe with your second point. The seasonality will still be in place. So from quarter to quarter, there's definitely still seasonal aspects to it, which is why we expect the first quarter of the year, as I had in my prepared remarks, to probably the strongest in the year because volume is higher. We'll also be comping over some cost coverage metrics we did last year. But I'd tell you in terms of why it's getting better, there's really three things that are driving the improvement that we've seen over the past two years now. We've consistently improved our performance and service. Number one is efficiency opportunities that we've driven. We've made investments in technologies like RFID trackers, investments in technology so we can better have better reporting in the stores to manage our costs. That's number one. Number two is we have taken cost coverage as well.

Speaker Change: And I'll start maybe with your second point. The season now will still be in place, so from quarter to quarter this definitely still seasonal aspects to it.

Speaker Change: which is why we expect the first quarter of the year. They had my prepared remarks to probably the strongest in the year because volume is higher. We'll also be copying over some cost coverage metrics we did last year. But I tell you in terms of why it's getting better, there's really three things that are driving the improvement. [inaudible]

Speaker Change: that we've seen over the past two years now. We've consistently improved our performance and service.

Speaker Change: Number one is efficiency opportunities that we've driven. We've made investments [inaudible]

and technologies like RFID trackers. [inaudible]

Speaker Change: Investments in technology so we can have better reporting in the stores to manage our costs. Number one, number two is we have taken cost coverage as well. So to match cost inflation that we've seen, we've had an ability to increase our fees there. Part of that is also driven by what Bill has talked about. The efficiency, improvements in cogs and logistics gives us an ability to take some fees there.

Enrique Mayor-Mora: So to match cost inflation that we've seen, we've had an ability to increase our fees there. And part of that is also driven by what Bill has talked about. The efficiency improvements in COGS and logistics gives us an ability to take some fees there without increasing the price of our cars. And then lastly, certainly sales being positive helps because service does have a large component of fixed cost. Certainly when you think of all the technicians that we're trying to retain, there is an aspect of fixed cost, especially in the shorter term. So you have positive sales, you know, stronger ability to leverage. And we would expect going into this year to have a year of profitability in service which we haven't had in several years and thereafter too.

Speaker Change: with out increasing the price of our cars. And then lastly, certainly sales being positive helps because service does have a large component of fixed costs. Certainly when you think of all the technicians that we're trying to retain, there is an aspect of fixed costs, especially in the shorter term.

Speaker Change: So, you have positive health, stronger ability to leverage, and we would expect going into this year...

Enrique Mayor-Mora: Feeding the earnings model that Bill talked about and our ability to deliver double digit EPS growth over several years is also because of that as well.

Speaker Change: to have a year of profitability and service, which we haven't had in several years, and thereafter too, feeding the earnings model that Bill talked about in our ability to deliver double digit EPS growth over several years is also because of that as well.

Brian Nagel: Got it.

Bill Nash: Great.

Brian Nagel: Thanks for all the color and debug.

Bill Nash: Thank you.

Operator: Thank you. Your next question comes from the line of Michael Montani with Evercore ISI. Your line is open. Yes.

Speaker Change: God, great, thanks for all the color and the luck.

Thank you.

Speaker Change: Thank you. And your next question comes from the line of Michael Montani with Evercore ISI. Your line is open.

David Lowenstein: Hey, good morning. Thanks for taking the question. Just wanted to ask, I guess a two-part thing. One was if you look at historically periods of appreciating prices, what does that typically do for your market share, and then also your margins. How would you typically respond there? Because historically you've called out. It can be challenging if we have abnormal depreciation. So if you get appreciation in price, does that help you from a share and margin perspective? And the follow-up question was you guys had mentioned an EPS outlook that includes, you know, if mid single digit unit growth is there, you could have high-teen EPS growth.

Yes, hey, good morning. Thanks for taking the question.

Speaker Change: Just wanted to ask, I guess, a two-part thing. One was, if you look at historically periods of appreciating prices,

Speaker Change: What does that typically do for your market share, and then also your margins?

Speaker Change: How would you typically respond there? Because historically, you've called out it can be challenging if we have abnormal depreciation, so if you get a appreciation in price, does that help you from a share and margin perspective? And the follow-up question was

You guys had mentioned an EPS outlook that includes

David Lowenstein: So, I'm wondering if there's anything we need to keep in mind as it relates to that for this current year, and then also, you know, anything we should know about from a timing perspective as we think through quarterly cadence?

Speaker Change: You know, if mid single digit unit growth is there, you could have high teen, EPS growth. So I'm wondering if there's anything we need to keep in mind as it relates to that for this current year and then also, you know, anything we should know about from a timing perspective as we think through quarterly cadence. [inaudible]

Bill Nash: Okay. So Michael, good morning. On the appreciating price environment, I think for every group that sells used cars, when you're in an appreciating environment, it makes it easier. And I think generally in an appreciating environment, you know, your margins are easier to manage because you're not having to do as many markdowns because again, you're going to sell the car if it's appreciating. The next car is going to be a little bit more expensive. So I think it helps your margin. I think from a market share standpoint too, it's, it would also help that. So I think that's good. And then your second question was on the model. Yeah.

Speaker Change: Okay, so Michael, good morning. On an appreciating price environment, I think for every...

Speaker Change: Group that sells used cars when you're an appreciating environment, it makes it it makes it easier and I think generally an appreciating environment

Speaker Change: You know, your margins are easier to manage because you're not having to do as many markdowns because again, you're going to sell the car and if it's appreciating, the next car is going to be a little bit more expensive. So, I think it helps your margin. I think from a market share standpoint too, it would also help that. So, I think that's good. And then your second question was on the model. [inaudible] sell the car

Enrique Mayor-Mora: So from a model, you know, we've spent the past several years, as we all know, investing in our omnichannel model, investing in capabilities, investing in efficiencies, and we feel very confident about our ability at this point to deliver robust EPS CAGR growth for several years at least. Talking high teens, like we mentioned in our prepared remarks on just mid single digit retail sales. And what that's enabled on are strong margins, strong growth in other GPU as well exceeding retail units. I talked about service, we talked about EPP opportunities. You also talk about SG&A. We're done with the heavy investment period. We're pivoting from building capabilities to leveraging, leveraging and enhancing them to grow efficiencies and to grow the bottom line. So we think we are really well positioned to grow.

Speaker Change: Yeah, so from a model, you know, we've spent the past several years as we all know, investing in our omnichannel model, investing in capabilities, investing in efficiencies.

Speaker Change: and we feel very confident about our ability at this point to deliver robust EPS Kager growth for several years at least.

Speaker Change: Doug and the high teams, like we mentioned, prepare to marks on just mid single-digit retail sales.

and what that's enabled on are strong. [inaudible]

Margins,

Speaker Change: Strong Growth, and other GPU as well, exceeding retail units. I talked about service. We talked about EPP opportunities.

Enrique Mayor-Mora: And then you throw in the share repurchase program that we're committed to; that's also going to juice our EPS. And then you take a look at CAF; we're making those investments there in terms of the full spectrum credit that John talked about. Those are also kind of in the shorter term, the medium term, and definitely in the longer term accelerators to our EPS growth. So we think we've built a model here that is in this really strong position to deliver outsized returns.

Speaker Change: and definitely in the longer term accelerators to our EPS road. So we think we've built a model here that is in this really strong position to deliver outsized returns.

David Lowenstein: Anything cadence-wise to think about as we progress through the year? Because I think you called out there could be some CAF-related things to keep in mind in Q1. But then, on the flip side, you also have potentially some benefits from the work you've done in service and EPP.

Speaker Change: Anything cadence wise to think about as we progress through the year because I think you called out there could be some some calf related things to keep in mind in the first quarter but then on the flip side you also have potentially some benefits from the work you've done in service and EPT.

Bill Nash: Yeah.

Enrique Mayor-Mora: Before jumping into CAF, I'll turn it over to John. Certainly from service, we do expect the first half of the year to perform probably better, holding everything constant, than the back half purely due to seasonality. When you think of higher volume and comping over some cost coverage metrics we did last year. So for service, I would expect outsized performance in the front half. Then for CAF, we'll just turn it over to John. Sure.

Speaker Change: Yeah, before jumping into Cap and I'll turn it over to Jon, certainly from service we do expect the first half of the year to perform probably better, holding everything constant in the back half purely due to seasonality.

When you think of higher volume...

Speaker Change: and Comping over some cost coverage metrics we did last year.

Jon Daniels: Yeah. I'd definitely like to take the opportunity to speak to Cadence on provision coming.

Speaker Change: So if it's service, I would expect that size performance in the front half, and then for calf, we'll just turn it over to Jon Sure, yeah, I would definitely like to take the opportunity to speak to Kate and so on provision, coming up, you know, mentioned prepared remarks that anticipate a sequentially higher near every year increase in provision in provision.

Bill Nash: You know, mentioned in the prepared.

Jon Daniels: Remarks that anticipate a sequentially higher year over year increase in provision. Just to give some orders of magnitude around that. I'll jump off Q4. So we had a $68 million more normalized provision in Q4. You're going to have a sequentially higher provision in Q1 because it's a higher. From a seasonality standpoint, it's a higher volume quarter. It is a lower credit quality quarter. So you can anticipate about a 30% to 35% increase off of that Q4 number simply from that aspect. Couple that with the fact that we said we are going to. We have taken some volume back that we were giving to flowing to Tier 2 partners, kind of undo a portion of our tightening. So you can add probably another 10% to 15% increase off of the Q4 number there.

and just to give some orders of magnitude around that. [inaudible]

Jon Daniels: So I'll jump off Q4. So we had a $68 million more normalized provision in Q4. You're going to have a sequentially higher provision in Q1 because it's a higher, from a seasoned knowledge standpoint, it's a higher volume quarter. [inaudible]

Jon Daniels: It is a lower credit quality quarter, so you can anticipate about a 30 to 35% increase all of that Q4 number simply from that aspect.

Jon Daniels: A couple of that with the fact that we said we are going to, we have taken some volume back that we were giving to following the Tier 2 partners, kind of undo a portion of our tightening, so you can add probably another 10 to 15% increase.

Jon Daniels: So you absolutely could see a 45% to 50% increase in provision in Q2 and that can.

Jon Daniels: Off of the Q4 number there, so you absolutely could see a 45% to 50% increase in provision in Q2 and that can, sorry, in Q1 and that tightening will continue, that increase will continue because, again, this is volume that we anticipate keeping, you're going to have to continue to provision for that added volume we're taking on. And then again, we will watch that economy very, very carefully, but the back half of the year, we anticipating taking in more volume from our tier two and tier three testing.

Bill Nash: Sorry.

Jon Daniels: In Q1 and that tightening will continue. Sorry, that increase will continue because again, this is volume that we anticipate keeping. You're going to have to continue to provision for that added volume we're taking on. And then again we will watch that economy very, very carefully. But the back half of the year we anticipate taking in more volume from our Tier 2 and Tier 3 testing. So again that would stack on there all in the long run. A very, very good thing for CAF. But an impact in the near term to our provision.

Jon Daniels: King, so again, that would suck on there. All in the long run, a very, very good thing for CAF, but an impact in the near term to our provision. That's relative to Q4. And that's relative to Q4. Is the key? Yes.

Enrique Mayor-Mora: That's relative to Q4, and that's relative.

Jon Daniels: To Q4 is the key.

Bill Nash: Yes. Thank you.

Operator: Thank you. And your next question comes from the line of Chris Bottiglieri with BNP Paribas. Your line is open.

Thank you.

Speaker Change: Thank you. And your next question comes from the line of Chris Bottiglieri with BNP Paraboss. Your line is open.

Bill Nash: Hey, guys, thanks for taking the question. So you've done a really nice job.

Enrique Mayor-Mora: Taking costs out of business the last.

Speaker Change: Hey guys, thanks for taking the question. So you've done a really nice job taking the cost of the business class to use, certainly consistently by own expectations.

Jon Daniels: Few years, certainly consistently my own expectations.

Bill Nash: The question is, though, if the economy slows from here and sales turn negative to mid-single or high-single digits again, does EPS decline high teens very.

Speaker Change: The question is though, if the economy slows from here and sales turn negative to mid-single or high single digits again, does ETFs decline high teens, very much like the upside, or do you have leverage left at your disposal to continue to cut costs and mitigate the opportunity leverage?

Enrique Mayor-Mora: Much like the upside, or do you?

Jon Daniels: Have levers left at your disposal to.

Bill Nash: Continue to cut costs and mitigate the operating leverage?

Enrique Mayor-Mora: Yeah, we feel good. Look, a couple things, I mean, one is we still have room for efficiency improvements. Those are part of our plan. Irrespective of kind of the macro economy, we're going after those efficiency improvements. That's number one. Number two is if there is a downturn in the economy, you know, we have pulled levers in the past. You know, we're positioned to pull those levers if we had to. Again, you know, you're looking at a management team here that's been through quite a few things here over the past few years. So we know kind of how to manage through these kind of environments, whether they're upswing or downswing.

Speaker Change: Yeah, we feel good to look at a couple things. I mean, one is we still have room for efficiency improvements. Those are part of our plan, irrespective of kind of the macro economy we're going after those efficiency improvements.

Speaker Change: That's number one. Number two is if there is a downturn in the economy, you know, we have full of levers in the past, you know, we're...

Speaker Change: position to pull those levers if we had to. Again, you know, you're looking at a management team here that's been through quite a few things here over the past few years, so we know kind of how to manage through these kind of environments whether they're up swing or down swing.

Bill Nash: Thank you.

Operator: Thank you. And your next question comes from the line of John Healy with North Coast Research. Your line is open.

Thank you.

Speaker Change: Thank you. And your next question comes from the line of John Healy with North Coast Research. Your line is open.

Bill Nash: Thanks for taking my question.

Enrique Mayor-Mora: Just kind of wanted to ask a.

Bill Nash: Big picture question, Bill.

Enrique Mayor-Mora: In the last couple of weeks, obviously.

Bill Nash: Outside of the macro, probably the biggest.

John Healy: I think she's taking my question. I'm just kind of wanted to ask a big picture question, Bill. In the last couple weeks, obviously outside of the macro, probably the biggest item on use. I think it's a big deal.

Jon Daniels: Item on used retail has just been.

Enrique Mayor-Mora: Some of the Amazon news. You know, obviously it doesn't appear.

Bill Nash: Like they're becoming a retailer per se.

Enrique Mayor-Mora: In the auto space, but would love.

Bill Nash: To get your thoughts about them entering.

Jon Daniels: In the fray and, you know, do.

Enrique Mayor-Mora: You view them as a, you know.

Speaker Change: But would love to get your thoughts about them entering in the fray and do you view them as the, you know, adversary competitor, you know, maybe elevating your peers.

Bill Nash: adversary, competitor, you know, maybe elevating your.

Enrique Mayor-Mora: Peers, or do you view them potentially?

John Murphy: As a partner and, you know, would.

Bill Nash: You be surprised if you maybe work.

Enrique Mayor-Mora: Collaboratively with them going forward?

John Healy: or do you view them potentially as a partner and would you be surprised if you maybe work collaboratively with them going forward? Thanks.

Bill Nash: Thanks. Yeah, good morning, John. Yeah, you know, I don't think anybody was surprised to see them actually get into this space. They'd been kind of talking about it, and to your point, they recently clarified they're more interested in kind of the listings, the lead generation, the advertising. So the way I see it is at this point, it's more like a facilitator that we facilitate with. I mean, we work with a lot of different facilitators. I would see us as more of a collaboration. We obviously get a lot of traffic just through CarMax.com, but we also, we work with facilitators to help complement the CarMax.com traffic. And I think that that's the way we kind of view it at this point. But certainly it's something that you continue to monitor.

Speaker Change: Yeah, good morning, John . Yeah, you know, I don't think anybody was surprised to see them actually get into this space. They'd been kind of talking about it. And to your point, they recently clarified, you know, they're more interested in kind of the listings, the lead generation, the advertising. So the way I see it at this point, it's more like a, you know, a facilitator that we facilitate with, I mean, we work with a lot of different facilitators. [inaudible]

Speaker Change: I would see us more of a collaboration. We obviously have a lot of traffic just through Carmax.com, but we also work with facilitators to help complement the Carmax.com traffic, and I think that that's the way we kind of view it at this point, but certainly it's something that you continue to monitor. I would also just tell you, it just makes me really glad that we've gone through this pivot to really become...

Bill Nash: I would also just tell you it just makes me really glad that we've gone through this pivot to really become an omnichannel retailer because I think customers are really looking for this combination of physical and digital assets when it comes to buying a car. And it's just, it's a big competitive moat that we built and it's very hard to replicate. So if you're going to get into the used car business, there's a lot.

An Army Channel Retour, because I think...

Speaker Change: Customers are really looking for this combination of physical and digital assets when it comes to buying a car. And it's a big competitive moat that we built and it's very hard to replicate. So if you're going to get into the used car business, there's a lot that has to be considered. And it's a big competitive moat that we built and it's a big competitive moat that we built and it's a big competitive moat that we built.

Enrique Mayor-Mora: That has to be considered.

Operator: Thank you. Your next question comes from the line of Chris Pierce with Needham. Your line is open.

Thank you very much.

Speaker Change: Thank you. And your next question comes from the line of Chris Pierce with the Needham. Your line is open.

Bill Nash: Hey, good morning everyone.

David Lowenstein: Morning.

Bill Nash: Just was curious as you move kind.

Hey, good morning, everyone. Good morning.

Enrique Mayor-Mora: Of more into six to 10 less.

David Lowenstein: Late model because of the opening of.

Speaker Change: As you move more into six to ten less late model because of the opening of the credit spectrum, is that an opportunity for are you competing against dealers you have traditionally competed against at a larger at a larger rate and there's potential for a new set of share gains or is like the six to eight year old car now.

Bill Nash: The credit spectrum, is that an opportunity?

Enrique Mayor-Mora: Are you competing against dealers? You.

Bill Nash: Haven't traditionally competed against at a larger, at a larger rate, and there's potential for a new set of share gains, or is like the 6- to 8-year-old car now what used to be the 2- to 4-year-old car because of what's happened with new car production. Is this a new competitive set or is it just kind of a continuation of the dealers you've been competing against for years now? Yeah, you know, I think, look, we've always sold one- to 10-year-old cars, and I think, you know, the, and I talked a little bit about this earlier. The biggest thing that we want to make sure that we do is that whatever we put the CarMax label on, it meets our quality standards.

Speaker Change: What used to be the two-to-four-year-old car because of what happened with new car production? Is this a new competitive set or is it just kind of continuation of the development competing against? [inaudible]

for years now.

Yeah, you know, I think look, we've always saw [inaudible]

Speaker Change: One to ten-year-old cars. And I think, you know, I talked a little bit about this earlier, the biggest thing that we want to make sure that we do is that whatever we put the Carmax label on, it meets our quality standards. And...

Bill Nash: And you know, when you start getting into the 6 to 10 population, there's a lot of vehicles that just don't meet the CarMax standards. And we're just not going to, we're not going to flinch on that standard. That being said though, we've obviously built the muscle to continue to produce that type of car and get it up to the CarMax standard. So what I would say is it's continuing to compete in the space that we've been in. But quite honestly it's a space where there's a lot of transactions that happen. I talked about the P2P consumer to consumer selling each other, especially in the 7, 8, 9 year old, 10 year old cars.

Speaker Change: You know, when you start getting into the 6 to 10 population, there's a lot of vehicles that just don't meet the Carmax standards and we're just not gonna, we're not gonna,

Speaker Change: The Carmax Standard. So, you know, what I would say is it's continuing to compete in the space that we've been in, but quite honestly, you know, it's a space where there's a lot of transactions that happen. You know, I talked about the P2P, you know, consumer to consumer selling each other, especially in the 7-8-9-year-old, 10-year-old cars.

Bill Nash: There's a lot of vehicles in there that just, while it's in the denominator, it's not going to necessarily be in our numerator set. It's just not going to be able to be brought up to the quality standard. So I think that's the thing to think about, and I think the way enhances is again, if consumers are challenged on just everyday expenses and they're trying to figure out how to work a budget and they need to. They would traditionally buy a three- or four-year-old car. They may be saying, okay, well, I'm going to buy a six- or seven-year-old car, and we want to be able to meet that need.

There's a lot of vehicles in there that just...

Speaker Change: Walton, and the dominant. It's not going to necessarily be in our numerator. It's just not going to be able to be brought up to the quality standards. So I think that's the thing to think about. And I think the way it enhances it is.

You know, again, if consumers are challenged on

Speaker Change: You just every day expenses and they're trying to figure out how to work a budget and they need to, you know, they would traditionally buy a three or four-year-old car. They may be saying, okay, well, I'm going to buy a six or seven-year-old car and we want to be able to meet that need. I think it's very similar to the...

Bill Nash: I think it's very similar to the folks that are thinking they're going to buy a new car and they realize, well, I can't get the new car to work in my monthly payment, I'm going to go down to a one or two year old late model car. So I think it's just kind of an evolution of the business and where the consumer is going. Just one thing to clarify on that. Yeah, just one thing I want to clarify.

Speaker Change: folks that are thinking they're going to buy a new car, and they realize, well, I can't get the new car to work in my monthly payment. I'm going to go down to a one or two-year-old late model car. So I think it's just a kind of an evolution of the business and where the consumer's going. [inaudible]

Jon Daniels: Chris, you made the comments as you go full spectrum and go 6 to 10, 10. I think they're relatively disconnected. The fact that CAF is going full spectrum, all we're doing is likely taking some volume from our Tier 2 and Tier 3 partners. We will drive some incremental sales. But you know, our Tier 2, Tier 3, even our Tier 1 players love 6 to 10 year old cars. So you know, I'd separate the inventory needs that we have from where CAF is playing in the credit spectrum as.

and just one thing. You're on that.

Speaker Change: Yeah, I just want to clarify Chris, you made the comments, as you go full spectrum and go six to ten, I think they're relatively disconnected. The fact that Cap is going full spectrum, all we're doing is

Speaker Change: I'm likely taking some volume from our Tier 2 and Tier 3 partners. We will drive some incremental sales, but you know, our Tier 2, Tier 2, Tier 3, even our Tier 1 players love 6 to 10 by year-old cars. So, you know, I'd separate the inventory needs that we have from where Cap is playing in the credit spectrum as well as their loves year to 4. I'm glad you made that point, Jon.

Bill Nash: Well, as they love zero to four back and forth.

Jon Daniels: Absolutely.

Bill Nash: I'm glad you made that point. Okay. And then just to follow up on.

Enrique Mayor-Mora: That though, is it? Can it be.

Bill Nash: Thought of as a GPU tailwind as you move into these, I don't want to say move into these older cars.

Speaker Change: Okay, and then just to follow up on that though, can it be caught up as a D.P.U.T., why aren't you moving to these? [inaudible]

Enrique Mayor-Mora: But maybe as you sell it.

Bill Nash: Yeah, yeah. I'm sorry if you ask that. I didn't, I didn't catch that part of the question. So, GPU tailwind. Look, when you sell older vehicles, they cost more to recondition, but especially in CarMax's case, they're kind of like a unicorn. You know where it's at. The CarMax quality standard, it certainly isn't a commodity. We think the quality, quality is better than others. So those do bring a little bit more margin. Okay, thank you, thank you, thank you.

Speaker Change: I don't want to say move into these other cars, but maybe as you sell it. Yeah, I'm sorry if you ask, I didn't catch that part of the question. So a GPU tailwind, look when you sell older vehicles they cost more to recondition but especially in Carmax's case, they're kind of like a unicorn, you know, where it's at the Carmax quality standard. It certainly isn't a commodity. We think the quality is better than others. So, you know, those do bring a little bit more margin. Yeah.

Operator: Your next question comes from the line of David Whiston with Morningstar. Your line is open.

Speaker Change: Okay, thank you. Thank you. Thank you. And your next question comes from the line of David Whiston with Morningstar, your line is open.

Bill Nash: Thanks. Good morning. Can you just talk a little bit more about the decision making process to change the 2 million goal where you?

Thanks. Good morning.

Speaker Change: You just talked a little bit more about the decision making process to change the two million goal, where you just withdrew the timeline completely as opposed to saying given macro factors, we think it'll be more like fiscal 30, because doing it the way you did it just seems like it's a bit more pessimistic and maybe that was intentional or maybe it wasn't. I just wanted to get more clarification. Thanks. Yeah, it definitely wasn't pessimistic. Look, I think the important thing right now is everybody...

Jon Daniels: Just withdrew the timeline completely as opposed to saying, given macro factors, we think it'll be more like fiscal 2030 doing.

Bill Nash: Is the way you did. It just seems like it's a bit more pessimistic, and maybe that was intentional.

Jon Daniels: Or maybe it wasn't.

Bill Nash: I just wanted to get more clarification. Thanks. Yeah, I definitely wasn't pessimistic. Look, I think the important thing right now is everybody should know that we're focused on driving sales and driving robust EPS growth. And look, there are a lot of macro factors. If you see, and I'll give you a prime example, if you see a highly appreciating market where you can get to the 30 billion way quicker, and it's really nothing that we, that we've done at this point. Same thing as if you see a slowdown; it may delay the total units. Right now there's just so much uncertainty out there. Why put a target out there? That's really speculative, not knowing exactly where this environment is going to go. And we just think that that's the prudent thing.

should know that we're focused on.

Speaker Change: Driving Sales, and driving robust EPS growth. And look, there are a lot of macro factors. If you see, and I'll give you a prime example, if you see highly appreciating market where you can get to the 30 billion way quicker. And it's really nothing that we've. [inaudible] I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry

that we've done at this point. [inaudible]

Speaker Change: and same things. If you see a slowdown, it may delay the total units. Right now, there's just so much uncertainty out there. Why put a target out there that's really speculative?

Bill Nash: But it does not take the focus on what we're going after and those targets. It just, it doesn't make sense to put a range on them at this point.

Speaker Change: and not knowing exactly where this environment is going to go. And we just think that that's the prune thing. But it does not take the focus on what we're going after and those targets. But it's just...

Enrique Mayor-Mora: Yeah, and just to build on that, like, even in our earnings release, you'll notice, like, we are focused on growing sales and focused on growing the bottom line. And I think that's what's important in this kind of environment. And then at the appropriate time, we'll come back with a timing outlook as well. We just need some more stability in what's out there. But again, we are focused on driving sales and driving profitability.

Speaker Change: It doesn't make sense to put a range on them at this point. Yeah, and just to build on that like even in our earnings release you'll notice like we are focused on growing sales and focus on growing the bottom line and I think that's what's important in this kind of environment.

Speaker Change: and then at the appropriate time, we'll come back with a timing, how it would look as well, we just need some more stability and what's out there. But again, we are focused on driving sales and driving profitability.

Bill Nash: Thanks guys.

Operator: Thank you. As a reminder, if you would like to ask a question today, please press the star and one on your telephone keypad. Your next question comes from the line of John Murphy with Bank of America. Your line is open.

Next time.

Speaker Change: Thank you. And as a reminder, if you would like to ask a question today, please press the star and one on your telephone keypad now. And your next question comes from the line of John Murphy with Bank of America. Your line is open.

Bill Nash: Sorry guys, I just wanted to sneak.

John Murphy: One follow-up in. I understand that the long-term goals have been postponed here in the guidance, but you did reiterate the earnings per share growth model, gave an update there. When you talk about double-digit earnings per share growth for years to come, you're talking about middle. That has to come with you. Get a CAGR of high teens on EPS with unit growth in the mid-single digits. I'm just curious, when you think about that, does that include the normalization of SGA from this 90% range back down to 70%, or is that after that's happened? If you're taking SGA down back to the normal level, you're really taking some of the growth capital that you're putting into the model, which makes sense.

John Murphy: Sorry guys, I just wanted to speak one follow up in. I understand that the long term goals have been postponed here in the guidance, but you did reiterate the earnings per share growth model, you know, gave an update there.

Speaker Change: When you talk about double digit earnings per share growth for years to come, you're talking about sort of mid, you know, that has to come with, you know, you'll get, you know, a cager of high teens on EPS with unique growth in the mid single digits. I'm just curious, when you think about that, does that include? [inaudible]

Speaker Change: The normalization of SGNA from this 90% range, back down to 70% or is that after that happens?

Speaker Change: because if you're taking SGNA down to back to the normal level, I mean, you're really kind of taking some of the growth capital that you're putting into the model, which makes sense.

John Murphy: But I'm just curious, is this kind of run rate basis, once we've gotten back to 70%, 75% estimated gross or does that include the normalization from 90% down to 70% in that statement?

Speaker Change: But I'm just curious, is this kind of run rate basis, once we've gotten back to 70, 75% extra unit of gross, or is that include the normalization from 90% down to 77% in that statement?

Enrique Mayor-Mora: Yeah, like over time we expect to get back to the mid-70s. It's going to take us some time to get there. All of that's factored into the guidance that we're providing. Right. So we expect that again with mid single digit retail unit growth we'd expect a CAGR of high teen EPS growth and there's a certain, there's an assumption of SG&A and a kind of ramping down over time, but that's embedded in that guidance.

Speaker Change: And like over time we expect to get back to the mid 70s, you know, it's going to take us some time to get there all that factor into the guidance that we're providing.

Speaker Change: So we expect that, again, with mid-single digit retail unit growth, we expect a keger of high teen EPS growth, and there's an assumption of STNA ramping down over time, but that's embedded in that guidance.

John Murphy: But to be fair, the mid-70, the gap between 90% and mid-70s, that's analogous to sort of CapEx or growth capital that shouldn't be viewed as operating. So I'm just trying to understand, is this something that on an operating basis you think you can do once, you know, as, you know, regardless of that normalization of SG&A.

But to be fair, the mid-70s, the gap between 90% and mid-70s,

Speaker Change: You know, that's analogous to sort of cat-backs or growth capital. That shouldn't be viewed as operating. So I'm just trying to understand is this something that on an operating basis, you think you can do once, you know, regardless of that normalization of SGNA. [inaudible]

Bill Nash: John, you know, unless we got some robust volume this year, I can't see us getting back to the mid-70s this year. Yet, you know, we stand by what the model, we feel really good about the momentum and think that we can provide great robust EPS growth even in the range that we're at right now.

So, Jon, you know, unless we got some-

Speaker Change: Robots, I can't see us getting back to the mid-70s this year yet, you know, we stand by what the model we feel really good about the momentum and think that we can provide great.

Enrique Mayor-Mora: So, again, the timing of getting back to the mid-70s is embedded in that guidance. And what I tell you is that you mentioned 90, you know, 91% where we ended this quarter relative to mid-70s. Q4 is the high point of SG&A as a percent of gross profit for the year, we were in the low 80s. Right. And so just as a point of clarification.

Speaker Change: Robust, EPS Grove, even in the range that we're at right now. Again, the timing of getting back to the mid-70s is embedded in that guidance. And what I tell you is that you mentioned 90% or we ended this quarter relative to mid-70s.

Speaker Change: Q4 is the high point of SNA as a percentage gross profit. For the year, we were in the low 80s. Right? And so, just as a point of clarification. [inaudible]

John Murphy: Okay, all right, thank you very much.

Enrique Mayor-Mora: Thank you.

Operator: Thank you. Your next question comes from the line of Rajat Gupta with J.P. Morgan. Your line is open.

Okay, all right. Thank you very much.

Lincoln.

Speaker Change: Thank you. And your next question comes from the line of Rajat Gupta. Would JP Morgan, your line is open?

Brian Nagel: Great, thanks for allowing me to ask another follow up. I just wanted to clarify because you've gotten some inbounds through the course of the call just on the comments around CAF and provisioning. Understand the mechanics around the first quarter step up fairly. Just curious, like, what was the suggestion from John that that level of provisioning will continue through the remainder of the year or into Q2, Q3, or it was just the fact that, you know, you're increasing the subprime mix or the Tier 2 mix that will continue. Just wanted to make sure we're tying those two comments appropriately.

Speaker Change: Oh, great. Thanks for your time. I just wanted to clarify because we've done some inbound flight to the course of the call. Just on the comments around CAF and provisioning.

Speaker Change: I understand the mechanics around the first quarter step up fairly. Just curious, what was the suggestion from Jon that? What was that?

Speaker Change: You know, that level of provisioning will continue through the remainder of the year, according to 2K3Q, or it was just the fact that, you know, you're increasing the subprime mix, or the tears you're getting mixed, that will continue. Just wanted to make sure we're tying those two comments appropriately. Thanks.

Enrique Mayor-Mora: Thanks.

Jon Daniels: Yeah, happy to clarify that, Rajat. Appreciate the question. So yeah, I think if you couple the two things, the larger one really in Q1 is certainly the step up in volume and the lower credit quality nature of Q1. So that is going to be the real big driver of the significant growth in the Q1 provision again as compared to the Q4 provision referring to. And then yes, you tack onto there the fact that we are going to capture 100, 150 basis points back at obviously highly profitable but at a higher loss reserve requirements. So higher provisioning there. Now that 100, 150 basis points we anticipate keeping through subsequent quarters. And then again on the back half we look to tack on more as we continue our testing in the Tier 2 and Tier 3 space.

Speaker Change: Yeah, happy to clarify that, Rajat, appreciate the question. So, yeah, I think...

Now, that 100, 150 basis points...

Speaker Change: We anticipate keeping through subsequent quarters, and then again, on the back cap, we look to tackle on more as we continue our testing in the tier two and tier three space. So that will add further, again, different seasonality in different quarters, but I just want you to keep in mind that, you know, that added penetration, added volume from calf, going deeper, has to be factored into your provisioning going forward. Again, long run, it's a win, but want you to keep that in mind. And then, of course, all, you know, [inaudible]

Jon Daniels: So that will add further again different seasonality in different quarters. But I just want you to keep in mind that, you know, that added penetration, added volume from CAF going deeper has to be factored into your provisioning going forward. Again, long run it's a win. But once you keep that in mind and then of course always the overarching comment of we will watch the macroeconomic situation decide what we do, but want to make sure you keep the added penetration in mind in subsequent quarters.

Speaker Change: Always the overarching comment of, we will watch the macroeconomic situation decide what we do, but want to make sure you keep...

Bill Nash: The other thing I would just add to that, Rajat, because you said something about subprime mix. What John's talking about here in the near term is taking back stocks that we were originating earlier. No, I just want to be clear, it's not going into subprime. It's basically pulling stuff back in that we had passed off to our Tier 2 partners. Now later in the year when we decide to go deeper into Tier 2 and Tier 3, then you could see a little bit of that. So I just wanted to make that distinction.

Speaker Change: I just want to be clear, it's not going into subprime, it's basically pulling stuff back in that we had passed off to our tier two partners. Now, later in the year, when we decided to go deeper into tier two and tier three, then you could see a little bit of that. So I just wanted to make that distinction.

Brian Nagel: Understood. Thanks so much for clarifying that again. Thanks again and good luck.

Enrique Mayor-Mora: Thank you. Thank you.

Speaker Change: Thomas Goodman. Thanks so much for joining us. Again, thanks again. Good luck. Thank you. Thank you.

Operator: Thank you. And your next question comes from the line of Michael Montani with Evercore ISI. Your line is open.

Speaker Change: Thank you. And your next question comes from the line of Michael Montani, with Everquer ISI, your line is open.

Bill Nash: Yes. Hi.

David Lowenstein: Thanks for letting me sneak another one in. Was just hoping. Could you clarify a little bit more what the Edmunds lease impairment charge was for? And then secondly, when could we think about the added penetration turning into a win? I guess more specifically, can you grow CAF profits if provisioning has to step up that much for this year?

Michael Montani: Thanks for letting me sneak another one in. Could you clarify a little bit more what the Edmonds Lee's impairment charge was for, and then secondly, the Edmonds, the Edmonds, the Edmonds, the Edmonds,

Speaker Change: One could we think about, you know, the added penetration turning into a win? I guess more specifically, can you grow CAF profits if provisioning have to step up that much for this year?

Enrique Mayor-Mora: Yeah, I'll take the first one. So we have a couple floors in the Edmunds Santa Monica headquarters that we've been actively trying to sublease really since we acquired them, but it's been a hard market in LA, as you can imagine. So more recently an elementary school was impacted by the LA fires, unfortunately, and they were in need of space. So we ended up subleasing one of the floors to them. So we were able to find the subleaser while helping the community. So it really was a win-win situation, and that kind of is what drove the impairment there.

Yeah, I think I'll take the first one. [inaudible]

Speaker Change: We have a couple of floors in the Edmonds Santa Monica Headquarters that we've been actively trying to sub-lease.

really since we acquired them. [inaudible]

Speaker Change: but it's been a hard market in LA, as you can imagine, so more recently an elementary school was impacted by the LA fires unfortunately and they were in need of space, so we ended up sub leasing one of the floors to them, so we were able to find the sub leaser while helping the communities, there really was a win-win situation and that's what drove the impairment there.

Jon Daniels: Yeah. And your second question, you know, do we see, given the provision, growth in CAF income? Short answer is absolutely, yes. We see growth in FY26 for CAF income on top of the provision that comes from strong net interest margins, obviously managing our expenses and all of that. But yeah, we absolutely see growth within the year and then obviously strong growth beyond that as the provision is trumped by the overall income we're going to gain.

Speaker Change: Yeah, and I'll see your second question, you know, do we see, given the provision, growth and income short answer is absolutely yes.

We see growth in FY26 for cap income.

Speaker Change: On top of the provision, it comes from strong interest margins, obviously mentioning our expenses and all of that, but we absolutely see growth within the year and then obviously strong growth beyond that as the provision is trumped by the overall income we're going to gain. [inaudible]

David Lowenstein: Understood. Thanks for the clarity.

Operator: Thank you. We do not have any further questions at this time. I'll hand the call back to Bill for any closing remarks.

Understood. Thanks for the clarity.

Thank you.

Bill Nash: Well, great. Well, thank you all for joining the call today and for your questions and support. Again, I want to just congratulate all of our associates for how they build and enhance our great culture, for everything they do to take care of each other, our customers, and our communities. We'll talk again next quarter. Thank you.

Speaker Change: We do not have any further questions at this time. I'll hand the call back to Bill for any closing remarks.

Bill Nash: Well, great. Well, thank you all for joining the call today and for your questions and support. Again, I want to just congratulate all of our associates for how they've built and enhanced our great culture for everything they do to take care of each other, our customers and our communities. And we'll talk again next quarter. Thank you.

Operator: Thank you. Ladies and gentlemen, that concludes the fourth quarter fiscal year 2025 CarMax Earnings Release Conference call. You may now disconnect.

Speaker Change: Thank you. Ladies and gentlemen, that concludes the fourth quarter fiscal year 2025 Carmax earnings release conference call. You may now disconnect.

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