Q4 2025 America's Car-Mart Inc Earnings Call
Joining me on the call today is that Campbell, our company's president and CEO, Jonathan Collins, our CFO and Jamie Fisher our CLO.
We issued our earnings release earlier this morning, and the supplemental materials are on our website, we will post a transcript of our prepared remarks. Following this call and the Q&A session will be available through the webcast.
During today's call certain statements, we make may be considered forward looking and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view.
These statements are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995, the company cannot guarantee the accuracy of any forecast or estimate nor does it undertake any obligation to update such forward looking statements for more information, including important cautionary notes.
Please see part one of the company's annual report on Form 10-K for the fiscal year ended April 32024, and our current and quarterly reports furnished to or filed with the Securities Exchange Commission on forms 8-K and 10-Q.
Speaker Change: As a note the comparisons that we will cover will be the fourth quarter of fiscal 2025 versus the fourth quarter of fiscal 2024, unless otherwise stated that I'll turn it over to you now.
Speaker Change: Thank you Becky and thank you everyone for your interest in America's car Mart and for joining us to hear more about our fourth quarter and full year results.
Before we get into the fourth quarter and full year performance I wanted to take a moment to address our leadership transition that's important to the future of America's car Mart.
After more than 15 years of dedicated service to our company half of that time as our Chief Financial Officer, Vickie Judy has transitioned into a newly created chief accounting officer role.
Vicki has played an integral part of <unk> growth, helping us navigate through multiple market cycles improve financial discipline and build the foundation of a resilient and scalable finance organization.
Speaker Change: Her deep institutional knowledge operational grounding and unwavering commitment to our mission have earned her the trust and respect of our board leadership team and Investor community.
We're fortunate that he will remain with car Mart working closely with our new CFO.
Speaker Change: This move reflects not only her commitment to a smooth and thoughtful transition, but also our intent to further strengthen our financial leadership.
Speaker Change: With that I'm pleased to formally welcome Jonathan Collins, as our new Chief Financial Officer.
Jonathan brings over two decades of global finance experience across large public companies high growth digital platforms and emerging markets.
He is a strategic and results driven leader, who has served in senior roles at Walmart.
Curt: Curt group and KPMG.
Curt: His background and operational transformation capital efficiency and long term value creation will be critical as we sharpen our focus on disciplined execution and financial performance.
Speaker Change: With that I'd like to turn it over to Jonathan Collins, our new CFO to briefly introduce himself and share a bit about why he chose America's car Mart and what he sees in our future Jonathan.
Jonathan Collins: Thank you Doug.
Jonathan Collins: Today marks my official one month anniversary with the company and I'm looking forward to spending more time with each of you on the investment community in the weeks and months ahead.
Jonathan Collins: I too want to acknowledge Vicki for her many years of dedicated service and a strong partnership we've quickly established.
Curt: Doug and I, both recognize that car Mart operates in a unique corner of the market one way or deep experience in sub prime consumer finance and automotive lending is critical to that end I'm excited to announce a new addition to my team Marie <unk>, our new senior Vice President of capital markets.
Speaker Change: He is a seasoned finance executive with over 20 years of leadership and consumer Auto finance.
Speaker Change: He will lead our capital markets activity, helping to diversify and improve our funding platforms.
Speaker Change: What originally drove major America's car Mart continues to Energize me every day, we are a mission driven company dedicated to keeping our customers on the road.
Speaker Change: Since my arrival I've developed an even deeper appreciation for our mission, our unique business model and our exceptional associates.
Speaker Change: We recently held a companywide field leadership meeting, where I had the opportunity to connect with our dealership and field level management. It was energizing and inspiring to see the commitment and passion that our associates have for our customers.
Speaker Change: I also want to recognize our talented finance team, who provide critical support to our shareholders Board leadership team and dealership associates.
Speaker Change: In fact, I got to engage with many of them within my first week as we successfully closed our seventh term securitization issuing $216 million in asset backed notes.
Speaker Change: The transaction was relatively by the market and we achieved a weighted average coupon of six point to 7%.
Speaker Change: 22 basis point improvement versus our January issuance, and 117 basis points tighter than our October 2020 for issuance.
Speaker Change: I was pleased with the depth of demand we saw in the favorable structure. We achieved this continued improvement in execution is a direct reflection of our growing investor confidence in the quality of our portfolio and the underlying credit performance.
Speaker Change: My enthusiasm for the company gross daily as I consider the opportunities ahead of us I'm, particularly excited about how we'll leverage our current investments capitalize on the strength of our balance sheet.
Speaker Change: <unk> is our unique integrated sales and financing business model to capture additional market share and continue building our on our remarkable depth of talent.
Speaker Change: We are establishing the foundation for significant future growth and it is an exciting time to be at America's car Mart, Doug back to you. Thanks Jonathan.
Doug: Have great confidence in the team's ability to improve the cost of our capital structure optimize our risk management capabilities and execute against the priorities that matter most to our shareholders.
Doug: Fiscal year 2025 was a defining year for our company one that marked a clear operational and financial turnaround.
Doug: The performance of sales collections, resulting gross margins underwriting were all evident.
Doug: Moving from a net loss of $31 4 million in the prior year to generating $17 9 million and net income this year, an improvement of more than $49 million.
Doug: This performance reflects the strength of our strategy, our disciplined execution and unwavering commitment from our team.
Doug: As we advanced key initiatives, we remain grounded in the values that guide and service our associates customers and communities.
Doug: Over the past year, we successfully executed several strategic initiatives to elevate our platform and position <unk> as a compelling multi year growth opportunity.
Doug: On the last call I mentioned I've been thinking about ways to improve our collections infrastructure. It's a critical piece of the business that is needed to support future growth.
Speaker Change: As a part of our commitment to evolve the customer experience I want to highlight the relaunch of pay your way.
Speaker Change: Our expanded suite of payment options that reflect how our customers live and manage their finances.
Speaker Change: Many of our customers operate outside of the traditional banking system.
Speaker Change: They often are underbanked lacking consistent access to a checking account or credit card or even a stable banking relationship.
Speaker Change: For years, we supported them to in person payments at our stores or with basic debit and Hh channels.
Speaker Change: But as digital financial tools more accessible so to have the expectations and the opportunities to serve this customer base and a smarter more flexible ways.
Speaker Change: Our updated pay your weight platform will give customers more control and convenience than ever before.
Speaker Change: We've added widely used platforms like Apple pay Google pay Venmo and Paypal.
Speaker Change: <unk> tools that don't require a traditional bank account.
Speaker Change: They're already familiar to many of our customers.
Speaker Change: We've also made cash payments easier and far more accessible.
Speaker Change: Access to our cash payment network has grown from about 14000 to over 80000 locations now, including dollar General Cvs Walgreens, Walmart and more.
Speaker Change: And thanks to our mobile pass that is stored directly in a digital wallet customers can self service by walking into these locations scanning a barcode and pay without ever needing to remember their account details, it's fast secure and tailored to their reality.
Speaker Change: In our stores, we're launching a campaign that allows customers to sign up for auto pay at the time of sale with different payment options and we've operated in the past.
Speaker Change: This helps reduce missed payments and gives customers more peace of mind.
Speaker Change: While relieving some of the day to day account management burden on our store teams.
Speaker Change: We believe these changes will strengthen payment performance improved customer satisfaction and ultimately deepen the relationship between our brand and the communities we serve.
Speaker Change: This pilot is live now and a few of our stores and will scale nationwide during the current quarter.
Speaker Change: Another important step that we've taken this year to strengthen credit performance is a transition to a more advanced underwriting and pricing model.
Speaker Change: For years, we've used a six by six scorecard to evaluate customer profiles and deal structures.
Speaker Change: Effective it limited our ability to finally segment risk and align pricing accordingly.
Speaker Change: About a year ago, we began testing a new seven by seven square card in parallel with our existing model.
Speaker Change: This gave us the opportunity to observe how customers would migrate between score bands and to analyze the impact with real world data before making a full transition.
Speaker Change: The expanded scorecard provides greater granularity and accuracy in projecting loss ratios and based on the data we've accumulated to date, we believe it will lead to an improvement in overall credit losses.
Speaker Change: It's still early but we're optimistic about how this will translate into improved credit performance and more informed capital deployment.
Speaker Change: In conjunction with the scorecard rollout, we also launched our first iteration of risk based pricing.
Speaker Change: I shared in the last quarter. We began this pilot in December across a small group of stores.
Speaker Change: With 34 locations live at the time of our last earnings call.
Speaker Change: Over the course of the fourth quarter, we collected valuable insights that are now shaping our go forward strategy.
Speaker Change: We started by testing rate increases in the riskier segments are one and two rated customers.
Speaker Change: We increased originating interest rates by a few hundred basis points and modestly increase the required down payments.
Speaker Change: What's notable is that we saw no material drop in application conversion, indicating that we have pricing power even in our highest response.
Speaker Change: Firstly, we tested modestly lower interest rates for our highest quality customers those seven rated.
Speaker Change: And saw a meaningful improvement in sales volume.
Speaker Change: The early reads suggest theres, a real opportunity to grow share among better qualified consumers, while enhancing the returns at the bottom of the credit spectrum.
Speaker Change: The strength of these results gave us the confidence to accelerate this rollout.
Speaker Change: And as of May eight risk based pricing is now live nationwide across all of our stores.
Speaker Change: <unk> acquisition dealerships.
Speaker Change: This transition doesn't just impact underwriting.
Speaker Change: It has broader implications for how we operate.
Speaker Change: A shift towards higher rated customers will influence the inventory mix, we carry over time, it should lower reconditioning costs and reduce the claims in our warranty products, creating either margin leverage or financial relief for the consumer.
Speaker Change: Altogether, we see this evolution in underwriting and pricing is a major enabler of smarter growth better risk adjusted returns and ultimately a more resilient business model.
Speaker Change: With this overview I'll now turn the call over to Jamie to review, our fourth quarter operating results.
Jamie: Thanks, Doug and good morning, everyone.
Speaker Change: The fiscal year, we remained focused on improving affordability.
Speaker Change: In the third quarter, we made a strategic decision to increase inventory levels by approximately 28% compared to the prior year ahead of the tax season.
Speaker Change: Our intent was to steer around the normal tax season bump in procurement price, but this became especially important given the uncertainty around tariffs.
Speaker Change: The result was less pressure on procurement during what has been a very speculative wholesale environment and ultimately reduced our reliance on the volume of cars, we would normally procure during the season.
Speaker Change: It's why our customers enjoyed the benefit of a vehicle sales price decreased during the fourth quarter of $316 to $17240.
Speaker Change: Despite the decrease in selling prices, we were still successful in driving incremental revenue of one 5% in the fourth quarter compared to the prior year's quarter.
Speaker Change: This was driven in two ways.
Speaker Change: The first by an increase of two 6% in unit sales volume and the second by a four 2% increase in interest income.
Speaker Change: For the full year, we sold 57022 units down just one 7% year over year.
Speaker Change: I would like to take a moment to recognize and thank our associates.
Speaker Change: Our improved execution and customer focused approach played a major role in the second half performance lift where the company rebounded with a seven 2% unit growth after ending the first half of the year down nine 3%.
Speaker Change: Beyond the operational execution, we took several decisive steps that fueled our fourth quarter performance.
Speaker Change: Our Q3 decision to raise service contract pricing continues to contribute to incremental revenue growth and to date, we have not seen any negative impact on product penetration.
Speaker Change: We launched our tax season marketing campaign earlier than last year generating demand sooner.
Speaker Change: And we leveraged our CRM platform that was implemented last summer, which has meaningfully improved our efficiency as we engage with customers throughout their buying journey.
Speaker Change: When looking at the full year revenue was relatively flat given the headwinds we experienced in the first half of the year.
Speaker Change: Looking ahead as Doug mentioned, we launched the new seven by seven scorecard and risk based pricing in early may.
Speaker Change: These tools give us greater insight into the buying power of our top customers and open the door to exploring adjustments to our inventory mix strategy.
Speaker Change: Over the coming year, we will be evaluating ways to balance our vehicle mix to the potential demand driven by our risk based pricing.
Speaker Change: Finally, Q4 gross margin came in at 36, 4%.
Speaker Change: From 35, 5% a year ago.
Speaker Change: A key driver of this improvement with stronger performance in our wholesale channel.
Speaker Change: Due to market reactions to ongoing tariff uncertainty prices are more elevated than typical spring, allowing us to capitalize on recovery values and the wholesale environment to achieve stronger retention on units sold in Q4.
Speaker Change: As we shared in prior calls our long term target for gross margin remains 37% to 38% on an annualized basis.
Speaker Change: For the full fiscal year gross margin finished at 36, 7%, a 200 basis point improvement.
Speaker Change: Looking ahead, we will continue to pursue opportunities to leverage technology enhanced profitability within our protection plan and deepen the impact of our cocks partnership as we work toward our goal.
Vicki: I'll now turn it over to Vicki to cover the rest of our results.
Vicki: Thank you Jamie.
Vicki: As mentioned in the press release, we improved net charge offs as a percentage of average finance receivables for the quarter to six 9% compared to seven 3% in the prior year quarter.
Vicki: And an improvement of 130 basis points for the full year on a relative basis, we saw overall improvement in both the frequency and severity of loss our average time to repossession improved by 14% compared to the same period in the prior year, our customers are staying on the road longer.
Vicki: With that backdrop, we made meaningful progress in how we address portfolio risk and I want to briefly explain the change in our allowance for credit loss reserves.
Vicki: In Q4, we implemented several enhancements to our Stifel allowance methodology, which when combined with our improved performance led to a $10 $3 million net reduction in our reserve balance.
Vicki: These changes are expected to improve the precision of the model.
Vicki: As our datasets have matured, especially in connection with our LLS originations, we've been able to model the performance of our receivables at a more granular level.
Vicki: We now have over 18 months of actual loss history related to the LLS originated receivable, which gives us confidence to weigh it more appropriately and because performance in this portfolio has consistently outperformed our legacy book, particularly around lots of severity.
Vicki: The result of the lower expected loss profile overall now that it accounts for 65, 7% of our receivables excluding our acquisition receivables. So while the headline number is a reserve reduction the takeaway is stronger we've reached a point in our underwriting and data maturity that allows us to reserve more precisely.
Vicki: These improvements will better align capital with risk and we believe that's a positive development for both the business and our investors.
Vicki: The allowance for credit losses, as a percentage of finance receivables net of deferred revenue and accident protection plan claims was $23 two 5% at quarter end.
Vicki: Our average originating term was $44 four months up from 44 months compared to the prior year quarter and down from $44 six months sequentially. We continue to optimize the distribution of the term by customer score shortening the term for our highest credit risk customers and allowing us.
Vicki: <unk> term link for our best credit scoring customers.
Vicki: At the end of the quarter the weighted average total contract term for the portfolio was 48 three months now.
Vicki: Weighted average age was 12, four months or 5% improvement over the prior year's quarter.
Vicki: We continue to make progress on boosting overall collections, which are up two 1% over last year, our teams executed well and collecting our seasonal tax payments and improved the monthly average total collected per active customer to $612 compared to $607 in the same period last fiscal year.
Vicki: <unk>.
Vicki: SG&A expenses increased by $3 8 million or eight 6%, primarily driven by our continued investments in technology talent and strategic acquisitions. These acquisitions are part of our long term growth strategy and while they temporarily impact SG&A leverage there.
Vicki: Instrumental in expanding customer portfolios and enhancing future revenue potential.
Vicki: Importantly, we remain focused on improving cost efficiency on a per customer basis.
Vicki: In this regard we made meaningful progress achieving a six 1% increase in SG&A per customer, which is notably lower than the overall dollar increase this.
Vicki: This reflects our commitment to scaling effectively while investing in growth.
Vicki: Interest expense decreased by $388000 or two 2% as we begin to benefit from the improvement in benchmark rates as well as the positive impacts from our recent improvement that securitization rates.
Speaker Change: Finally, it has been a privilege to be part of car mart's evolution and growth over the past 15 years in my new role as CIO.
Speaker Change: I'm excited to continue supporting the Companys success expand our financial capabilities and continue to help take car Mart to the next level. Thank.
Doug: Thank you and I'll turn it back to Doug to finish this up.
Doug: Thanks, Vicki <unk>.
Speaker Change: Proud of the experienced leadership team, we have built as we focus on our mission of delivering successful outcomes to our customers and creating long term value for our shareholders.
Speaker Change: As we look to the future I want to provide some expectations for fiscal year 2026.
Speaker Change: From a macro perspective, we believe the used car market will remain dynamic.
Speaker Change: We've done a nice job navigating the impact of tariffs on pricing, thus far and the impact on the vintage of vehicles. We procure has been relatively muted at around an increase of $300 per unit.
Speaker Change: Given the costs that we've taken out of procurement over the last year. This is very manageable.
Speaker Change: The tighter supply environment will be a challenge, but it has been for some time.
Speaker Change: As we think about diversifying our underwriting it presents an opportunity on the procurement side as we can expand the base of assets we buy we.
Speaker Change: We are very focused on helping our existing customers navigate the environment, while creating competitive options for some of our strongest ranking applicants.
Speaker Change: This represents a growth opportunity for the company and a more thoughtful way to grow our receivables.
Speaker Change: We will also continue to think about ways, we can connect and manage our relationships with our customers that support growing and scaling this business.
Speaker Change: Also the continued enhancements of our loss and related risk based pricing strategy are key initiatives that we expect will strength and credit performance and grow the size of our portfolio in the fiscal year.
Speaker Change: While we remain mindful of the macroeconomic backdrop, we are confident in our strategy our team and our platform.
Speaker Change: So with this overview, we'll move onto Q&A.
Speaker Change: Operator, please provide instructions to ask questions.
Speaker Change: Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered or you wish to move yourself from the queue. Please press star one again, we'll pulse hormone, while we compile the Q&A roster.
Speaker Change: Our first question comes from Vincent <unk> with <unk>. Your line is open.
Speaker Change: Hi, Good morning, Thanks for taking my questions first Jonathan Congratulations support to working with you and Vicki as well congratulations and well done.
Speaker Change: First I wanted to focus on kind of the macro and consumer behavior.
Speaker Change: So many things happening over the past quarter.
Speaker Change: And with tariffs and higher used car prices just wondering how that's affected the business if at all.
Speaker Change: Like for instance, did you see a pull forward of sales and has there been any difference in consumer behaviors for spending in some of our credit perspective and then.
Speaker Change: Since the quarter in May and June any differences there as well thank you.
Vincent: Good morning Vincent.
Speaker Change: On a sales standpoint, the real impact that we're seeing around the speculative nature of the wholesale environment really started to sort of rear its head in the April time periods. It was towards the end of the quarter there for us So I wouldn't say it had an impact on.
Speaker Change: Actual pricing for most of the quarter. So what we've seen thus far were articulated about a $300 increase on the procurement side per unit, we really started to see that in April and throughout May and so to the extent that that persists that piece is manageable and that's sort of what I was referencing in my prepared remarks.
Speaker Change: I don't think this is sort of more of a pull forward on the tax season, I know coming off Q3, we were talking about sort of lapping a weaker comp and I think sort of the growth that we're seeing now is sort of more sustainable in nature, when I think about our.
Speaker Change: Just activity lead activity in general we had double digit growth for the full year in terms of lead activity growth and so we feel really confident about the consumers and the need for the service that we provide it's just that we are being more selective and I think we have to be just given the supply environment. The industry on a hole from a trend perspective is starting.
Speaker Change: The year with less inventory on the ground from a used car supply perspective than it ever has in the last several years and so behooves us to make sure that we're doing the most with the capital that we're deploying to make sure. We can get optimum returns and that's why we're so focused on the credit piece.
Speaker Change: And so there's a lot that we can do as I mentioned before.
Speaker Change: Finished rolling out our risk based pricing model throughout all of our stores.
Speaker Change: That wasn't the original plan that we were going to sort of test that throughout the balance of the calendar year, but given sort of the backdrop on tariffs we thought it would be prudent to pull that forward to have that as a lever in the business and were quickly learning sort of what some of those opportunities are in the early indicators are that in those upper bands we can see.
Speaker Change: Growth better approaching double digit growth in the bands that we can get so we're excited about that it's still very early but I would look at that as an opportunity to maybe navigate additional headwinds that may come our way.
Speaker Change: Okay, Great very helpful. Thank you and then.
Speaker Change: Second question I wanted to get an update on all the different.
Speaker Change: Upgrades youre doing to your operations to procurement senior partnership with Cox automotive in AD.
Speaker Change: How that process is.
Speaker Change: Which inning are we in in terms of getting all of those processes done.
Speaker Change: And then your view of how that's going to affect your gross profit margins in the <unk>.
Speaker Change: Sales per store per months. Thank you.
Speaker Change: Yes sure thing.
Speaker Change: The gross profit perspective that has been a bright spot obviously.
Speaker Change: We were up 90 basis points in the quarter up 200 basis points year over year.
Speaker Change: We had articulated that we had this target for this 37% to 38% range over several years.
Speaker Change: As I said before I think we can get there sooner and I think that there's more that we can do just around the optimization of.
Speaker Change: Those products and I think our work isn't done sort of with the partnership and what it can yield there so.
Speaker Change: We'll have to let that play out, but clearly we're thinking beyond this 37% to 38% margin.
Speaker Change: But there's got to be tactics to sort of get there I think from the operational perspective, we feel really good about where the partnership is that what we need to deploy clearly we've turned our attention to how we're collecting for the consumers. So when I think about setting us up for growth. There were some fundamental things we needed to do there that included talent leadership, obviously, we bought Jamie on <unk>.
Speaker Change: <unk>.
Speaker Change: We are very focused on gross margin and making sure that that's appropriate and more of a return to the norm that it has been over several years, but on the credit side on the collection side in particular, the way that we interact with our consumers there is so much opportunity.
Speaker Change: Very manual today, and there was not a lot of technology that supports that but our first step towards that is the relaunch of our pay your way campaign and when I think about the opportunity for these consumers about half of households sort of use some of these mechanisms non traditional banking mechanisms to pay bills et cetera, when we did a study with <unk>.
Speaker Change: By her pagers segment in particular are roughly 25% of consumers use some of those digital methods, which aren't in any of our collections practices. Today I think that represents a tremendous opportunity to take the burden off some of the work that happens at the store level and the <unk>.
Speaker Change: Potential to collect better from our consumers and take the friction out of the process.
Speaker Change: That would be part one the second part is really around how do we interact and interface with these consumers that day to day phone calls et cetera, and similar to how we did on the sales side.
Speaker Change: Focused on how do we make sure that piece happens, it's one thing to diversify the payment channels that they can operate and it's another thing to have the communications and a build out of that experience on the back side to maintain the stickiness with these consumers that we've enjoyed over a long period of time.
Speaker Change: And the back half of that is already in flight and we think we can get that done at the back half of the fiscal year to me those are critical components before we sort of.
Speaker Change: Really get focused on unit growth I do see a very clear perhaps.
Speaker Change: Continue to grow receivables just based on how we are underwriting.
Speaker Change: I would consider us to be more focused on unit growth here as we wrap up these two projects.
Speaker Change: Okay perfect very helpful. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Okay.
Kyle Joseph: Our next question comes from Kyle Joseph with Stephens. Your line is open.
Kyle Joseph: Hey, good morning, guys. Thanks for thanks for taking my questions.
Speaker Change: And Doug if.
Kyle Joseph: If you don't mind, just walk us through.
Speaker Change: You talked about rolling out risk based pricing.
Speaker Change: We can expect that to kind of impacted the P&L specifically either on the on yields are on margins.
Speaker Change: Sure thing.
Speaker Change: Good morning, how are you.
Speaker Change: We rolled out risk based pricing where life throughout all of our stores.
Speaker Change: Through the fourth quarter, we had about 20% of the organization.
Speaker Change: It was version one of this risk based underwriting it included the scorecard, which gives us better accuracy to underwrite a project loss ratios and obviously, we get additional definition theyre moving to a 7% seven scorecard and this creation of this seven or eight customer, which is like our super tier internally.
Speaker Change: For us.
Speaker Change: Bottom side of the portfolio in sort of testing price elasticity.
Speaker Change: There is room to grow there we've moved about 200 basis points up with no real breakage and conversion.
Speaker Change: Also higher down payments and what we're trying to do is get better returns on these lower ranked customers theres a ton of opportunity that remains for the company, but we want to do that in a really smart thoughtful way.
Speaker Change: So we're going to continue to test that.
Speaker Change: I think throughout our organization that there's only one real limitation from a user recap standpoint, which would be Arkansas I think we have 36 or 37 stores. There. The rest of the organization can sustain sort of more yield management. So we will look to do that in the coming quarters, we have our second pilot.
Speaker Change: That's getting ready to go in flight this month and so we'll continue to test that piece on the upper end, we really focus on this seven ranked customer and so what we tried to do for these consumers who presented a very least risk to us is offer them slightly slightly lower down payment options.
Speaker Change: And a slight rate break and we did see some growth in overall volume within that customer segment and so it got us thinking about what we can do with <unk>.
Speaker Change: So were similar nature, five six and seven rent customers.
Speaker Change: Our test was really limited to the seven or eight customers, but clearly there is an opportunity to drive more volume that way.
Speaker Change: Would be our preference to continue to grow that way in our pilot for that rolls out our second iteration I would say it rolls out here this month as well the rest of the organization is on <unk>, one and we've started to see some of those results in may as well and so.
Speaker Change: We're really focused on trying to make sure we get higher quality customers in the portfolio. It obviously creates an opportunity as I mentioned.
Speaker Change: Jamie mentioned as well to diversify the stocking mix. So the pressure around procuring sort of one type of asset if we sort of moved upscale a little bit obviously, a little bit nicer car needs a little bit less repair prior to sale and post sale and.
Speaker Change: Obviously that would take a burden on the consumer and help gross margin when we're not having to manage the repairs for those vehicles downstream. So that credit piece that you're referencing does have impact both on the credit side and on the gross margin side potentially.
Speaker Change: Great. Thank you Doug.
Speaker Change: And then just just a follow up.
Speaker Change: I want to make sure I understand what's going on with unit volumes. Obviously, you guys had really strong growth in the third quarter and you guys talked about.
Speaker Change: Comps to a certain extent and I know you referenced there wasn't really like a pull forward in terms of tariffs, but with any sort of fourth quarter volume moved into the third quarter. I think last call you guys referenced that you started.
Speaker Change: Maybe tax season, and then there was a little earlier and just trying to get to.
Speaker Change: Is that what the what the real underlying growth of unit size between the two quarters, yes.
Speaker Change: Yes.
Speaker Change: I wouldn't say it was really a pull forward, we did see a little bit of impact in January right towards the tail end of the quarter. Our marketing campaign started mid December for that stocking campaign associated with that we really like a January sprint, we really tried to make sure we were getting in front of the tax season.
Speaker Change: Obviously was reflected in our balance sheet, when we were carrying heavier amount of inventory going into the tax season.
Speaker Change: I really think that did allow us to enjoy not to have to participate in some of the tariff noise, there and that really showed up in average selling prices.
Speaker Change: You follow us very closely typically we see a bump in retail selling prices, we saw reduction and that was based on the stocking strategy.
Speaker Change: Pes is gone and so we're in the market between vehicles.
Speaker Change: And I think to the extent that.
Speaker Change: We're out there and the tariff piece persists that pieces manageable I focus on the supply pieces, what would really be the driver for volume and it's a tight environment.
Speaker Change: Everyone's sort of following consumers going after our call it pre tariff inventory on the new vehicle side that drove a ton of trade ins those trade ins dealers are capitalizing on but thats a short lived play.
Speaker Change: Think sort of going into the summer people will be sort of really.
Speaker Change: Challenged with trying to find the right supply imbalance of supply of inventory and we're working on strategies to combat that clearly we're expanding the base of assets that we can start to procure and so we look at that as a potential way to mitigate some of that.
Speaker Change: That's great. Thanks, very much for answering my questions.
Speaker Change: Youre very welcome.
Speaker Change: Again, ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone.
Speaker Change: Our next question.
Speaker Change: Our next question comes from John Murphy with Bank of America. Your line is open.
John Murphy: Good morning, everybody.
Speaker Change: Doug.
Speaker Change: First question just on the condition of your customer because it kind of some cross currents here. It seems like things are getting.
Speaker Change: A bit better with some of your low end customers, but other data sources would indicate this subprime consumers under.
Speaker Change: A bit more stress I'm, just curious on a like for like basis. If you could talk about through the condition to your low end consumer because I mean, if you are able to absorb higher rates it.
Speaker Change: It seems like they are probably just probably better than people are fearing I just kind of on a like for like basis, maybe on a year over year and sequential basis.
Speaker Change: Are you seeing that air condition of your particularly your low end consumer.
Speaker Change: Yes, good morning, John how are you.
Speaker Change: I appreciate the question, obviously, we sort of articulated our consumers live sort of in a recessionary environment.
Speaker Change: I very much believe that Thats the case.
Speaker Change: Used to navigating bids they come to us for a need.
Speaker Change: If I, if I think about sort of the forward looking indicators for us like delinquencies look at contract modifications sleep payment arrangements that we make and ultimately the resulting net charge offs.
Speaker Change: There is no sort of cracks in the foundation that we see yet with these consumers.
Speaker Change: I think externally about the things that can impact our consumer we might have to fully focus on fuel cost consumables. What they are paying at the grocery store rent and auto insurance those are huge drivers of defaults for us as a company and we focus on those things, but those have been persistent for the last two years and so theres no real.
Speaker Change: Change quarter to quarter on that there certainly is this backdrop of theres more strain on the consumer it doesn't mean that it can't happen. It's just that we're not seeing it show up yet, especially when I have to start to think about the demand side. When you look at web site visits and overall traffic et cetera, we're not seeing that as well.
Speaker Change: Also when I think about our originating interest rate, which was the last part of your question.
Speaker Change: I don't think there are a lot of options out there for consumers just think about sort of the credit tightening out there and think about the originating interest rate that <unk> has versus its peer set and so we have been originating interest rates two years ago with a 17 handle that had changed to about 18 in the quarter and aggregate when were moving up.
Speaker Change: Couple of hundred basis points, I still think Thats, a really competitive option for the consumer at about 20% when compared to our peer set what we're looking at these consumers and so the fact that we've seen no breakage to me. It just means that we're still a competitive option and its lack of options for the consumer.
Speaker Change: It's sort of on its face is the value that we sort of happen in the marketplace.
Speaker Change: So hopefully that answers your question John.
John: That's super helpful.
John: Second question when you think about these underwriting.
John: <unk>, and what youre doing and sort of pushing towards that.
John: Youre sort of your tier seven customer sort of at the high end.
John: It was a long history of subprime auto financing companies.
Speaker Change: Moving up market and being very successful at it seems like Youre starting to do that I'm, just curious Doug how far you think youre going to.
John: Take this I mean is this the kind of thing where three years to five years from now you could be still.
John: Still doing the subprime with your tier one and two customers, but also all the way up to sort of a vintage of customer vehicle that might compete with the likes of Carmax carvana.
John: It's an interesting question. It reminds me of a conversation on the panel back in December about going up market.
John: Obviously I had an inside track on what we were thinking about.
John: Don't know the answer is it's very very early.
John: Clearly, it's been on our mind and the direction that we can take.
John: The business.
John: I think also our core customer there is a ton of opportunity there, especially when I think about in.
John: An environment that might be sort of degrading slightly where we would see additional inflow is for these consumers and we're really focused on ensuring that they also have options as well.
John: From an environment that is also deteriorating we do and are paying attention to the fact that theres going to be more consumers in the top of our funnel and it creates a tremendous opportunity for the consumer to grow the brand with those with our newer consumer that we normally wouldn't see.
John: So we want to make sure were positioned right there at that intersection where typically maybe they weren't thinking about a car Mart.
John: That's a marriage of both marketing the right asset type and these consumers, which typically maybe we haven't seen before and I don't know how far upstream it will go but there is enough.
John: Opportunity sort of at the very top end right to where we were as of six rated customer for us to do more just with that base and slightly just expanding and we'll have to see sort of what the.
John: The business sort of evolves into overtime, but it's been three months worth of this underwriting style and we are on about I think five weeks sort of nationwide and so we're learning a lot and really quickly, but I think that is one of the things that we wanted to do to make sure that we have leverage deployed to navigate whatever the environment is.
John: So hopefully that answers your question there John.
John: If I could sneak one last one in and highly correlated with all this stuff is I mean, the changes in success Youre, having your cap markets in the ABS.
John: Issuance I'm just curious how you think that success.
Speaker Change: Sort of sets you apart from.
John: Your competition out there and how much that might help fuel growth as well because I mean, it seems like.
Speaker Change: <unk> is really expanding youre getting tighter on the 77 box or better I should say.
Speaker Change: It just seems like you're what you're presenting of the market is getting more consistent maybe slightly higher quality.
Speaker Change: The real opportunities out there I mean, how do you think about sort of that flow through to the cap market and then how that circles back with the growth in the business overtime, Yes, Let me let me let me, let our new CFO given opportunity to answer that go ahead John.
Speaker Change: John Nice to hear from you.
John: I think I mean.
Speaker Change: You can see in our press release, we are quite pleased with our most recent securitization we continue to kind of expand spreads tightened spreads from from what we're seeing.
John: As a reminder, as a company.
John: Our history is managing this company through organic growth with an ABL or revolver.
John: A couple of years ago, we started to mature our capital structure, we have entered into the securitization market and to date, we've securitized over $2 billion in receivables.
Speaker Change: Mentioned in my prepared remarks, we hired Marie.
Speaker Change: There is a real thought leader from.
Speaker Change: Our capital markets.
Speaker Change: Help the starting to help us think through what can a much more mature capital structure look like that would match the size of our company today, but also the improving economics that we're trying to drive through that business. So one of the things. Both C&I are critically focused on is what are the other elements that we should be thinking about two <unk>.
Speaker Change: <unk> kind of our tools in our toolkit.
Speaker Change: Things like warehouse loans, maybe longer tenure type debt facilities.
Speaker Change: Facilities and structures.
Speaker Change: Early in our thinking, but we're working very hard and very quickly to try to come up with what's the future of that looks like.
Speaker Change: We will continue to utilize the securitization market.
Speaker Change: I think oil or last few securitizations have been slightly smaller and slightly more frequent.
Speaker Change: You would expect in the future, we would get back to kind of that normal cadence of two to three times a year a bit larger than what we have done in the last couple.
Speaker Change: But I would expect given the improving economic performance that.
Speaker Change: We should see.
Speaker Change: Ultimately lower interest rates from an income statement.
Speaker Change: As the market kind of continues to understand our business and get more comfortable with us.
Speaker Change: Got it.
Speaker Change: And then just one or two things there two thirds of the portfolio now sits with this LLS underwriting I think as we've sort of approach the market sort of sequentially people understand that and they are getting.
Speaker Change: A different look at the blend of percentage of receivables.
Speaker Change: LLS underwritten and so youre seeing that sort of reflect theyre in the coupon.
Speaker Change: Also notable that like we still have a single a ratings kept there things that we need to do to optimize the structure.
John Murphy: But absent none of those changes I still think there's more to go get and so that is sort of the opportunity. In addition to the things that John mentioned.
Speaker Change: And forgive me for my ignorance and I, probably should know this at this point, but you don't have a standard warehouse facility right now to like to push avs into the market you are still working off an ABL revolver.
Speaker Change: Correct.
Speaker Change: We do have a warehouse facility in place.
Speaker Change: But.
Speaker Change: But it's zero utilized and again like everything and as Doug mentioned, you could look across our entire balance sheet and P&L and there is room to improve.
Speaker Change: I'm always slightly dissatisfied and I want to improve further and so we're continuing to think about.
Speaker Change: What that might look how that might look differently. How are ABS ABL might look differently are there changes to our securitization model.
Speaker Change: And how we approach the market how that might look differently all to be able to improve.
Speaker Change: What what comes onto our income statement and ultimately be able to kind of.
Speaker Change: Some of our customers better.
Speaker Change: Great. Thank you very much guys.
Speaker Change: Got it.
Speaker Change: And Im sorry, Im not showing any further questions at this time and as such this does conclude today's presentation. We thank you for your participation you may now disconnect and have a wonderful day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.