Q2 2026 Carmax Inc Earnings 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 Loew Ensign Vice President Investor Relations. Please go ahead.

Thank you Mickey and good morning, everyone. Thank you for joining our fiscal 2026 second quarter earnings Conference call I'm here today with Bill Nash, our President and CEO Enrique Mayor Moore, our executive Vice President and CFO and John Daniels, Our executive Vice President.

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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.

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 2025, and our quarterly reports on Form 10-Q previously filed with the SEC.

Speaker #4: Please stand by. Your program is about to begin. Ladies and gentlemen, thank you for standing by. Welcome to the second quarter fiscal year 2026 CARMAX INC conference call.

Operator: Please step by. Your program is about to begin. Ladies and gentlemen, thank you for standing by. Welcome to the second quarter, fiscal year 2026 CarMax Inc. 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, Vice President, Investor Relations. Please go ahead.

Please note in addition to our earnings release, we have also prepared our quarterly investor presentation and both documents are available on the Investor Relations section of our website.

Speaker #4: At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

So do you have any follow up questions. After the call. Please feel free to contact our Investor Relations Department at 804, 747, or 402, two extension seven to $8 65.

Speaker #4: I would now like to hand off the conference over to your speaker today, David Lowenstein, Vice President Investor Relations. Please go ahead.

Speaker #5: Thank you, Nikki. Good morning, everyone. Thank you for joining our fiscal 2026 second 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 Jon Daniels, our Executive Vice President, CARMAX Auto Finance.

David Lowenstein: Thank you, Nikki. Good morning, everyone. Thank you for joining our fiscal 2026 second 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 Jon Daniels, our Executive Vice President, CarMax Auto Finance. 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.

Lastly, let me. Thank you in advance for asking only one question and getting back into queue for more follow ups Bill great. Thank you David Good morning, everyone and thanks for joining us today I want to start with our priorities, while our second quarter results fell short of our expectations. We remain focused on driving sales gaining market share and delivering.

Speaker #5: Let me remind you that 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.

Significant year over year earnings growth for years to come we have a differentiated and best in class Omnichannel customer experience and are focused on maximizing that advantage by driving operational efficiency and sharpening our go to market approach with this mindset are key priorities include first.

First focusing on price and selection. This includes maintaining a competitive prices, while minimizing macro factor impact and having the cars consumers are looking for at Carmax is high quality standards.

Speaker #5: 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.

Second driving consumer awareness of our differentiated experience. This includes not only our new brand campaign want to drop but also enhancing the conversion waterfall from web traffic all the way to the ultimate buy and or sell decision.

Speaker #5: In providing projections and other forward-looking statements, we disclaim any intent or obligation to update them. For additional information on important factors and risks that could affect these expectations, please see our Form 8K filed with the SEC this morning.

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 2025, and our quarterly reports on Form 10-Q previously filed with the SEC. Please note, in addition to our earnings release, we have also prepared a quarterly investor presentation, and both documents are available on the Investor Relations section of our website. 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. Bill?

Third.

Delivering incremental SG&A reductions of at least $150 million over the next 18 months. This will be broad based and it includes leveraging technology to drive efficiencies and our net promoter score to new Heights.

Speaker #5: Our annual report on Form 10-K for fiscal year 2025 and our quarterly reports on Form 10-Q were previously filed with the SEC. Please note, in addition to our earnings release, we have also prepared a quarterly investor presentation, and both documents are available in the investor relations section of our website.

And finally generating additional profit through components of our diversified business. This includes increasing caf penetration and profitability in a responsible and thoughtful way.

It also includes pursuing other opportunities across our business to drive incremental flow through to our bottom line.

Speaker #5: 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-up.

We are already making progress across these fronts and are confident in our strategy and our earnings model, which will produce high teen EPS growth with mid single digit retail unit growth.

During our first quarter call I mentioned that we saw an uptick in sales volume in March and April due to the tariff speculation this impacted our performance in the second quarter in two ways.

Speaker #5: Bill?

Speaker #6: Great. Thank you, David. Good morning, everyone, and thanks for joining us. Today, I want to start with our priorities. While our second quarter results fell short of our expectations, we remain focused on driving sales, gaining market share, and delivering significant year-over-year earnings growth for years to come.

Bill Nash: Great. Thank you, David. Good morning, everyone, and thanks for joining us. Today, I want to start with our priorities. While our second quarter results fell short of our expectations, we remain focused on driving sales, gaining market share, and delivering significant year-over-year earnings growth for years to come. We have a differentiated, investing-class, omnichannel customer experience and are focused on maximizing that advantage by driving operational efficiency and sharpening our go-to-market approach. With this mindset, our key priorities include, first, focusing on price and selection. This includes maintaining competitive prices while minimizing macro factor impacts and having the cars consumers are looking for at CarMax standards. Second, driving consumer awareness of our differentiated experience. This includes not only our new brand campaign, Wanna Drive, but also enhancing the conversion waterfall from web traffic all the way to the ultimate buy and/or sell decision.

First we ramped our inventory ahead of the second quarter to support this growth.

Across the across the back half of May through the end of June we saw about $1000 and depreciation which negatively impacted our price competitiveness and our sales.

Speaker #6: We have a differentiated and best-in-class omnichannel customer experience and are focused on maximizing that advantage by driving operational efficiency and sharpening our go-to-market approach.

Second while hard to quantify we believe there was a pull forward of demand into the first quarter.

In the second quarter, we responded by lowering retail margin to drive sell through and we intentionally slowed bias to balance our inventory with sales.

Speaker #6: With this mindset, our key priorities include: first, focusing on price and selection. This includes maintaining competitive prices while minimizing macro factor impact and having the cars consumers are looking for at CarMax.

This strategy has worked as both price competitiveness and inventory position has improved since that time and have put us in a better position for the third quarter.

During the quarter, we delivered total sales of $6 6 billion down 6% compared to last year, reflecting lower volume.

Speaker #6: Second, driving consumer awareness of our differentiated experience. This includes not only our new brand campaign, "Want to Drive," but also enhancing the conversion waterfall from web traffic all the way to the ultimate buy and/or sell decision.

In our retail business total unit sales declined five 4% in used unit comps were down six 3%.

Pressured performance across our eight zero to five inventory was partially offset by increased sales in older higher mileage vehicles.

Speaker #6: Third, we are delivering incremental SG&A reductions of at least $150 million over the next 18 months. This will be broad-based and will include leveraging technology to drive efficiencies and our Net Promoter Score to new heights.

Bill Nash: Third, delivering incremental SG&A reductions of at least $150 million over the next 18 months. This will be broad-based, and it includes leveraging technology to drive efficiencies and our net promoter score to new heights. Finally, generating additional profit through components of our diversified business. This includes increasing CarMax Auto Finance penetration and profitability in a responsible and thoughtful way. It also includes pursuing other opportunities across our business to drive incremental flow-through to our bottom line. We are already making progress across these fronts and are confident in our strategy and our earnings model, which will produce high team EPS growth with mid-single-digit retail unit growth. During our first quarter call, I mentioned that we saw an uptick in sales volume in March and April due to the tariff speculation. This impacted our performance in the second quarter in two ways.

Average selling price was $26000 a year over year decrease of approximately $250 per unit.

Second quarter retail gross profit per used unit was similar to last year, but down approximately $200 from the first quarter.

Speaker #6: And finally, generating additional profit through components of our diversified business. This includes increasing CAF penetration and profitability in a responsible and thoughtful way. It also includes pursuing other opportunities across our business to drive incremental flow-through to our bottom line.

The sequential decline was more than twice our historical average, reflecting the actions that I mentioned earlier, we will continue to focus on maintaining our price competitiveness and we will remain disciplined yet nimble and leveraging selection in margin to drive sales.

Speaker #6: We are already making progress across these fronts and are confident in our strategy and our earnings model, which will produce high-team EPS growth with mid-single-digit retail unit growth.

Wholesale unit sales were down two 2% versus the second quarter last year average wholesale selling price increased approximately $125 per unit to $7900 and wholesale gross profit per unit was historically strong and similar to last year.

Speaker #6: During our first quarter call, I mentioned that we saw an uptick in sales volume in March and April due to the tariff speculation. This impacted our performance in the second quarter in two ways.

We bought approximately 293000 vehicles during the quarter down 2% from last year.

Speaker #6: First, we ramped our inventory ahead of the second quarter to support this growth. Across the back half of May through the end of June, we saw about $1,000 in depreciation, which negatively impacted our price competitiveness and our sales.

Bill Nash: First, we ramped our inventory ahead of the second quarter to support this growth. Across the back half of May through the end of June, we saw about $1,000 in depreciation, which negatively impacted our price competitiveness and our sales. Second, while hard to quantify, we believe there was a pull-forward of demand into the first quarter. In the second quarter, we responded by lowering retail margin to drive sell-through, and we intentionally slowed buys to balance our inventory with sales. This strategy has worked, as both price competitiveness and inventory position have improved since that time and have put us in a better position for the third quarter. During the quarter, we delivered total sales of $6.6 billion, down 6% compared to last year, reflecting lower volume. In our retail business, total unit sales declined 5.4%, and used unit comps were down 6.3%.

We purchased approximately 262000 vehicles from consumers with more than half of those bonds coming through our online instant appraisal experience.

With the support of our Edmond sales team, we source the remaining approximately 31000 vehicles through dealers, which is slightly up from last year.

Speaker #6: Second, while hard to quantify, we believe there was a pull forward of demand into the first quarter. In the second quarter, we responded by lowering retail margin to drive sell-through, and we intentionally slowed buys to balance our inventory with sales.

This quarters by performance is a direct result of our decision to pullback offers to rightsize inventory, we are no longer intentionally slowing by and expect to see year over year improvement in the third quarter.

Speaker #6: This strategy has worked as both price competitiveness and inventory position have improved since that time, and have put us in a better position for the third quarter.

At the end of August we launched our new want to drive brand positioning campaign that brings to light our unique omnichannel experience.

Speaker #6: During the quarter, we delivered total sales of $6.6 billion, down 6% compared to last year, reflecting lower volume. In our retail business, total unit sales declined 5.4%, and used unit comps were down 6.3%.

Our net promoter score is the highest it's been since we rolled out our digital capabilities nationwide.

Driven by record high satisfaction, among customers purchasing online as well as those using our omnichannel experience.

Want to drive spotlights this unique offerings empowering customers to buy their way with the clarity confidence and control to navigate the journey on their terms.

Speaker #6: Pressured performance across our age 0 to 5 inventory was partially offset by increased sales in older, higher-mileage vehicles. Average selling price was $26,000, a year-over-year decrease of approximately $250 per unit.

Bill Nash: Pressured performance across our age 0 to 5 inventory was partially offset by increased sales in older, higher-mileage vehicles. Average selling price was $26,000, a year-over-year decrease of approximately $250 per unit. Second quarter retail gross profit per used unit was similar to last year, but down approximately $200 from the first quarter. The sequential decline was more than twice our historical average, reflecting the actions that I mentioned earlier. We will continue to focus on maintaining our price competitiveness, and we will remain disciplined yet nimble in leveraging selection and margin to drive sales. Wholesale unit sales were down 2.2% versus the second quarter last year. Average wholesale selling price increased approximately $125 per unit to $7,900, and wholesale gross profit per unit was historically strong and similar to last year. We bought approximately 293,000 vehicles during the quarter, down 2% from last year.

Want to drive appears across television and streaming social digital and audio and represents the first phase of a sustained multi phased strategy.

Speaker #6: The second quarter retail gross profit per used unit was similar to last year, but down approximately $200 from the first quarter. The sequential decline was more than twice our historical average, reflecting the actions that I mentioned earlier.

This approach, which we will complement with increased advertising spend demonstrates our commitment to long term brand investment that supports our growth objectives.

As previously discussed we've been focused on driving SG&A efficiencies, we're pleased with our progress so far and have line of sight to at least an incremental $150 million in SG&A reductions over the next 18 months. This does not impact our growth strategy as we will continue to invest in initiatives that position us for the future.

Speaker #6: We will continue to focus on maintaining our price competitiveness, and we will remain disciplined yet nimble in leveraging selection and margin to drive sales.

Speaker #6: Wholesale unit sales were down 2.2% versus the second quarter last year, average wholesale selling price increased approximately $125 per unit to $7,900, and wholesale gross profit per unit was historically strong and similar to last year.

Later, Enrique will comment on the anticipated scope of our efforts and the likely timing.

At this time I will now turn the call over to John to provide more detail on Carmax auto financing and our continuing focus on full credit spectrum expansion, John Thanks, Bill and good morning, everyone.

Speaker #6: We bought approximately $293,000 vehicles during the quarter, down 2% from last year. We purchased approximately $262,000 vehicles from consumers with more than half of those buys coming through our online instant appraisal experience.

Bill Nash: We purchased approximately 262,000 vehicles from consumers, with more than half of those buys coming through our online instant appraisal experience. With the support of our Edmund sales team, we sourced the remaining approximately 31,000 vehicles through dealers, which is slightly up from last year. This quarter's buy performance is a direct result of a decision to pull back offers to right-size inventory. We are no longer intentionally slowing buys and expect to see year-over-year improvements in the third quarter. At the end of August, we launched our new Wanna Drive brand positioning campaign that brings to light our unique omnichannel experience. Our net promoter score is the highest it's been since we rolled out our digital capabilities nationwide, driven by record high satisfaction among customers purchasing online as well as those using our omnichannel experience.

During the second quarter Carmax auto finance originated over $2 billion, resulting in sales penetration of 42, 6% net of three day payoffs, which was 60 basis points above last year the.

Speaker #6: With the support of our Edmunds sales team, we sourced the remaining approximately $31,000 vehicles through dealers, which is slightly up from last year. This quarter's buy performance is a direct result of our decision to pull back offers to right-size inventory.

The weighted average contract rate charged to new customers was 11, 2% versus 11, 4% last quarter and reflects downward great testing executed within the quarter.

Speaker #6: We are no longer intentionally slowing buys and expect to see year-over-year improvement in Q3. At the end of August, we launched our new "Want to Drive" brand positioning campaign that brings to light our unique omnichannel experience.

While cap full quarter increase in penetration appears modest we believe the tariff pull forward in Q1 negatively impacted caf share during the early part of the quarter.

Since the beginning of the fiscal year, we have made underwriting adjustments that translate to a 100 to 200 basis points of growth, but the full realization of this growth can be impacted by non controllable factors, such as customer credit mix and partner lender behavior.

Speaker #6: Our net promoter score is the highest it's been since we rolled out our digital capabilities nationwide, driven by record-high satisfaction among customers purchasing online as well as those using our omnichannel experience. Want to Drive spotlights this unique offering: empowering customers to buy their way, with the clarity, confidence, and control to navigate the journey on their terms.

It is important to note that more than half of the impact from these adjustments comes from recaptured tier one segments, but with additional criteria overlay to reduce risk while the remainder of it comes from within the top half of the tier two space, which we have been testing over the past year.

Bill Nash: Wanna Drive spotlights this unique offering, empowering customers to buy their way with the clarity, confidence, and control to navigate the journey on their terms. Wanna Drive appears across TV, streaming, social, digital, and audio, and represents the first phase of a sustained multi-phase strategy. This approach, which we will complement with increased advertising spend, demonstrates our commitment to long-term brand investment that supports our growth objectives. As previously discussed, we've been focused on driving SG&A efficiencies. We're pleased with our progress so far and have line of sight to at least an incremental $150 million in SG&A reductions over the next 18 months. This does not impact our growth strategy, as we will continue to invest in initiatives that position us for the future. Later, Enrique will comment on the anticipated scope of our efforts and the likely timing.

Speaker #6: Want to Drive appears across TV, streaming, social, digital, and audio, and represents the first phase of a sustained multi-phase strategy. This approach, which we will complement with increased advertising spend, demonstrates our commitment to long-term brand investment that supports our growth objectives.

Third party tier two and tier three penetration in the quarter combined for 23, 8% of sales versus 24, 4% last year as cash growth had an impact on partner volume.

GAAP income for the quarter was $103 million down $13 million from FY 'twenty five.

Speaker #6: As previously discussed, we've been focused on driving SG&A efficiencies. We're pleased with our progress so far and have line of sight to at least an incremental $150 million in SG&A reductions over the next 18 months.

Net interest margin on the portfolio was six 6% up over 50 basis points from last year and relatively in line with last quarter.

Gas loan loss provision of $142 million results in a total reserve balance of $507 million for $3 eight 2% of managed receivables exclusive of auto loans held for sale.

Speaker #6: This does not impact our growth strategy, as we will continue to invest in initiatives that position us for the future. Later, Enrique Mayor will comment on the anticipated scope of our efforts and the likely timing.

Of the 142 million $71 million is attributed to new originations within the quarter, while the remaining $71 million as an adjustment to the loss expectation of the existing portfolio.

Speaker #6: At this time, I will now turn the call over to Jon to provide more detail on CARMAX Auto Financing and our continuing focus on full credit spectrum expansion.

Bill Nash: At this time, I will now turn the call over to Jon to provide more detail on CarMax Auto Finance and our continuing focus on full credit spectrum expansion. Jon? Thanks, Bill, and good morning, everyone. During the second quarter, CarMax Auto Finance originated over $2 billion, resulting in sales penetration of 42.6%, net of three-day payoffs, which was 60 basis points above last year. The weighted average contract rate charged to new customers was 11.2% versus 11.4% last quarter and reflects downward rate testing executed within the quarter. While CAF's full quarter increase in penetration appears modest, we believe the tariff pull forward in Q1 negatively impacted CAF share during the early part of the quarter.

Also of note as we've seen in the first quarter. There was a reduction on the required provision stemming from $16 million in the reserve allocated to loans booked prior to Q2 now classified as held for sale.

Speaker #6: Jon?

Speaker #2: Thanks, Bill, and good morning, everyone. During the second quarter, CARMAX Auto Finance originated over $2 billion, resulting in sales penetration of 42.6%, net of three-day payoffs, which was 60 basis points above last year.

The primary driver of the $71 million adjustment on the existing portfolio comes from additional losses anticipated within the 2022 and 2023 vintages recall these customers have been the most impacted by the convergence of rapidly increasing vehicle prices and broader inflation.

Speaker #2: The weighted average contract rate charged to new customers was 11.2% versus 11.4% last quarter and reflects downward rate testing executed within the quarter. While CAF's full-quarter increase in penetration appears modest, we believe the tariff pull-forward in Q1 negatively impacted CAF share during the early part of the quarter.

Despite the observed worsening these vintages still remain highly profitable at an estimated lifetime profit of $500 per unit versus $1800 contemplated at origination.

Speaker #2: Since the beginning of the fiscal year, we have made underwriting adjustments that translate to 100 to 200 basis points of growth. However, the full realization of this growth can be impacted by non-controllable factors such as customer credit mix and partner-lender behavior.

Bill Nash: Since the beginning of the fiscal year, we have made underwriting adjustments that translate to 100 to 200 basis points of growth, but the full realization of this growth can be impacted by non-controllable factors such as customer credit mix and partner lender behavior. It is important to note that more than half of the impact from these adjustments comes from recaptured Tier 1 segments, but with additional criteria overlaid to reduce risk, while the remainder comes from within the top half of the Tier 2 space, which we have been testing over the past year. Third-party Tier 2 and Tier 3 penetration in the quarter combined for 23.8% of sales versus 24.4% last year, as CAF's growth had an impact on partner volume. CAF income for the quarter was $103 million, down $13 million from FY25.

Additionally, they continue to shrink in size and contribution to the overall portfolio as they are replaced with more recently originated tier one receivables at significantly lower loss rates.

Speaker #2: It is important to note that more than half of the impact from these adjustments comes from recaptured Tier 1 segments, but with additional criteria overlaid to reduce risk.

Note that 2024, and 2025 post contraction, but it just continued to be right in line with our original loss expectations.

Speaker #2: While the remainder comes from within the top half of the Tier 2 space, which we have been testing over the past year. Third-party Tier 2 and Tier 3 penetration in the quarter, combined for 23.8% of sales versus 24.4% last year, as CAF's growth had an impact on partner volume.

Regarding the funding aspect of our full spectrum efforts yesterday, we closed our 25 B transaction, our second non prime securitization of the year.

This was upsized to $900 million in total notes and for the first time included the sale of most of the residual financial interest in the transaction to third party investors, thus, resulting in off balance sheet treatment.

Speaker #2: CAF income for the quarter was $103 million, down $13 million from FY25. Net interest margin on the portfolio was 6.6%, up over 50 basis points from last year and relatively in line with last quarter.

Bill Nash: Net interest margin on the portfolio was 6.6%, up over 50 basis points from last year and relatively in line with last quarter. CAF's loan loss provision of $142 million results in a total reserve balance of $507 million or 3.02% of managed receivables exclusive of auto loans held for sale. Of the $142 million, $71 million is attributed to new originations within the quarter, while the remaining $71 million is an adjustment to the loss expectation of the existing portfolio. Also of note, as was seen in the first quarter, there was a reduction on the required provision stemming from $16 million in the reserve allocated to loans booked prior to Q2, now classified as held for sale. The primary driver of the $71 million adjustment on the existing portfolio comes from additional losses anticipated within the 2022 and 2023 vintages.

We expect the gain on sale to be approximately $25 million to $30 million in third quarter income.

We also expect to receive approximately 40% to $45 million and additional cap income related to servicing fees and the retained beneficial interest over the life of the transaction.

Speaker #2: CAF's loan loss provision of $142 million results in a total reserve balance of $507 million, or 3.02% of managed receivables exclusive of auto loans held for sale.

As a reminder, going forward there will be no loss allowance or provision for this pool of loans.

Speaker #2: Of the $142 million, $71 million is attributed to new originations within the quarter, while the remaining $71 million is an adjustment to the loss expectation of the existing portfolio.

Now I'd like to turn the call over to Enrique to discuss our second quarter financial performance in more detail Enrique Thanks, John and good morning, everyone second quarter net earnings per diluted share was <unk> 64 versus <unk> 85, a year ago. The decrease was driven primarily by lower volume and the cap loss provision adjustments.

Speaker #2: Also of note, as was seen in the first quarter, there was a reduction on the required provision stemming from $16 million in the reserve allocated to loans booked prior to Q2 now classified as held for sale.

Total gross profit was $718 million down 6% from last year's second quarter.

Speaker #2: The primary driver of the $71 million adjustment on the existing portfolio comes from additional losses anticipated within the 2022 and 2023 vintages. Recall, these customers have been the most impacted by the convergence of rapidly increasing vehicle prices and broader inflation.

Used retail margin of $443 million.

Decreased by 8% with lower volume and relatively stable per unit margins reach.

Bill Nash: Recall, these customers have been the most impacted by the convergence of rapidly increasing vehicle prices and broader inflation. Despite the observed worsening, these vintages still remain highly profitable at an estimated lifetime profit of $1,500 per unit versus $1,800 contemplated at origination. Additionally, they continue to shrink in size in contribution to the overall portfolio as they are replaced with more recently originated Tier 1 receivables at significantly lower loss rates. Note that 2024 and 2025 post-contraction vintages continue to be right in line with our original loss expectations. Regarding the funding aspect of our full spectrum efforts, yesterday we closed our 25B transaction, our second non-prime securitization of the year. This was upsized to $900 million in total notes and for the first time included the sale of most of the residual financial interest in the transaction to third-party investors, thus resulting in off-balance sheet treatment.

Retail gross profit per used unit was $2216 in line with historical average.

Speaker #2: Despite the observed worsening, these vintages still remain highly profitable at an estimated lifetime profit of $1,500 per unit versus $1,800 contemplated at origination. Additionally, they continue to shrink in size and contribution to the overall portfolio as they are replaced with more recently originated Tier 1 receivables at significantly lower loss rates.

Wholesale vehicle margin of $137 million decreased by less than 1% from a year ago with lower volume, partially offset by a slight increase in per unit margins.

Wholesale gross profit per unit was $993.

Other gross profit was $138 million down 4% from a year ago.

Speaker #2: Note that 2024 and 2025 post-contraction vintages continue to be right in line with our original loss expectations. Regarding the funding aspect of our full spectrum efforts, yesterday we closed our $25 billion transaction, our second non-prime securitization of the year.

This was driven primarily by ETP, which decreased by $6 million driven by lower retail unit volume.

Service recorded a $4 million margin, reflecting a small improvement over last year's second quarter.

Continued efficiency and cost coverage improvements were partially offset by the deleverage inherent in the lower year over year second quarter sales.

Speaker #2: This was upsized to $900 million in total notes and for the first time included the sale of most of the residual financial interest in the transaction to third-party investors, thus resulting in off-balance sheet treatment.

On the SG&A front expenses for the second quarter was $601 million down 2% from the prior year, driven primarily by lower stock based compensation.

Speaker #2: We expect the gain on sale to be approximately $25 to $30 million in third quarter income. We also expect to receive approximately $40 to $45 million in additional CAF income related to servicing fees and the retained beneficial interest over the life of the transaction.

Bill Nash: We expect the gain on sale to be approximately $25 to $30 million in third quarter income. We also expect to receive approximately $40 to $45 million in additional CAF income related to servicing fees and the retained beneficial interest over the life of the transaction. As a reminder, going forward, there will be no loss allowance or provision for this pool of loans. Now I'd like to turn the call over to Enrique to discuss our second quarter financial performance in more detail. Enrique?

We continue to realize expense savings, but they were offset by cost pressures in the quarter.

SG&A to gross profit Deleveraged 350 basis points to 84% as lower volume more than offset lower costs.

Speaker #2: As a reminder, going forward, there will be no loss allowance or provision for this pool of loans. Now, I'd like to turn the call over to Enrique Mayor to discuss our second quarter financial performance in more detail.

The continued deployment of AI technology remains a key driver of efficiency gains and experience enhancements across our operations. For example, this quarter Sky. Our AI powered virtual assistant continued to deliver year over year double digit percent improvements in containment rate customer experienced consultant productivity.

Speaker #2: Enrique?

Speaker #7: Thanks, Jon, and good morning, everyone. Second quarter net earnings per diluted share was $0.64 versus $0.85 a year ago. The decrease was driven primarily by lower volume and the CAF loss provision adjustment.

Enrique Mayor-Mora: Thanks, Jon, and good morning, everyone. Second quarter net earnings per diluted share was $0.64 versus $0.85 a year ago. The decrease was driven primarily by lower volume and the CAF loss provision adjustment. Total gross profit was $718 million, down 6% from last year's second quarter. Used retail margin of $443 million decreased by 8%, with lower volume and relatively stable per unit margins. Retail gross profit per used unit was $2,216, in line with historical average. Wholesale vehicle margin of $137 million decreased by less than 1% from a year ago, with lower volume partially offset by a slight increase in per unit margins. Wholesale gross profit per unit was $993. Other gross profit was $138 million, down 4% from a year ago. This was driven primarily by extended protection plans, which decreased by $6 million, driven by lower retail unit volume.

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Speaker #7: Total gross profit was $718 million, down 6% from last year's second quarter. Used retail margin of $443 million decreased by 8%, with lower volume and relatively stable per-unit margins.

We recently fully rolled out sky to point out, which Leverages <unk> AI and expect this release will drive even more efficiency and experience improvements.

As Bill noted we are committed to further reducing our SG&A by continuing to deliver efficiency gains across the business.

Speaker #7: Retail gross profit per used unit was $2,216, in line with the historical average. Wholesale vehicle margin of $137 million decreased by less than 1% from a year ago, with lower volume partially offset by a slight increase in per unit margins.

The investments in technology systems and processes.

That we have made as part of our omni transformation will allow us to substantially reduce spend through several key initiatives.

Speaker #7: Wholesale gross profit per unit was $993. Other gross profit was $138 million, down 4% from a year ago. This was driven primarily by EPP, which decreased by $6 million, driven by lower retail unit volume.

Modernizing and consolidating our technology infrastructure.

Automating manual processes.

Negotiating and reducing third party contracts and eliminating redundancies across the organization.

The goal of at least $150 million in SG&A reductions over the next 18 months represents a material improvement in our cost profile and reflects the execution on the plan that we have been developing with outside support.

Speaker #7: Service recorded a $4 million margin, reflecting a small improvement over last year's second quarter. Continued efficiency and cost coverage improvements were partially offset by the deleverage inherent in the lower year-over-year second quarter sales.

Enrique Mayor-Mora: Service recorded a $4 million margin, reflecting a small improvement over last year's second quarter. Continued efficiency and cost coverage improvements were partially offset by the deleverage inherent in the lower year-over-year second quarter sales. On the SG&A front, expenses for the second quarter were $601 million, down 2% from the prior year, driven primarily by lower stock-based compensation. We continued to realize expense savings, but they were offset by cost pressures in the quarter. SG&A to gross profit deleveraged 350 basis points to 84%, as lower volume more than offset lower costs. The continued deployment of AI technology remains a key driver of efficiency gains and experience enhancements across our operations. For example, this quarter, Sky, our AI-powered virtual assistant, continued to deliver year-over-year double-digit % improvements in containment rate, customer experience consultants' productivity, and web and phone response rate SLAs.

While we expect to realize some of these savings this fiscal year, we expect the vast majority will materialize in our exit rate by the end of fiscal 2027.

Speaker #7: On the SG&A front, expenses for the second quarter were $601 million, down 2% from the prior year, driven primarily by lower stock-based compensation. We continue to realize expense savings, but they were offset by cost pressures in the quarter.

In addition to offsetting inflationary pressures these ongoing savings will provide additional flexibility to reinvest in areas that directly drive sales while.

Speaker #7: SG&A to gross profit deleveraged $35 basis points to 84%, as lower volume more than offset lower costs. The continued deployment of AI technology remains a key driver of efficiency gains and experience enhancements across our operations.

Also serving as a tailwind to our to our already robust earnings model of a high teens EPS growth CAGR when retail unit growth is in the mid single digits.

We will continue to provide updates on this initiative during future earnings calls.

Speaker #7: For example, this quarter, SKY, our AI-powered virtual assistant, continued to deliver year-over-year double-digit percent improvements in containment rate, customer experience consultants' productivity, and web and phone response rate SLAs.

Looking forward I'll cover a few items regarding marketing, we expect an increase in per total unit spend in the back half of the year, particularly in the third quarter as we appropriately support our new brand positioning launch.

We expect service margin to face pressure in the back half of the year due to seasonal sales volumes.

Speaker #7: We recently fully rolled out SKY 2.0, which leverages agentic AI and expect this release will drive even more efficiency and experience improvements. As Bill noted, we are committed to further reducing our SG&A by continuing to deliver efficiency gains across the business.

Enrique Mayor-Mora: We recently fully rolled out Sky 2.0, which leverages Agentic AI, and expect this release will drive even more efficiency and experience improvements. As Bill noted, we are committed to further reducing our SG&A by continuing to deliver efficiency gains across the business. The investments in technology, systems, and processes that we have made as part of our omni-transformation will allow us to substantially reduce spend through several key initiatives: modernizing and consolidating our technology infrastructure, automating manual processes, renegotiating and reducing third-party contracts, and eliminating redundancies across the organization. The goal of at least $150 million in SG&A reductions over the next 18 months represents a material improvement in our cost profile and reflects the execution on a plan that we have been developing with outside support.

For the full year, we still expect to deliver positive margin, which is a direct result of our efficiency improvements and cost coverage measures.

Turning to capital allocation during the second quarter, we continued our share repurchases at an accelerated pace.

Speaker #7: The investments in technology, systems, and processes that we have made as part of our omni-transformation will allow us to substantially reduce spend through several key initiatives.

Going back approximately $2 9 million shares for a total expenditure of $180 million.

As of the end of the quarter, we had approximately $1 $5 6 billion.

Of our repurchase authorization remaining.

Speaker #7: Modernizing and consolidating our technology infrastructure, automating manual processes, renegotiating and reducing third-party contracts, and eliminating redundancies across the organization. The goal of at least $150 million in SG&A reductions over the next 18 months represents a material improvement in our cost profile and reflects the execution on a plan that we have been developing with outside support.

Now I'll turn the call back over to Bill.

Thank you Enrique and John.

Our customer centric car buying and selling experience is a key differentiator and a very large and fragmented market and positions us well for the future. We are intently focused on driving this differentiated and best in class experience and doing so with greater efficiency.

As you heard from US today, we're actively executing on our key priorities, which include driving sales advancing innovations to improve customer and associate experiences bolster.

Speaker #7: While we expect to realize some of these savings this fiscal year, we anticipate that a vast majority will materialize in our exit rate by the end of fiscal 2027.

Enrique Mayor-Mora: While we expect to realize some of these savings this fiscal year, we expect the vast majority will materialize in our exit rate by the end of fiscal 2027. In addition to offsetting inflationary pressures, these ongoing savings will provide additional flexibility to reinvest in areas that directly drive sales, while also serving as a tailwind to our already robust earnings model of a high teens EPS growth, CAGR, when retail unit growth is in the mid-single digits. We will continue to provide updates on this initiative during future earnings calls. Looking forward, I'll cover a few items. Regarding marketing, we expect an increase in per total unit spend in the back half of the year, particularly in the third quarter, as we appropriately support our new brand positioning launch. We expect service margin to face pressure in the back half of the year due to seasonal sales volumes.

Bolstering, our marketing efforts, increasing companywide efficiencies and expanding caf participation across the credit spectrum.

Speaker #7: In addition to offsetting inflationary pressures, these ongoing savings will provide additional flexibility to reinvest in areas that directly drive sales, while also serving as a tailwind to our already robust earnings model of high-teens EPS growth CAGR, when retail unit growth is in the mid-single digits.

All of these priorities will give us added flexibility and strengthen us for the future.

With that we will be happy to take your questions operator.

Thank you and at this time, if you would like to ask a question. Please press star one on your telephone keypad.

You may withdraw your question from the queue by pressing star two.

Speaker #7: We will continue to provide updates on this initiative during future earnings calls. Looking forward, I'll cover a few items. Regarding marketing, we expect an increase in per total unit spend in the back half of the year.

Once again to ask a question. Please press star one on your telephone keypad.

Your first question comes from the line of Brian Nagel with Oppenheimer. Please go ahead. Your line is open.

Speaker #7: Particularly in the third quarter, as we appropriately support our new brand positioning launch. We expect service margin to face pressure in the back half of the year due to seasonal sales volumes.

Hey, guys. Good morning, good morning, Brian.

So the question. The first question wanted to ask.

Just with regard to.

Speaker #7: For the full year, we still expect to deliver positive margin, which is a direct result of our efficiency improvements and cost coverage measures. Turning to capital allocation, during the second quarter we continue our share repurchases at an accelerated pace.

Enrique Mayor-Mora: For the full year, we still expect to deliver positive margin, which is a direct result of our efficiency improvements and cost coverage measures. Turning to capital allocation, during the second quarter, we continued our share repurchases at an accelerated pace, buying back approximately 2.9 million shares for a total expenditure of $180 million. As of the end of the quarter, we had approximately $1.56 billion of our repurchase authorization remaining. Now I'll turn the call back over to Bill.

Used unit sales so bill if I heard you correctly it seemed like the most disruptive factor here in fiscal Q2 was now which was a clearer.

Pull forward in demand.

Fiscal first quarter. So the question I habits.

Speaker #7: Buying back approximately $2.9 million shares for a total expenditure of $180 million. As of the end of the quarter, we had approximately $1.56 billion of our repurchase authorization remaining.

Could you give numbers you can give us to size that better that disruption and then.

If you look through the quarter I know you typically don't discuss sales trends in the quarter, but.

Following that pull forward impact I mean is it has the business.

Speaker #7: Now I'll turn the call back over to Bill.

Speaker #6: Thank you, Enrique and Jon. Our customer-centric car buying and selling experience is a key differentiator and a very large and fragmented market, and positions us well for the future.

Jon Daniels: Thank you, Enrique and Jon. Our customer-centric car buying and selling experience is a key differentiator in a very large and fragmented market and positions us well for the future. We are intently focused on driving this differentiated and best-in-class experience and doing so at greater efficiency. As you heard from us today, we're actively executing on our key priorities, which include driving sales, advancing innovations to improve customer and associate experiences, bolstering our marketing efforts, increasing company-wide efficiencies, and expanding CAF participation across the credit spectrum. All of these priorities will give us added flexibility and strengthen us for the future. With that, we will be happy to take your questions. Operator?

Hip sales got back to a more normal run rate and what is that.

Yes, so Brian first of all like I said, it's actually we think two factors and I would put the put.

Speaker #6: We are intently focused on driving this differentiated and best-in-class experience and doing so with greater efficiency. As you heard from us today, we're actively executing on our key priorities, which include driving sales, advancing innovations to improve customer and associate experiences, bolstering our marketing efforts, increasing company-wide efficiencies, and expanding CAF participation across the credit spectrum.

The other factor probably first because it is hard to quantify exactly how much each one is but my commentary around buying inventory up and then seeing that depreciation happened I would say that is probably the most impactful and then the pull forward, but again, it's hard to it's hard to quantify exactly how much each of those each of.

Those are.

For the quarter.

Each month was was down year over year and each month got a little weaker throughout the quarter now what I'll tell you for September and month to date is that it is stronger than the quarter in any of the months in the second quarter, but when I look at it from a year over year, it's still a little soft on a from a year over year standpoint, but certainly we've put ourselves in a better position.

Speaker #6: All of these priorities will give us added flexibility and strengthen us for the future. With that, we will be happy to take your questions.

Speaker #6: Operator?

Speaker #4: Thank you. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw your question from the queue by pressing star two.

Operator: Thank you. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw your question from the queue by pressing star two. Once again, to ask a question, please press the star and one on your telephone keypad. Your first question comes from the line of Brian Nagel with Oppenheimer. Please go ahead. Your line is open.

<unk> with the start of this quarter, both on our inventory position as well as from a pricing standpoint.

Speaker #4: Once again, to ask a question, please press the star and one on your telephone keypad. Your first question comes from the line of Brian Nagel with Oppenheimer.

That's helpful. If I could ask a follow up sure.

With regard to pricing so you know.

Speaker #4: Please go ahead. Your line is open.

<unk> for a long time talked about you know.

Speaker #8: Hey, guys. Good morning.

You know were happy to attractive pricing within the market. It seems to me just listen to your commentary that you're focusing more now so I guess that's is that the case and then.

[Analyst 1]: Hey, guys. Good morning.

Speaker #2: Good morning, Brian.

Speaker #8: Thanks. So the question, first question I want to ask, just with regard to used unit sales. So Bill, if I heard you correctly, you know, it seemed like the most disruptive factor here in fiscal Q2 was, you know, now it was a clearer or a pull-forward in demand.

Bill Nash: Morning, Brian.

[Analyst 1]: Thanks. The first question I want to ask, just with regard to used unit sales. Bill, if I heard you correctly, it seemed like the most disruptive factor here in fiscal Q2 was a clearer pull-forward in demand into the fiscal first quarter. The question I have is, are there numbers you can give us to size that better, that disruption? As we look through the quarter, I know you typically don't discuss sales trends of the quarter, but following that pull-forward impact, has the business or have sales got back to a more normal run rate? What is that?

The question I have is are you seeing something in the marketplace or other competitors are getting more price aggressive that carmax may have to change some of its dancer.

Yes, I think the pricing commentary first of all as Youre right were always focused on pricing, we want to be competitive I think in the quarter, we fell into a spot where we weren't as competitive again I feel better about where we are now and then the only other thing I would add to that I think we just need to continue to be as nimble as possible when it when it comes to pricing I mean, you saw in the quarter, we saw that thousand dollar depreciates.

Speaker #8: You know, into the fiscal first quarter. So the question I have is, you know, could you provide any numbers to help us size that better, you know, that disruption?

Speaker #8: And then, you know, as we look, as you look through the quarter, I know you typically don't discuss, you know, sales trends of the quarter, but, you know, following that pull-forward impact, I mean, has the business or have sales got back to a more, you know, normal run rate and what is that?

Over a months period, and we started acting on it very quickly and Theres a lot that goes into that decision.

Speaker #6: Yeah, so Brian, first of all, you know, like I said, it's actually, we think two factors, and I would put the, I put the other factor probably first, because it is hard to quantify exactly how much each one is, but, you know, my commentary around buying inventory up and then seeing that depreciation happen, I would say that is probably the most impactful.

As far as what do you do with your prices when you see depreciation that kind of thing, but I think the takeaway for for that I want you to hear is that we're always focused on competitive pricing and certainly the focus as we go forward is to continue to be as nimble as possible because it is a it's an aggressive environment out there.

Bill Nash: Yeah. Brian, first of all, like I said, it's actually, we think, two factors. I would put the other factor probably first because it is hard to quantify exactly how much each one is. My commentary around buying inventory up and then seeing that depreciation happen, I would say that is probably the most impactful and then the pull forward. Again, it's hard to quantify exactly how much each of those are. For the quarter, each month was down year over year, and each month got a little weaker throughout the quarter. What I'll tell you for September and month to date is that it is stronger than the quarter and any of the months in the second quarter. When I look at it from a year over year, it's still a little soft from a year over year standpoint.

Alright, I appreciate the color thanks Chevron.

Speaker #6: And then the pull-forward, but again, it's hard to, it's hard to quantify exactly how much each of those, each of those are. You know, for the quarter, each month was was down year over year, and each month got a little weaker throughout the quarter.

Thank you.

Our next question comes from Rajat Gupta with Jpmorgan. Please go ahead. Your line is open.

Oh, great. Thanks for taking my questions I've got a couple.

One on <unk>.

Last quarter, you had mentioned that you expect GAAP income to be up year over year before here.

Speaker #6: Now, what I'll tell you for September and month to date is that it is stronger than the quarter and any of the months in the second quarter, but when I look at it from a year-over-year, it's still a little soft on a, from a year-over-year standpoint.

Can you give us an update on that.

And if it has changed I'm just surprised by.

Speaker #6: But certainly, we put ourselves in a better position with the start of this quarter, both on an inventory position as well as from a pricing standpoint.

Keep the magnitude.

Bill Nash: Certainly, we put ourselves in a better position with the start of this quarter, both on an inventory position as well as from a pricing standpoint.

Provision picked up.

Because we have your back end in school in just two months ago secure.

Securities like how could you how could it have changed so dramatically.

Speaker #8: That's helpful. Could I ask a follow-up?

[Analyst 1]: That's helpful. Could I ask a follow-up?

Speaker #6: Sure.

Any color there would be helpful and I have a quick follow up on the SG&A.

Bill Nash: Sure.

Speaker #8: Just with regard to pricing, so, you know, you know, CARMAX is for a long time talked about, you know, you know, you know, having an attractive pricing within the market.

[Analyst 1]: Just with regard to pricing, CarMax Inc. has for a long time talked about having attractive pricing within the market. It seems to me, listening to your comments today, that you're focusing on this more now. Is that the case? The question I have is, are you seeing something in the marketplace or other competitors are getting more price aggressive that CarMax Inc. may have to change some of its stance here?

Sure I appreciate your question first let's touch on the cap income.

Speaker #8: It seems to me, just listening to your comments, that you're focusing on this more now. So I guess that's the case?

Obviously, you just mentioned there is a larger provision impact this quarter.

Also we mentioned we're excited about the <unk> transaction, which will yield gain in.

Speaker #8: And then, you know, the question I have is, are you seeing something in the marketplace or other competitors are getting more price aggressive that CARMAX may have to change some of its stance here?

During Q3, you put all that together yes.

Speaker #6: Yeah, I think the pricing commentary, first of all, is—you're right—we're always focused on pricing. We want to be competitive. I think in the quarter we fell into a spot where we weren't as competitive.

Did highlight that we thought there'll be.

Bill Nash: Yeah, I think the pricing commentary, first of all, is you're right. We're always focused on pricing. We want to be competitive. I think in the quarter, we fell into a spot where we weren't as competitive. I feel better about where we are now. The only other thing I would add to that is I think we just need to continue to be as nimble as possible when it comes to pricing. I mean, you saw in the quarter, we saw that $1,000 depreciation over a month's period, and we started acting on it very quickly. There's a lot that goes into that decision, as far as what do you do with your prices when you see depreciation, that kind of thing. I think the takeaway that I want you to hear is that we're always focused on competitive pricing.

Increase year over year, and Caf income I think we're going to be flat to down obviously, two more quarters to go but flat to slightly down but I think there is some nice trade offs that are occurring there.

Speaker #6: Again, I feel better about where we are now. And then the only other thing I would add to that is I think we just need to continue to be as nimble as possible when it comes to pricing.

Obviously, all disclaimers with how does the consumer perform how sales come in because that would be the other provision originations for us but.

Speaker #6: I mean, you saw in the quarter, we saw that $1,000 depreciation over a month period, and, you know, we started acting on it very quickly.

Hopefully that gives you a little flavor on the income cadence regarding provision certainly a fair question I'll give a little color on what we saw for the quarter beyond what I did in my prepared remarks, so let's highlight the 'twenty two 'twenty three vintages that customer as I mentioned high ASP.

Speaker #6: And there's a lot that goes into that decision. You know, as far as what you do with your prices when you see depreciation, that kind of thing.

Speaker #6: But I think the takeaway that I want you to hear is that we're always focused on competitive pricing, and certainly the focus as we go forward is to continue to be as nimble as possible, because it's an aggressive environment out there.

Bill Nash: Certainly, the focus as we go forward is to continue to be as nimble as possible because it is a, it's an aggressive environment out there.

Certainly a higher APR environment higher overall payment they were seeing.

Speaker #8: Right. I appreciate all the colors. Thanks.

[Analyst 1]: Right. I appreciate all the comments. Thanks.

Come into the purchasing cycle with excess cash from Covid.

Speaker #6: Sure, Brian.

Bill Nash: Sure, Brian.

Speaker #4: Thank you. Our next question comes from Rajad Gupta with JP Morgan. Please go ahead. Your line is open.

Operator: Thank you. Our next question comes from Rajat Gupta with JP Morgan. Please go ahead. Your line is open.

And they hadn't fully experienced inflation, yet so we had a lot to learn about that customer.

Initially we saw some again, we're coming off of incredibly low trough loss rates of 19, 2021 vintages, so hard to gauge how those 'twenty two and 'twenty three vintages were going to perform we saw an increase in losses initially, but that's not surprising because it's coming off of trough lower vintages of previous years.

Speaker #9: Enrique, thanks for getting the question. I just got a couple. First one on CAF. You know, last quarter you had mentioned that you expect CAF income to be up year over year for the full year.

[Analyst 2]: Great. Thanks for getting the question. I just got a couple. First one on CarMax Auto Finance. You know, last quarter, you had mentioned that you expect CarMax Auto Finance income to be up year over year for the full year. Could you give us an update on that and if it has changed? I'm just surprised by just the magnitude of, you know, the provision pickup, you know, because we had your last earnings call just two months ago. Curious, like, how could it have changed so dramatically in such a short period of time? Any color there would be helpful. I have a quick follow-up on SG&A.

Speaker #9: Could you give us an update on that? And if it has changed, I'm just surprised by the magnitude of the provision pickup, you know, because we had your last earnings call just two months ago. Securities, like, how could it have changed so dramatically in such a short period of time?

So as we watched that customer performed.

We saw it and thought maybe it was a pull forward in losses ultimately as we saw a little increase so maybe a timing curve adjustment.

And then we watched that customer begin to struggle and continued to struggle a little bit, but we made some adjustments that we thought were very smart for the consumer and smart for us and that has proven to be the case and that was we adjusted our extension policy in the fall we saw more payments come in had we otherwise not done that so we were pleased to see that but we have to watch that play through.

Speaker #9: Any color there would be helpful. And I have a quick follow-up on SG&A.

Speaker #6: Sure, Rajad, appreciate your question. First, let's touch on the CAF income. Obviously, you know, as mentioned, there's a larger provision impact this quarter. Also, we mentioned we're excited about the 25B transaction, which will yield gain in during Q3.

Bill Nash: Sure, Rajat. Appreciate your question. First, let's touch on the CAF income. Obviously, you know, as mentioned, there's a larger provision impact this quarter. Also, we mentioned we're excited about the $25 billion transaction, which will yield gain in, you know, during Q3. You put all that together. Yeah, we did highlight that we thought there would be, you know, an increase year over year in CAF income. I think we're going to be, you know, flat to down. Obviously, two more quarters to go, but flat to slightly down. I think there's some nice trade-offs that are occurring there. Obviously, all disclaimers with, you know, how does the consumer perform, how will sales come in, because that would yield provision originations for us. Hopefully, that gives you a little flavor on the income cadence. Regarding provision, it's certainly a fair question.

We saw some of those customers coming back into delinquency and loss during Q1, it's obviously a tax time.

Speaker #6: You put all that together. Yeah, we did highlight that we thought there would be an increase year over year in CAF income. I think we're going to be, you know, flat to down.

Season, as well so it's a little muddied.

We did make an adjustment in Q1.

Speaker #6: Obviously, we have two more quarters to go, but it looks flat to slightly down. I think there are some nice trade-offs that are occurring there. Yeah, obviously all disclaimers with, you know, how does that consumer perform?

And we wanted to watch it all play through we saw some good performance.

Actually with again those extensions we wanted to see how much was going to come back into delinquency and unfortunately during the quarter, we saw more revert back to delinquency and loss.

Speaker #6: How are sales coming in? Because that would yield a provision originations for us. But hopefully that gives you a little flavor on the income cadence.

That being said.

Speaker #6: Regarding provision, you certainly raised a fair question. I'll give a little color on what we saw for the quarter beyond what I've prepared remarks. So, let's highlight the 2022 and 2023 vintages.

We've made a significant adjustment this quarter as you see we made what we would say sizable adjustment last quarter I think we have a much better handle on where these guys are going to land because we've watched these extensions play through almost completely at this point also if you look at the totality of those vintages.

Bill Nash: I'll give a little color on what we saw for the quarter beyond what I did in my prepared remarks. Let's highlight the 2022 and 2023 vintages. That customer, as I mentioned, high ASP, you know, certainly a higher APR environment, higher overall payment they were seeing. They come into the purchasing cycle with excess cash from COVID, and they hadn't fully experienced inflation yet. We had a lot to learn about that customer. Initially, we saw some, and again, we're coming off of incredibly low trough loss rates of 2019, 2020, 2021 vintages. Hard to gauge how those 2022 and 2023 vintages were going to perform. We saw an increase in losses initially, but that's not surprising because it's coming off of trough lower vintages of those previous years. As we watched that customer perform, we saw it and thought maybe it was a pull-forward in losses.

Speaker #6: That customer, as I mentioned, high ASP, you know, certainly a higher APR environment, higher overall payment they were seeing. They come into the, yeah, the purchasing cycle with excess cash from COVID.

You are about two thirds of the way through those vintages. So theres about a third less so it's really going to ultimately play through theres more to come but it really has played through and then if you look at these 24 and 25 vintages. We are extremely pleased with those.

Speaker #6: And they hadn't fully experienced inflation yet. So, we had a lot to learn about that customer. Initially, we saw some, again, we're coming off of incredibly low trough loss rates of 2019, 2020, and 2021 vintages.

So we're watching those losses early on we're now 12 to 15 months through there and that stuff is right on the Mark from what we expected. So yes, I hate to have to make an additional adjustment I think there were a lot of.

Speaker #6: It's so hard to gauge how those 22 and 23 vintages are going to perform. We saw an increase in losses initially, but that's not surprising because it's coming off of trough, lower vintages from those previous years.

Confounding factors that had to play out we feel like we have a much better understanding of them and then I'll end with and again just as a reminder, these things are incredibly still profitable 1800 bucks versus maybe.

Speaker #6: So, as we watched that customer perform, we saw it and thought maybe it was a pull-forward in losses. Ultimately, as we saw a little increase, maybe a timing curve adjustment.

Bill Nash: Ultimately, as we saw a little increase, maybe a timing curve adjustment. We watched that customer begin to struggle and continue to struggle a little bit. We made some adjustments that we thought were very smart for the consumer and smart for us, and that has proven to be the case. That was we adjusted our extension policy in the fall. We saw more payments come in had we otherwise not done that. We were pleased to see that, but we had to watch that play through. We saw some of those customers coming back into delinquency and loss during Q1. It's obviously a tax time season as well, so it's a little muddied. We did make an adjustment in Q1, and we wanted to watch it all play through. We saw some good performance initially with, again, those extensions.

Maybe what we anticipated $500 because of these loss adjustments roughly a half of $1 billion, we're going to achieve and lifetime value across the 22 and 'twenty three vintages. So a lot to say there because I wanted to explain what was going on there, but hopefully that answers your question.

Speaker #6: And then we watched that customer begin to struggle and continue to struggle a little bit. We made some adjustments that we thought were very smart for the consumer and smart for us, and that has proven to be the case.

Speaker #6: And that was when we adjusted our extension policy in the fall. We saw more payments come in had we otherwise not done that. So we were pleased to see that, but we had to watch that play through.

That's helpful color.

On the SG&A.

Can you elaborate a little bit more on the areas of cost reduction I'm curious because.

Speaker #6: We saw some of those customers coming back into delinquency and loss during Q1. It's obviously a tax time season as well. So it's a little muddied.

It seems to me that a lot of new might be might be tied to the army.

Speaker #6: So, we did make an adjustment in Q1, and we wanted to watch it all play through. We saw some good performance initially with, again, those extensions.

The challenge support function because you've already gained good productivity on your in store salespeople.

I'm curious like why should investors be worried about.

Speaker #6: We wanted to see how much was going to come back in delinquency. And unfortunately, during the quarter, we saw more revert back to delinquency and loss.

Bill Nash: We wanted to see how much was going to come back in delinquency. Unfortunately, during the quarter, we saw more revert back to delinquency and loss. That being said, we made a significant adjustment this quarter, as you see. We made what we would say a sizable adjustment last quarter. I think we have a much better handle on where these guys are going to land because we've watched these extensions play through almost completely at this point. Also, if you look at the totality of those vintages, you're about two-thirds of the way through those vintages. There's about a third left. It's really going to ultimately play through. There's more to come, but it really has played through. If you look at these 2024 and 2025 vintages, we are extremely pleased with those. We're watching those losses early on.

Auctions my towards your ability to recover some of the share loss that you see.

I'm curious like how do you balance those two.

Speaker #6: That being said, you know, we've made a significant adjustment. This quarter, as you see, we made what we would say a sizable adjustment last quarter.

Yes.

And also like what's the offset from the pick up in advertising.

Yeah, no absolutely with that and I'll jump into it we do not think it's going to impact our growth strategy.

Speaker #6: I think we have a much better handle on where these guys are going to land because we've watched these extensions play through almost completely at this point.

I noted in my prepared remarks, our investments in technology systems and processes are really going to allow us to rationalize our costs. So very specifically I'll give you. Some examples so we have a stronger ability to retire legacy systems, we have an ability to lower licensing usage as we either need less of them or we can eliminate certain functionality as well given our.

Speaker #6: Also, if you look at the totality of those vintages, you're about two-thirds of the way through those vintages. So, there's about a third left.

Speaker #6: So it's really going to ultimately, you know, play through. There's more to come, but it really has played through. And then if you look at these 24 and 25 vintages, we are extremely pleased with those so, you know, we're watching those losses early on.

Investments in technologies, such as chat due to investment investments in Sky will become even more efficient in our call centers and have been talking about that for quite a few quarters. At this point in time able to automate manual processes and leverage AI to even more frequently review of third party contracts. So those are just some of the examples that will help us take out that 150 million.

Speaker #6: We're now 12 to 15 months through there, and that stuff is right on the mark from what we expected. So, yeah, I hated to have to make an additional adjustment.

Bill Nash: We're now 12, 15 months through there, and that stuff is right on the mark from what we expected. Hated to have to make an additional adjustment. I think there were a lot of confounding factors that had to play out. We feel like we have a much better understanding of them. I'll end with, and again, just as a reminder, these things are incredibly still profitable. $1,800 versus was maybe what we anticipated, $1,500 because of these loss adjustments. Roughly $0.5 billion we're going to achieve in lifetime value across the 2022 and 2023 vintages. A lot to say there because I wanted to explain what was going on there, but hopefully that answers your question.

Speaker #6: I think there are a lot of, you know, confounding factors that had to play out. We feel like we have a much better understanding of them.

Speaker #6: And then I'll end with, and again, just as a reminder, these things are incredibly still profitable. You know, $1,800 versus what we maybe anticipated at $1,500 because of these loss adjustments.

And if you'll note that those examples don't really impact our growth strategy and part of our thinking as well is that there is a portion of these savings and again, it's $150 million at least $150 million that we do expect to direct back to investments that have a direct tie with sales such as an example, this quarter would be <unk>.

Speaker #6: Roughly half a billion dollars we're going to achieve in lifetime value across the 2022 and 2023 vintages. So, a lot to say there because I wanted to explain what was going on.

Speaker #6: But hopefully that answers your question.

<unk>.

We are going heavier up in marketing appropriately so.

Speaker #9: And that's helpful color. And just on the SG&A, could you elaborate a little bit more on the areas of cost reductions? I'm curious because it seems to me that a lot of these might be tied to the omnichannel support functions, as you've already gained good productivity on your in-store salespeople.

Our new brand positioning and that'd be an example of something that we're going to invest and I do think it's important to remember that we had been in investment mode. As we transformed our company into an omni retailer.

[Analyst 2]: That's helpful, Tyler. In the SG&A, could you elaborate a little bit more on the areas of cost reduction? I'm curious because it seems to me that a lot of these might be tied to the omnichannel support function because you've already gained good productivity on your in-store salespeople. I'm curious, should investors be worried that these actions might hurt your ability to recover some of the share loss that we've seen? I'm curious, how do you balance those two?

You're done with that the next step really is to optimize and rationalize that spend and thats, where we are.

So it's not a it's not a net $150 million reduction.

Speaker #9: I'm curious, like, should investors be worried that these actions might hurt your ability to recover some of the share loss that we have seen?

That a net number.

Good luck.

So it's going to be net of any ongoing SG&A expenses to accomplish that number but it's not net of any kind of one time charges that we may end up having to incur but it is net of ongoing expenses too.

Speaker #9: I'm curious, like, how do you balance those two?

Speaker #6: Yeah, absolutely.

Bill Nash: Yeah, absolutely.

Speaker #9: And also, like, what's the offset from the pickup in advertising? Thanks.

[Analyst 2]: What's the offset from the pickup in advertising? Thanks.

Speaker #6: Yeah, no, absolutely, Rajad. And I'll jump into it. We do not think it's going to impact our growth strategy. As I noted in my prepared remarks, our investments in technology, systems, and processes are really going to allow us to rationalize our costs.

Enrique Mayor-Mora: Yeah, no, absolutely, Rajat. I'll jump into it. We do not think it's going to impact our growth strategy. As I noted in my prepared remarks, our investments in technology, systems, and processes are really going to allow us to rationalize our costs. Very specifically, I'll give you some examples. We have a stronger ability to retire legacy systems. We have an ability to lower licensing usage as we either need less of them, or we can eliminate certain functionality as well, given our investments in technology such as Sky due to investments in Sky 2.0. We'll become even more efficient in our call centers. I've been talking about that for quite a few quarters at this point in time, able to automate manual processes and leverage AI to even more frequently review third-party contracts.

You realize those savings.

It sounds like that up like investment in other areas like I've forgotten others.

Other sales initiatives.

Like I said, there will be part of those dollars will be reinvested back into the business to drive top line sales.

Speaker #6: It's a very specifically, I'll give you some examples. So we have a stronger ability to retire legacy systems. We have an ability to lower licensing usage as we either need less of them or we can eliminate certain functionalities as well, given our investments in technology such as chat due to investments in SKY.

However that being said, we do expect just the SG&A savings to be a material tailwind to our already robust earnings model.

Great. Thanks for the color and good luck.

Speaker #6: We become even more efficient in our call centers, and I've been talking about that for quite a few quarters at this point in time.

Thank you.

Our next question comes from Sharon Zackfia with William Blair. Please go ahead. Your line is open.

Speaker #6: Able to automate manual processes and leverage AI to even more frequently review third-party contracts. Those are just some of the examples that will help us eliminate that $150 million. If you’ll note, those examples don’t really impact our growth strategy.

Hi, good morning.

Enrique Mayor-Mora: Those are just some of the examples that will help us take out that $150 million. If you'll note, those examples don't really impact our growth strategy. Part of our thinking as well is that there is a portion of these savings, and again, it's $150 million, at least $150 million that we do expect to direct back to investments that have a direct tie with sales, such as an example this quarter would be marketing. We are going heavier up in marketing, appropriately so, toward our new brand positioning, and that'd be an example of something that we're going to go invest in. I do think it's important to remember that we had been in investment mode as we transformed our company into an omni retailer. Once you're done with that, the next step really is to optimize and then rationalize that spend, and that's where we are.

If you go back to good morning, I wanted to go back to Brian's question on price and as you think about it and I know youre talking about reinvesting some of the SG&A savings and back in 2019, what seems like forever ago, you had talked about kind of maybe targeting some lower GPU to drive incremental sales. So.

Speaker #6: And part of our thinking as well is that there is a portion of these savings, and again, it's $150 million at least $150 million, that we do expect to direct back to investments that have a direct tie with sales.

Kind of putting that all together is there a thought process or a strategy about taking kind of the bulk of the 150 million and really reinvesting that to the consumer and place their selection to drive the top line because it does feel like that consistent market share story that we had had in the past has kind of become.

Speaker #6: You know, such as the example this quarter would be marketing. You know, we are going heavier up in marketing, appropriately so. Of course, our new brand positioning and that'd be an example of something that we're going to go invest in.

Speaker #6: I do think it's important to remember, right? That we have been in investment mode as we transformed our company into an omni-retailer. But once you're done with that, the next step really is to optimize and then rationalize that spend, and that's where we are.

Much more volatile in a post pandemic.

Sure. Thank you.

Thinking about the right way, but I would expand on it a little bit I mean.

Speaker #9: Just not a net $150 million reduction. Is there a net number that you can give us?

[Analyst 2]: It's not a net $150 million reduction. Is there a net number that you can give us?

The $150 million in SG&A reductions as Ricky pointed out some of that we will reinvest directly back into things to driving sales. The other piece I would tell you which is another reason why we're focused on its key priority is just being able to generate additional profit from other parts of the business. Because that also gives you flexibility and allows you to reinvest some of that in pricing. So again I think it goes back to.

Speaker #6: Yeah, so it's going to be net of any ongoing SG&A expenses to accomplish. That number, but it's not net of any kind of one-time charges that we may end up having to incur.

Enrique Mayor-Mora: Yeah, it's going to be net of any ongoing SG&A expenses to accomplish that number, but it's not net of any kind of one-time charges that we may end up having to incur. It is net of ongoing expenses to realize those savings.

Speaker #6: But it is net of ongoing expenses to realize those savings.

Brian's initial questions that we want to be as nimble as possible I'll make sure that we're as competitive as possible and we feel like we're going to have several levers to be able to do that.

Speaker #9: No, I meant like net of investment in other areas like advertising and other sales initiatives. Is there a net?

[Analyst 2]: No, I meant net of investment in other areas, like advertising and other sales initiatives. You didn't mean that.

Speaker #6: No, like I said, there will be part of those dollars that will be reinvested back into the business to drive top line sales. However, that being said, you know, we do expect just the SG&A savings to be, you know, a material tailwind to our already robust earnings model.

Bill can I just follow up do you think there is price elasticity of demand that if you were more aggressive on price you could stimulate sales and our profit accretive way, yes. There is.

Enrique Mayor-Mora: Like I said, there will be part of those dollars that will be reinvested back into the business to drive top-line sales. However, that being said, we do expect just the SG&A savings to be a material tailwind to our already robust earnings model.

Look theres always elasticity when it comes and we've talked about this before we know pretty much because constantly testing when you take prices down a certain dollar amount we know what you get for that.

Speaker #9: Understood. Great. Thanks for the color, and good luck.

[Analyst 2]: Understood. Great. Thanks for the color and good luck.

But what you have to think the way we think about it is is that when you look at the price elasticity. There is a lot of things that go into that equation. So for example, your variable expenses. So the better that youre doing in your variable expenses. It makes that equation easier the capacity of your of your operational workforce are that the capacity or are they not the capacity are you having to pay people for unproductive time.

Speaker #4: Thank you. Our next question comes from Sharon Zakhvia with William Blair. Please go ahead. Your line is open.

Operator: Thank you. Our next question comes from Sharon Zakvia with William Blair. Please go ahead. Your line is open.

Speaker #10: Hi, good morning. I wanted to go back to morning. I wanted to go back to Brian's question on price. As you think about, and I know you're talking about reinvesting in some of the SG&A savings, back in 2019, which seems like forever ago, you had talked about kind of maybe targeting some lower GPU to drive incremental sales.

[Analyst 3]: Hi, good morning. I wanted to go back to Brian's question on price. As you think about it, and I know you're talking about reinvesting some of the SG&A savings, back in 2019, which seems like forever ago, you had talked about kind of maybe targeting some lower GPU to drive incremental sales. Putting that all together, is there a thought process or a strategy about taking the bulk of the $150 million and really reinvesting it to the consumer and price your selection to drive the top line? It does feel like the consistent market share story that we had had in the past has kind of become much more volatile, you know, post-pandemic.

Your ancillary profit attachment, how well, we're doing on things like ESP or finance.

So theres a lot of things that we look at.

To decide okay does this makes sense in that equation changes depending on the market factors I mean, even without taking some of those things in the Alaska deal will change just given what competitors are doing so we will continue to be nimble. We will continue to make improvements in some of these other factors because again that makes the elasticity pay off.

Speaker #10: So, kind of putting that all together, is there a thought process or a strategy about taking the bulk of the $150 million and really reinvesting it to the consumer, and price or selection, to drive the top line?

Speaker #10: Because it does feel like the consistent market share story that we had in the past has become much more volatile, you know, post-pandemic.

Okay. Thank you sure. Thank you.

Thank you.

Speaker #6: Yeah, sure. I think you're thinking about it the right way, but I would expand on it a little bit. I mean, the $150 million in SG&A reductions, as Enrique pointed out, some of that we will reinvest directly back into things to drive sales.

Bill Nash: Yeah, sure. I think you're thinking about it the right way, but I would expand on it a little bit. I mean, the $150 million in SG&A reductions, as Enrique pointed out, some of that we will reinvest directly back into things of driving sales. The other piece I would tell you, which is another reason why we're focused on it, the key priority is just being able to generate additional profit from other parts of the business because that also gives you flexibility and allows you to reinvest some of that in pricing. I think it goes back to Brian's initial questions that we want to be as nimble as possible, make sure that we're as competitive as possible, and we feel like we're going to have several levers to be able to do that.

Our next question comes from Chris, particularly <unk> with BNP Paribas. Please go ahead. Your line is open.

Hey, guys two questions on credit for me.

Speaker #6: The other piece I would tell you, which is another reason why we're focused on it as a key priority, is just being able to generate additional profit from other parts of the business.

So the first one is could you elaborate on the servicing fee of $40 million to $45 million.

I think theres, probably some servicing cost to achieve that servicing revenues I was wondering can you help us think through the costs the receivables won't be on the balance sheet, but the expenses will be and then bigger picture question on credit you guys are normally really conservative really prudent guys historically.

Speaker #6: Because that also gives you flexibility and allows you to reinvest some of that in pricing. So again, I think it goes back to Brian's initial question that we want to be as nimble as possible.

Speaker #6: Make sure that we're as competitive as possible, and we feel like we're going to have several levers to be able to do that.

Speaker #10: Bill, can I just follow up? Do you think there's price elasticity of demand that, if you were more aggressive on price, you could stimulate sales in a profit-accretive way?

We're kind of pushing into deep subprime now the markets. Yeah, I think beyond your control is getting a bit weaker just wanted to kind of like test to resolve like how committed are you to pushing into subprime right now just given the macro backdrop as it sounds like you pulled forward into regardless or if macro keeps worsening maybe hit the brakes.

[Analyst 3]: Bill, can I just follow up? Do you think there's price elasticity of demand that if you were more aggressive on price, you could stimulate sales in a profit or creative way?

Speaker #6: Yeah, look, there's always elasticity when it comes in. You know, we've talked about this before. We know pretty much because we're constantly testing. When you take prices down a certain dollar amount, we know what you get for that.

Bill Nash: Yeah, look, there's always elasticity when it comes in. We've talked about this before. We know pretty much because we're constantly testing, when you take prices down a certain dollar amount, we know what you get for that. What you have to think, the way we think about it is that when you look at the price elasticity, there's a lot of things that go into that equation. For example, your variable expenses. The better that you're doing in your variable expenses, it makes that equation easier. The capacity of your operational workforce, are they at the capacity? Are they not at the capacity? Are you having to pay people for unproductive time? Your ancillary profit attachment, how well we're doing on things like ESP or finance. There's a lot of things that we look at to decide, okay, does this make sense?

Yeah, I'll start off and then I'll pass it over to John I, just wanted to clarify something on deep subprime.

Speaker #6: The way we have to think about it is that when you look at the price elasticity, there are a lot of things that go into that equation.

John in his comments talked about going and really the top half of what we call. The tier two so we're not talking about deep deep subprime. So I just wanted to add some clarification there and then John I'll, let you add just to that end to the first part of the question, Yes, they'll kick me under the table because he wanted to that one thing that we want to make that very clear I mean, it is not it is not deep subprime at all and again, we have been in.

Speaker #6: So, for example, your variable expenses. The better that you're doing in your variable expenses, it makes that equation easier. The capacity of your operational workforce, are they at capacity?

Speaker #6: Are they not at capacity? Are you having to pay people for unproductive time? Your ancillary profit attachment—how well we're doing on things like ESP or finance—so there's a lot of things that we look at to decide, okay, does this make sense?

Tier three space and we have experienced there and all of that but again, we're trying to be very prudent to your point Chris of how we go down when we go down now make no mistake. There is there is money to be made there we have partners that make tremendous promise there you need to price it right provision correctly service correct. We believe we're learning how to do that so, but yes, I wouldn't characterize it as deep.

Speaker #6: And that equation changes depending on the market factors. I mean, even without taking some of those things in, the elasticity will change just given what competitors are doing.

Bill Nash: That equation changes depending on the market factors. I mean, even without taking some of those things in, the elasticity will change just given what competitors are doing. We will continue to be nimble. We will continue to make improvements in some of these other factors because, again, that makes the elasticity pay off.

Speaker #6: So, we will continue to be nimble. We will continue to make improvements in some of these other factors because, again, that makes the elasticity pay off.

Brian there's a lot of penetration to be gained as we inch our way down there no doubt about it.

Speaker #10: Okay, thank you.

[Analyst 3]: Okay, thank you.

Speaker #6: Sure, thank you.

To your first question on the expenses I, just just to step back because I think ticked up can you speak to the overall program again, we are super excited because it ties to the first question. The full spectrum nature, we have laid out a plan and I think we are going after that plan first it was hey, we're going to bifurcate our securitization program. We've done that we've executed multiple deals now there we said we're going to recapture volume in tier.

Bill Nash: Sure, thank you.

Speaker #4: Thank you. Our next question comes from Chris Potiglieri with BNP Paribas. Please go ahead. Your line is open.

Operator: Thank you. Our next question comes from Chris Bottiglieri with BNP Paribas. Please go ahead. Your line is open.

Speaker #11: Hey, guys. Two questions on credit for me. So, the first one is, can you elaborate on the servicing fee of $40 million to $45 million? I would think there's probably some servicing costs to achieve that servicing revenue. Just wondering if you'd help us think through the costs, since the receivables won't be on the balance sheet, but the expenses will be.

[Analyst 4]: Hey, guys. Two questions on credit for me. The first one is, can you elaborate on the servicing fee of $40, $45 million? I would think there's probably some servicing costs to achieve that servicing revenue. I was wondering if you'd help us think through the costs since the receivables won't be on the balance sheet, but the expenses will be. Bigger picture question on credit. You guys are normally really conservative, you know, really prudent guys historically. You're kind of pushing into deep subprime now. The market's, you know, I think beyond your control, is getting a little bit weaker. I just want to kind of test your resolve. How committed are you to pushing into subprime right now, just given the macro backdrop?

<unk> expanded into tier two again, we're being very prudent about that then we announced that we plan to do a deal where we're actually going to sell their futures residual interest in that deal and we've done that very very successfully. So we're super pleased this was supposed to give us flexibility, obviously give us insight into what a deal like this looks like and I think.

Speaker #11: And then, a bigger picture question on credit. Like, you guys are normally really conservative, you know, really prudent guys historically. You're kind of pushing into deep subprime now.

Speaker #11: The markets, you know, I think beyond your control, are getting a little bit weaker. Just wanted to kind of test your resolve: how committed are you to pushing into subprime right now?

<unk> hit on all of those that being said we've enjoyed the game will enjoy the game that we're going to see a $25 million to $30 million and you highlight we also referenced the additional value to be gained on the servicing side and again future interest there on the expense on the expense there. Yes. There is a little additional volume to be gained from the server.

Speaker #11: Just given the macro backdrop, is it something you're going to pull forward into regardless, or if macro keeps worsening, are you going to maybe hit the brakes for a little bit?

[Analyst 4]: Is it something you're going to pull forward into regardless, or if macro keeps worsening, are you going to maybe hit the brakes for a little bit?

Speaker #6: Yeah, I'll start off and then I'll pass it over to Jon. I just wanted to clarify something on deep subprime. You know, Jon, in his comments, talked about going in really the top half of what we call the tier two.

Bill Nash: Yeah, I'll start off and then I'll pass it over to Jon. I just want to clarify something on deep subprime. Jon in his comments talked about going in really the top half of what we call the Tier 2. We're not talking about deep, deep subprime. I just want to have some clarification there. Jon, I'll let you add just to that end to the first part of the question.

<unk> side, there was a cost to us, but yes, we will make additional.

<unk> value, there and Rick anything you want to add and Chris you don't see the servicing income it'll be broken out in the cap contribution line. So you'll get a good view of that kind of on a go forward reporting about the servicing cost will be embedded in kind of your you know your cost of your business right and so that's that will be reported.

Speaker #6: So you know, we're not talking about deep, deep subprime. I just wanted to have some clarification there. And then, Jon, I'll let you add to that end to the first part of the question.

Speaker #2: Yeah, Bill kicked me in at the table because he wanted that one. Yeah, I mean, we want to make that very clear. I mean, it is not deep.

Bill Nash: Yeah, Bill kicking me under the table because he wanted that one. I mean, we want to make that very clear. It is not deep. It is not deep subprime at all. Again, we have been in Tier 3 space, and we have experience there and all that. We are trying to be very prudent to your point, Chris, of how we go down when we go down. Make no mistake, there is money to be made there. We have partners that make tremendous profits there. You need to price it right, provision correctly, service it correct. We believe, you know, we're learning how to do that. I wouldn't characterize it as deep subprime. There's a lot of penetration to be gained as we inch our way down there, no doubt about it.

And you'll see that moving forward.

Speaker #2: It is not deep subprime at all. And again, we have been in Tier Three space, and we have experience there and all that. But again, we're trying to be very prudent to your point, Chris, about how we go down, when we go down.

In the 40 to 45 also includes.

Yes, and repayments of the income from the 5% retention.

As well the five and five so we expect that will continue as well so all in all like John mentioned, we're really pleased with the deal and the execution of the deal out there and really proud of the teams and getting that done.

Speaker #2: Now, make no mistake, there is money to be made there. We have partners that make tremendous profits there. You need to price it right, provision correctly, and service it correctly.

Speaker #2: We believe, you know, we're learning how to do that. So, but yeah, I wouldn't characterize it as deep subprime. There's a lot of penetration to be gained as we inch our way down there, no doubt about it.

As John mentioned this just fits our overall strategy and we're executing on that strategy.

Got you okay.

Speaker #2: To your first question on the expenses, just to step back because I like to take the opportunity to speak to the overall program. Again, we are super excited because it ties to the first question.

As most of the income coming from the beneficial interest or from the servicing fees that we'd like to mention that a bit battle.

Bill Nash: To your first question on the expenses, just to step back because I'll take the opportunity to speak to the overall program. We are super excited because it ties to the first question, the full spectrum nature. We have laid out a plan, and I think we have gone after that plan. First, it was, hey, we're going to bifurcate our securitization program. We've done that. We've executed multiple deals now there. We said we were going to recapture volume in Tier 1 and expand into Tier 2. We are being very prudent about that. We announced that we plan to do a deal where we're actually going to sell the futures residual interest in that deal, and we've done that very, very successfully. We are super pleased.

Yeah, it's coming from kind of a mix yes. It is.

Speaker #2: The full spectrum nature. We have laid out a plan, and I think we have gone after that plan. First, it was, "Hey, we're going to bifurcate our securitization program."

Okay. Okay. Thanks for clarifying the subprime you did say the prepared remarks.

Speaker #2: We've done that. We've executed multiple deals now there. We said we were going to recapture volume in Tier 1 and expand into Tier 2.

I, probably misspoke there.

Sorry about that.

Thank you.

Speaker #2: Again, we're being very prudent about that. Then we announced that we plan to do a deal where we're actually going to sell the futures residual interest in that deal, and we've done that very, very successfully.

Our next question comes from David Bellinger with Mizuho. Please go ahead. Your line is open.

Hey, good morning, Thanks for the question.

Speaker #2: So we are super pleased. This was supposed to give us flexibility. Obviously, you know, give us insight into what a deal like this looks like, and we've, I think, hit on all of those.

Can you help to help us walk down the path back to positive unit comps and what the timeline could be there.

Bill Nash: This was supposed to give us flexibility, obviously, give us insight into what a deal like this looks like, and we've, I think, hit on all of those. That being said, we've enjoyed the gain, we'll enjoy the gain that we're going to see at $25 to $30 million in you highlight. We also referenced the additional value to be gained on the servicing side, and again, future interest there. On the expense there, yes, there is a little additional volume to be gained from the servicing side. There is a cost to us, but yes, we will make additional value there. Enrique, anything you want to add?

Bill you mentioned the aggressive environment. So maybe if we take this up to the industry level.

Speaker #2: That being said, we've enjoyed the gain. We'll enjoy the gain that we're going to see—a $25 to $30 million gain. And you highlighted—we also referenced the additional value to be gained on the servicing side.

As the used car market just getting materially worse in your view or are there some macro cracks forming with these cap adjustments or any other signals in a more strained consumer.

Speaker #2: And again, future interest there. On the expense, on the expense there, yes, there is a little additional volume to be gained from the servicing side.

Or do you think this is more of a competitive element here in Q2 versus other players in that sector and something that you guys have to invest against going forward just help us piece all that together yes.

Speaker #2: There is a cost to us, but yes, we will make additional value there. Enrique, anything you want to add?

When I say aggressive environment I wouldn't say, it's necessarily more aggressive than last quarter, it's been aggressive aggressive for a while.

Speaker #6: Yeah, and Chris, you'll see the servicing income. It'll be broken out in the CAP contribution line, so you'll get a good view of that kind of on-and-go forward reporting.

Enrique Mayor-Mora: Yeah, and Chris, you'll see the servicing income. It'll be broken out in the CAF contribution line, so you'll get a good view of that kind of on and go forward reporting. Meanwhile, the servicing costs will be embedded in kind of your cost of your business, right? That's how it'll be reported, and you'll see that moving forward.

I think on the strain.

Speaker #6: Meanwhile, the servicing costs will be embedded in the cost of your business, right? And so that'll be reported, and you'll see that moving forward.

Tumor look I think we are seeing where consumers, especially your mid to high FICO customers. They seem to be sitting on the sidelines a little bit and we just measure that by just pure App volume I think we're seeing that.

Speaker #8: And the $40 to $45 million also includes replacing some retainers.

Bill Nash: The $40 to $45 also includes retained.

A little bit of a headwind in September, but that's not unique to us we've talked with our finance partners and they are seeing something similar so.

Speaker #6: Yeah, yeah. Also, the income from the 5% retention, as well as the five and five, is expected to continue as well. So, you know, all in all, like Jon mentioned, we're really pleased with the deal and the execution of the deal out there. We're really proud of the teams for getting that done.

Enrique Mayor-Mora: Yes, also the income from the 5% retention as well, the 5 and 5. We expect that'll continue as well. All in all, like Jon mentioned, we're really pleased with the deal and the execution of the deal out there and really proud of the teams in getting that done. As Jon mentioned, this just fits our overall strategy, and we're executing on that strategy.

Again, I think and even that consumers.

Consumers have been distressed for a little while I think there are some angst.

The consumer sentiment isn't isn't great, but again I think we've put ourselves in good shape and I think the priorities that we're focused on will continue to pay dividends as I think about the full year, we set out this year to gain market share.

Speaker #6: And, as Jon mentioned, this just fits our overall strategy, and we are executing on that strategy.

Speaker #9: Gotcha, okay. Is most of the income coming from the beneficial interest or from the servicing fees? Are we likely to mention that a bit?

[Analyst 1]: Gotcha. Okay. Is most of the income coming from the beneficial interest or from the servicing fees? Would you like to mention that a bit at all?

And look through the first half of the year, we feel good about it through the calendar June which is where we have.

Speaker #8: At all.

Speaker #6: Yeah, it's coming from kind of a mix.

Bill Nash: Yeah, it's coming from kind of a mix. It is.

Data through I would just caution people when you're looking at June July and August its tough on a year over year comparison, just because of the CDK outage last year, but.

Speaker #2: Yeah, it is.

Speaker #9: Okay, okay. It makes, thanks for clarifying the subprime. You did say that prepared marks. I probably misspoke there. So thanks for clarifying that.

[Analyst 1]: Okay. Thanks for clarifying the subprime. You did say that prepared work, so I probably will scope there. Thanks for clarifying that.

We're not backing off of our stance that we started this year after going after market share and at this point I don't see a reason why we would back off that we expect to gain market share for the full year, so hopefully that.

Speaker #6: Yep.

Speaker #4: Thank you. Our next question comes from David Bellinger with Mizuho. Please go ahead. Your line is open.

Bill Nash: Okay.

Operator: Thank you. Our next question comes from David Bellinger with Mizuho. Please go ahead. Your line is open.

Add little color, David I'd Love to just jumping on the consumer just to highlight a few things again the cracks as you said look I think there's something incredibly unique about the 2022 to 23 consumer and it is an industry issue you look at other issue lenders out there. They would say yes. Those are some tough vintages that is kind of the perfect storm of ISP and probably an overconfident consumer coming in with.

Speaker #2: Hey, good morning. Thanks for the question. Can you help us walk down the path back to positive unit comps and what the timeline could be there?

Bill Nash: Hey, good morning. Thanks for the question. Can you help us walk down the path back to positive unit comps and what the timeline could be there? Bill, you mentioned the aggressive environment. If we take this up to the industry level, is the used car market just getting materially worse in your view? Are there some macro cracks forming with these CarMax Auto Finance adjustments or any other signals of a more strained consumer? Do you think this is more of a competitive element here in Q2 versus other players in the sector and something that you guys have to invest against going forward? Help us piece all that together.

Speaker #2: And Bill, you mentioned the aggressive environment. So maybe if we take this up to the industry level, is the used car market just getting materially worse in your view, or are there some macro cracks forming with these CAF adjustments or any other signals of a more strained consumer?

They think they have plenty of cash they get hit with inflation. If you look at the $24 25 consumer Theyre just more eyes wide open walking in the door prices have come down a little bit there interest rates have come down a little bit typically people that buy.

Speaker #2: Or do you think this is more of a competitive element here in Q2 versus other players in the sector and something that you guys have to invest against going forward?

Speaker #2: Just help us piece all that together.

And in a more stressed environment perform usually better now again, we think we have reserved we watch very carefully.

Speaker #6: Yeah, so you know, when I say aggressive environment, I wouldn't say it's necessarily more aggressive than last quarter. It's been aggressive for a while.

Bill Nash: Yeah, so when I say aggressive environment, I wouldn't say it's necessarily more aggressive than last quarter. It's been aggressive for a while. I think, you know, on the strained consumer, look, I think we are seeing where consumers, especially your mid to high FICO customers, they seem to be sitting on the sidelines a little bit, and we just measure that by just pure app volume. I think we're seeing that with, you know, it's a little bit of a headwind in September, but that's not unique to us. We've talked with our finance partners, and they're seeing something similar. I think, and even that, you know, consumers have been distressed for a little while. I think there's some angst. The consumer sentiment isn't great, but again, I think we've put ourselves in good shape, and I think the priorities that we're focused on will continue to pay dividends.

How those guys are performing and we know they may perform worse than may be pre COVID-19, but I think that 'twenty four 'twenty five consumer is going to just be a better one yes. So I think to your point David.

Speaker #6: I think, you know, on the strained consumer, look, I think we are seeing where consumers, especially your mid- to high-FICO customers, they seem to be sitting on the sidelines a little bit.

Second quarter second quarter kind of event that would be a second quarter event truing that up but we feel good about where we stand on that we know that that's getting to be less and less of a population as John said the extensions are kind of backend and Thats really what this was to clean up on so we feel good about where we are there.

Speaker #6: And we just measure that by just pure app volume. I think we're seeing that with, you know, it's a little bit of a headwind in September, but that's not unique to us.

Speaker #6: We've talked with our finance partners, and they're seeing something similar. So, you know, again, I think, and even that, you know, consumers have been distressed for a little while.

Speaker #6: I think there's some angst. The consumer sentiment isn't great, but again, I think we've put ourselves in good shape, and I think the priorities that we're focused on will continue to pay dividends.

Okay.

Great very helpful. Thank you. Thank you guys.

Thank you. Our next question comes from Scot Ciccarelli with tree. Please go ahead. Your line is open.

Speaker #6: You know, as I think about the full year, we set out this year to gain market share. And you know, look, through the first half of the year, we feel good about it.

Bill Nash: As I think about the full year, we set out this year to gain market share, and you know, look, through the first half of the year, we feel good about it. Through the calendar June, which is where we have data through, I would just caution people when you're looking at June, July, and August, it's tough on a year-over-year comparison just because of the CDK outage last year. We're not backing off of our stance of like, we started this year going after market share, and at this point, I don't see any reason why we would back off that. We expect to gain market share for the full year. Hopefully that adds a little color.

Hey, good morning, guys, it's Josh on for Scott.

So as we think about the slowdown in sales here is it a function of you just start getting people into the top of the funnel or is it more you get them in there, but then they are kind of falling out of the bottom just any color on how you guys are thinking about that would be helpful. Yes.

Speaker #6: Through the calendar June, which is where we have data through, I would just caution people when you're looking at June, July, and August. It's tough on a year-over-year comparison just because of the CDK outage last year.

Speaker #6: But you know, we're not backing off of our stance of like we started this year after going after market share, and at this point, I don't see any reason why we would back off that.

Yeah, No look our web traffic is up year over year, our conversion as you go down the funnel is actually improving I'd say the biggest opportunity.

Speaker #6: We expect to gain market share for the full year, so hopefully that adds a little color.

And some of it I think we can control and some of it we can control and that's that's really kind of web traffic to what we call a selling opportunity do does the customer do something that we can then.

Speaker #2: Yeah, David, I wanted to just jump in on the consumer to highlight a few things. Again, the cracks, as you said. Look, I think there's something incredibly unique about the 2022 to 2023 consumer, and it is an industry issue.

Bill Nash: Yeah, David, I'd love to just jump in on the consumer to highlight a few things. Again, the cracks, as you said, look, I think there's something incredibly unique about the 2022 to 2023 consumer, and it is an industry issue. You look at other lenders out there, they would tell you those are some tough vintages. It's kind of the perfect storm of high ASP and probably an overconfident consumer coming in with, they think they have plenty of cash. They get hit with inflation. If you look at the 2024 and 2025 consumer, they're just more eyes wide open walking in the door. Prices have come down a little bit. Their interest rates have come down a little bit. Typically, people that buy in a more stressed environment perform usually better. Now, again, we think we have reserve.

Kind of start the process versus just folks that have come to the website that or just.

Speaker #2: You look at other issues, and lenders out there would say, "Yeah, those are some tough vintages. It's kind of the perfect storm of high ASP and probably an overconfident consumer coming in with, they think they have plenty of cash."

Viewing cars some of it is going to be that we can't control because theres going be some folks are just their window shopping others. I think we can control and just how we how well we do in the presentation on that first initial glance, how we make the website stickier epithet topper part of top of the funnel. So I think it's a little bit kind of Mac.

Speaker #2: They get hit with inflation. If you look at the 24 and 25 consumer, they're just more eyes wide open walking in the door. Prices have come down a little bit.

Speaker #2: Their interest rates have come down a little bit. Typically, people that buy in a more stressed environment perform usually better. Now again, we think we have reserves.

But I think there is absolutely some improvements we can make.

Speaker #2: We watch very carefully how those guys are performing. We know they might perform worse than maybe pre-COVID, but yeah, I think that the 2024-2025 consumer is going to just be a better one.

Yes.

Bill Nash: We watch very carefully how those guys are performing, and we know they might perform worse than maybe pre-COVID. I think that 2024, 2025 consumer is going to just be a better one.

Got it that's helpful. Thanks.

Sure.

Yeah.

Thank you.

We will move next with David Winston way. The Morningstar. Please go ahead. Your line is open.

Speaker #6: Yeah, so I think to your point, David, you know, there are second quarter kind of events. That would be a second quarter event. You know, truing that up, but we feel good about where we stand on that.

Bill Nash: Yeah, I think to your point, David, the second quarter kind of event, that would be a second quarter event. Truing that up, we feel good about where we stand on that. We know that that's getting to be less and less of a population. As Jon said, the extensions are kind of back in, and that's really what this was to clean up on. We feel good about where we are there.

Thanks, Good morning, just kind of staying on that question.

Maybe help me fill in some blanks here because I mean, it sounds like at the beginning of quarter you wanted to the tariff.

Speaker #6: We know that that's getting to be less and less of a population, as Jon said. The extensions are kind of back in, and that's really what this was to clean up on.

Do you think of demand didn't really happened in the quarter. If you were trying to clear inventory to get rid of that depreciation.

Speaker #6: So, we feel good about where we are there.

Speaker #2: For a very helpful, thank you. Thank you, guys.

Bill Nash: Great. Very helpful. Thank you. Thank you, guys.

But youre seeing web traffic was up both year over year conversions, improving your unit volumes were still down over 5% in used prices have been elevated for a long time now is the consumer.

Speaker #6: Yep.

Bill Nash: Thank you.

Speaker #4: Thank you. Our next question comes from Scott Ciccarelli with Tourist. Please go ahead. Your line is open.

Operator: Thank you. Our next question comes from Scott Ciccarelli with Truist. Please go ahead. Your line is open.

Speaker #2: Hey, good morning, guys. This is Josh Young on for Scott. So, as we think about the slowdown in sales here, is it a function of you just aren't getting people into the top of the funnel, or is it more that you get them in there, but then they're kind of falling out of the bottom?

[Analyst 4]: Hey, good morning, guys. This is Josh Young on for Scott. As we think about the slowdown in sales here, is it a function of you just aren't getting people into the top of the funnel, or is it more you get them in there, but then they're kind of falling out of the bottom? Any color on how you guys are thinking about that would be helpful.

Just staying away or is it that there is still having sticker shock. Despite this many quarters of elevated pricing.

Yes, David So just for clarification the web traffic is up.

<unk> down for us would be what I would call selling opportunities once we have a selling opportunity. The conversion we're actually seeing some good improvement in conversion just down through the rest of the funnel. So the opportunity really is when a customer hits our website actually getting them to do something on the website and again some of that I think it is in our control. Some of it is not in our control you're just going to have folks that are coming in and it really well.

Speaker #2: Just any color on how you guys are thinking about that would be helpful.

Speaker #6: Yeah, no, look, our web traffic is up. Year over year, our conversion as you go down the funnel is actually improving. I would say the biggest opportunity—and somebody I think we can control—and some of it we can't control.

Bill Nash: Yeah, no, look, our web traffic is up year over year. Our conversion, as you go down the funnel, is actually improving. I would say the biggest opportunity, and some of it I think we can control, and some of it we can't control, is really kind of web traffic to what we call a selling opportunity. Does the customer do something that we can then, you know, kind of start the process versus just folks that have come to the website that are just viewing cars? Some of it is going to be that we can't control because there's going to be some folks that are just window shopping. Others, I think we can control, and just how we, how well we do in the presentation on that first initial glance, how we make the website stickier up at that top of the funnel.

Speaker #6: And that's really kind of web traffic to what we call a selling opportunity. Does the customer do something that we can then kind of start the process versus just folks that have come to the website that are just, you know, viewing cars?

Either they are just looking or they just they're not ready to.

To to box so.

It's kind of a clarification of.

Speaker #6: Some of it is going to be that we can't control because there are going to be some folks that are just window shopping. Others, I think we can control.

Your question between well Youre traffic's up your conversion up wire and so you're seeing more sale that's why.

And again I would say not all traffic is considered the same at 780 comes through the door versus a $65 80 comes through the door they convert it tremendously different rates.

Speaker #6: And just how well we do in the presentation on that first initial glance, how we make the website stickier, but that top of the funnel.

Speaker #6: So I think it's a little bit kind of macro, but I think there are absolutely some improvements we can make.

And high quality has died down even at the very high on the permanent right.

Bill Nash: I think it's a little bit kind of macro, but I think there's absolutely some improvements we can make.

Yes, what we're seeing is that the higher FICO customers. The app volume is down so and that that's a that's a.

Speaker #2: Got it. That's helpful. Thanks.

[Analyst 4]: Yeah, that's helpful. Thanks.

Speaker #6: Sure.

Bill Nash: Sure.

Our core customer of ours, and really youre seeing that kind of and John keep me honest on that you're probably seeing it probably 600 and above is probably down certainly at the high end I think the one area. That's maybe not down is probably low FICO 550, and below right and I think again I don't think we're alone there we cannot up to others.

Speaker #4: Thank you. We will move next with David Winston from Morningstar. Please go ahead. Your line is open.

Operator: Thank you. We will move next with David Lowenstein with Morningstar. Please go ahead. Your line is open.

Speaker #11: Hello. Thanks for the morning. I was kind of saying on that question, I mean, maybe help me fill in some blanks here because, I mean, it sounds like at the beginning of the quarter you wanted to, the tariff reducing of demand didn't really happen in the quarter, so you were trying to clear everybody to get rid of that depreciation.

[Analyst 4]: Thanks. Good morning. I was kind of staying on that question. Maybe help me fill in some blanks here because it sounds like at the beginning of the quarter you wanted to, the tariff juicing of demand did not really happen on the quarter, so you were trying to clear, immigrate to get rid of that depreciation. You're saying web traffic was up, year-over-year conversions improving, yet your unit volumes were still down over 5%. Used prices have been elevated for a long time now. Is the consumer just staying away, or is it that they're still having sticker shock despite this many quarters of elevated pricing?

Other lenders other dealers you can see it in the credit bureaus, it's apparent.

Okay. Thanks, guys.

Speaker #11: But you're saying web traffic was up year over year and conversions improving. Yeah, your unit volumes were still down over 5%. Used prices have been elevated for a long time now.

Thank you.

Our next question comes from Jeff <unk> with Stephens Inc. Please go ahead. Your line is open.

Speaker #11: Is the consumer just staying away, or is it that they're still having sticker shock despite this many quarters of elevated pricing?

Good morning, Thanks for taking my question.

I was wondering if you could talk about.

The concept of the reserve inventory that you guys do my understanding is it's at.

Speaker #6: Yeah, David, so just for clarification, the web traffic is up. What's down for us would be what I would call selling opportunities. Once we have a selling opportunity, the conversion— we’re actually seeing some good improvement in conversion just down through the rest of the funnel.

Bill Nash: Yeah, David, just for clarification, the web traffic is up. What's down for us would be what I would call selling opportunities. Once we have a selling opportunity, the conversion, we're actually seeing some good improvement in conversion just down through the rest of the funnel. The opportunity really is when a customer hits our website, actually getting them to do something on the website. Some of that I think is in our control. Some of it is not in our control. You're just going to have folks that are coming in there and you're like, you know, either they're just looking or they're not ready to buy. That's kind of the clarification of your question between, your traffic's up, your conversion up. Why aren't you seeing more sales? That's why.

At the most seven days, it's usually around seven but not not always seven but R&D records are just that.

This shows that roughly about 40% of your inventory at any given time online has resumed.

Speaker #6: So the opportunity really is when a customer hits our website, actually getting them to do something on the website. And again, some of that I think is in our control.

It appears that we.

Speaker #6: Some of it is not in our control. You're just going to have folks coming in there and realizing, wow, you know, either they're just looking or they're not ready to buy.

It takes a unit that was probably attractive because someone's re yogurt gets from someone else who wants it doesn't see it.

At the back of the queue I'm wondering your thoughts there.

Speaker #6: So that's kind of the clarification of, you know, your question between, well, your traffic's up, your conversions up, why aren't you seeing more sales?

In terms of how thats affecting sales and if that's a policy youre looking at changing.

Yes.

Look I think there's both reserve inventory and there is inventory that can't be transferred I think the reserve inventory generally as inventory that has a customer thats basically interested in that that inventory.

Speaker #6: That's why.

Speaker #2: And again, I would say not all traffic is considered the same. A 780 comes through the door versus a 580 that comes through the door.

Bill Nash: I would say not all traffic is considered the same. A 780 comes through the door versus a 580 comes through the door. They convert at tremendously different rates.

Speaker #2: They convert it at tremendously different rates.

Speaker #6: Yeah.

Bill Nash: High quality is down even at the very high end of prime, right? What we're seeing is that the higher FICO customers, the app volume is down. That, you know, that's a core customer of ours. You're seeing that kind of, and Jon, keep me honest on that. You're probably seeing it probably 600 and above is probably down. Certainly at the high end, I think the one area that's maybe not down is probably low FICO 550 and below.

Speaker #11: In high qualities, down even at the very high end of prime, right?

And that's obviously.

Speaker #6: Well, yeah, what we're seeing is that the higher FICO customers, the app volume is down. So, and that, you know, that's a core customer of ours.

When you've got a customer in Richmond is interested in a car in Pennsylvania, We think that's a huge benefit that that customer can actually get that car. So that plays into our transfers I think the only thing that we'd be looking at there from a reserved inventory standpoint is just to make sure that.

Speaker #6: And really, you're seeing that kind of... and Jon, keep me honest on that. You're probably seeing it, probably $600 and above is probably down.

Speaker #6: Certainly, at the high end, I think the one area that's maybe not down is probably low FICO—550 and below.

We're being active on how long a consumer can actually hold the core or reserve decline.

The transaction is progressing on the vehicles that are labeled not transferred the only reason they are not transferred at that time is because.

Speaker #2: Right. And I think, again, I don't think we're alone there. We can talk to other lenders, other dealers. You can see it in the credit bureaus.

Bill Nash: Right. I don't think we're alone there. We can talk to other lenders, other dealers. You can see it in the credit bureaus. It's apparent.

Speaker #2: It's apparent.

It's generally related to title issues in some states you can sell them. So you'll see it on our website Hey, this can't be transferred because you can tell that car without a title in that state, but theres. Other states you cannot sell a car without the without the titles, we're not going to transfer that car in that case and then once that item becomes available. It certainly can be open for transfer of its still around so those are the two buckets, we think about.

Speaker #11: Okay, thanks guys.

Bill Nash: Okay, thanks, guys.

Speaker #4: Thank you. Our next question comes from Jeff Lake with Stevens Inc. Please go ahead. Your line is open.

Operator: Thank you. Our next question comes from Jeff Flick with Stephens Inc. Please go ahead. Your line is open.

Speaker #2: Good morning. Thanks for taking my question. Bill, I was wondering if we could talk about the concept of the reserve inventory that you guys do.

[Analyst 5]: Good morning. Thanks for taking my question. Bill, I was wondering if we could talk about the concept of the reserved inventory that you guys do. My understanding is it's at the most seven days. It's usually around seven, but not always seven. Our records or just our analysis shows that roughly about 40% of your inventory at any given time online is reserved. It appears that unless it takes a unit that is probably attractive because someone's reserving it, someone else who wants it doesn't see it, or it's at the back of the queue. I'm wondering your thoughts there in terms of how that's affecting sales and if that's a policy you're looking at changing.

That would bring just kind of your overall available inventory down.

Do you.

Speaker #2: You know, my understanding is it's at the most seven days. It's usually around seven, but not always seven. But you know, our records and analysis show that roughly about 40% of your inventory at any given time online is reserved.

I'm, assuming you won't disclose in terms of the amount of sales.

Yes.

The percentage of people that are reserving.

I'm wondering what percent actually buy versus a gain back yet so how much of the inventory actually kind of sits.

Speaker #2: And, you know, it appears that, you know, let's just take, you know, a unit that is probably attractive because someone's reserving it. So someone else who wants it doesn't see it.

How do you view the next potential BARDA.

Yes, I mean, we haven't gone into the specifics, but obviously there is we look at the economics of that the other thing I would let you know as even though in the reserved inventory consumers can still expressed interest for it and say Hey, Please let me know if this doesn't does not actually pan out with that customer keep them on when you think about the reserved inventory.

Speaker #2: Or it's, you know, at the back of the queue. I'm wondering your thoughts there, you know, in terms of how that's affecting sales and if that's a policy you're looking at changing.

Speaker #6: Yeah, no, look, I think there's both reserve inventory and there's inventory that can't be transferred. I think the reserve inventory generally is inventory that has a customer that's basically interested in that inventory.

Bill Nash: Yeah, no, look, I think there's both reserve inventory and there's inventory that can't be transferred. I think the reserve inventory generally is inventory that has a customer that's basically interested in that inventory. That's obviously when you've got a customer in Richmond that's interested in a car in Pennsylvania, we think that's a huge benefit that that customer can actually get that car. That plays into our transfers. I think the only thing that we'd be looking at there from a reserved inventory standpoint is just making sure that we're being active on how long a consumer can actually hold the car or reserve the car and that the transaction is progressing. On the vehicles that are labeled not transferred, the only reason they're not transferred at that time is because it's generally related to title issues. In some states, you can sell them.

A third of our sales are through transfers and they go through the reserved inventory process. So youre absolutely right. We go through an economic decision and.

Where we are with as we feel really good about it you know can we add a little extra friction just to make sure that cars arent held for reserve over.

Speaker #6: And you know, that's obviously when you've got a customer in Richmond that's interested in a car in Pennsylvania. We think that's a huge benefit that that customer can actually get that car.

Sure, but thats.

Small small enhancements.

Speaker #6: So that plays into our transfers. You know, I think the only thing that we'd be looking at there from a reserved inventory standpoint is just to make sure that we're being active on how long a consumer can actually hold the car or reserve the car.

Okay, great. Thanks for taking my question. Thank you. Good luck. Thank you.

Thank you.

Our next question comes from Michael <unk> with Evercore ISI. Please go ahead.

Speaker #6: And that the transaction is progressing. On the vehicles that are labeled 'not transferred,' the only reason they're not transferred at that time is generally related to title issues.

Yes, hi.

Two questions. The first question was really around the credit trends can you just give us some more color in terms of the progression that you saw playing out throughout the quarter. You know when you think about kind of delinquency rates and then how we should be thinking for provisions into the third quarter.

Speaker #6: In some states, you can sell them. So you'll see it on our website. Hey, this can't be transferred because you can sell that car without a title in that state, but there's other states you cannot sell a car without the title.

Bill Nash: You'll see it on our website, hey, this can't be transferred because you can sell that car without a title in that state. There are other states you cannot sell a car without the title. We're not going to transfer that car in that case. Once the title becomes available, it certainly can be open for transfer if it's still around. Those are the two buckets we think about that would bring just kind of your overall available inventory down.

And then the other question.

Speaker #6: So we're not going to transfer that car in that case. And then once the title becomes available, it certainly can be open for transfer if it's still around.

Let's do that and hopefully get to the other one.

Sure I appreciate the question yeah.

Speaker #6: So those are the two buckets we think about that would bring just kind of your overall available inventory down.

Look at delinquency rates for the quarter. It is definitely a seasonality trend that youre always going to have to observe there. So youre coming out also tax time into Q2 with ramps up delinquency ramp will ramp up through the rest of the calendar year, and then back down through delinquency time typically.

Speaker #8: And do you, you know, I'm assuming you won't disclose this, but in terms of the amount of sales or the percentage of people that are reserving, I'm wondering what percent actually buy versus what goes back in.

[Analyst 5]: I'm assuming you won't disclose this, but in terms of the amount of sales, the percentage of people that are reserving, I'm wondering what % actually buy versus it goes back in. How much of the inventory actually kind of sits out of view of the next potential buyer for seven days?

So.

But all in all.

If you look at overall.

Currency rates, we're really looking at it by vintage we're looking at it are they as expected. They are often not the best indicator of ultimate loss timing of loss what have you, but if I think broadly.

Speaker #8: So, how much of the inventory actually kind of sits out of view of the next potential buyer for seven days?

Through the quarter aside from again those vintages that we've adjusted that we adjusted on as you can imagine the delinquency trends on the newer stuff and even the older stuff. That's more season continued to be in line. So yes.

Bill Nash: Yeah, I mean, we haven't gone into the specifics, but obviously, you know, we look at the economics of that. The other thing I'd let you know is even on the reserved inventory, consumers can still express interest for it and say, hey, please let me know if this doesn't get. Does

Again, we feel very positive as we're going to ebb as we continue to put on that again lower risk tightened stuff.

Operator: Not actually pan out with that customer. Keep in mind, when you think about the reserved inventory, a third of our sales are through transfers, and they go through the reserved inventory process. You're absolutely right. We go through an economic decision, and where we are with that is we feel really good about it. Can we add a little extra friction just to make sure that cars aren't held for reserve over three days? Sure, but that's a small enhancement.

That will perform well so hopefully that addresses your addresses your question and Mike I think part of your question. Two was just on the kind of provision as we as we go forward and I think.

I think the way to think about that and you saw what our provision was for originations. This quarter you saw what the what we're calling the true up is I think the way you should think about it is the provision this quarter for the new originations I think.

Operator: Okay, great. Thanks for taking my question. Best of luck.

Thats pretty representative.

Operator: Thank you.

Just with the stuff that we're going into it might be a little bit higher but we feel good about the true up so the provisions John.

[Unknown Speaker]: Thank you. Our next question comes from Michael Montani with Evercore ISI. Please go ahead.

Operator: Yes, hi. I just had two questions. The first question was really around the credit trends. Can you just give us some more color in terms of the progression that you saw playing out throughout the quarter? You know, when you think about kind of delinquency rates and then how we should be thinking, you know, for provisions into the third quarter. The other question, let's do that and hopefully get to the other one.

Certainly speak up but we would expect it to.

To be more yes, you saw the $71 million. This quarter again, you can go back and look at where we didn't have outsized strips, where it was probably lean a little higher.

<unk> that we are again going after a little bit lower in the credit spectrum. So that's going to require a higher upfront provision, but yeah.

Hopefully the true ups are going to be minimal that is our goal through this we feel like that older stuff is rolling off so yes, I would think you would see more in that 70 to 80, certainly south of 100 $100 million range from a provision standpoint, and like John said right. What we're seeing in the $24 25 vintages as they are consistently meeting our expectations in terms of what the law.

Operator: Sure, yeah, I appreciate the question. If you look at delinquency rates for the quarter, there's definitely a seasonality trend that you're always going to have to observe there. You're coming out off of tax time into Q2. It ramps up, delinquency rate will ramp up through the rest of the calendar year and then back down through delinquency time typically. All in all, if you look at overall delinquency rates, we're really looking at it by vintage. We're looking at it, are they as expected? They're often not the best indicator of ultimate loss, timing of loss, what have you. If I think broadly, through the quarter, aside from again those vintages that we've adjusted on, as you can imagine, the delinquency trends on the newer stuff and even the older stuff that's more seasoned continue to be in line.

Loss trends are so what we're really talking about here and we've taken a material hit to our provision this quarter. So what you're really talking about is the provision for new originations that John and Bill just spoke to.

Okay and then the follow up question. That's helpful was just around some of the cost savings. So you had called out a $150 million.

Which could work out to somewhere around $200 a car here potentially as reinvestment fuel if you decided to do it and then on the Cogs front I believe you've said in the past that there could be another 100 or $200 there as well. So I just wanted to understand you know.

Operator: We feel very positive as we're going to, as we continue to put on that again lower risk, tightened stuff that'll perform well. Hopefully that addresses your question.

Operator: Mike, I think part of your question too was just on the kind of provision as we go forward. I think the way to think about that, you saw what our provision was for our originations this quarter. You saw what we're calling the true-up is. I think the way you should think about it is the provision this quarter for the new originations, I think that's pretty representative. Just with the stuff that we're going into, it might be a little bit higher, but we feel good about the true-up. The provisions, Jon, and you certainly speak up, but we would expect it to be more.

Is that separate and distinct and my kind of in the ballpark there in terms of some of the Cogs opportunity and then kind of bottom line. If if it does require several hundred dollars of reinvestment into sharper pricing is that something that you. All are committed to doing in order to kind of reinvigorate the top line.

Yeah. So okay a lot in that question, let me tackle the the Cogs and the SG&A, you're thinking about that the right way theyre separate separate initiatives. So on the Cogs side, if you recall last year we.

We're going after over a couple of years, we're going after $200 in Cogs savings last year, we actually got 125 at the beginning of this year, we actually talked about going after another 125 for this year. So we're ahead of where we thought we'd be even from a 200 dollar goal I will tell you. We're still on track for that 125 for this year.

Operator: Yes, you saw the $71 million this quarter. You can go back and look at where we didn't have outside strips where it was probably lean a little higher, considering that we are again going after a little bit lower in the credit spectrum. That is going to require a higher upfront provision. Hopefully the true-ups are going to be minimal. That is our goal through this. We feel like that older stuff is rolling off. I would think you'd see more in that $70 million, $80 million, certainly south of $100 million range from a provision standpoint.

Our way through the year and that is a separate and distinct initiatives versus the SG&A.

Savings so we don't want to get those two might it up.

To your question about Hey, if.

Would you be willing to reinvest all of that back in to be.

David Lowenstein: Like Jon said, what we're seeing in the 2024 and 2025 vintages is they are consistently meeting our expectations in terms of what the loss trends are. What we're really talking about here, and we've taken a material hit to our provision this quarter, is the provision for new originations that Jon and Bill just spoke to.

To make sure that you are competitive.

What I would tell you is yes, but I would also tell you I don't think thats necessary I think that we'll be able to take some to the to the bottom line.

Absolutely, but we will invest some of them back to an appropriate amount and now as I sit here right now I don't I can't see.

Scenario, where you'd have to take all of that savings and put it back into an enterprise, but again I also want you to know that we're going to we're going to continue to be price competitive.

Operator: Okay, and then the follow-up question that's helpful was just around some of the cost savings. You had called out $150 million, which could work out to somewhere around $200 a car here potentially as reinvestment fuel if you decided to do it. On the COGS front, I believe you've said in the past that there could be another $100 or $200 there as well. I just wanted to understand, is that separate and distinct? Am I kind of in the ballpark there in terms of some of the COGS opportunity? Bottom line, if it does require several hundred dollars of reinvestment into sharper pricing, is that something that you all are committed to doing in order to reinvigorate the top line?

Thank you.

Thanks, Mike.

Thank you.

Our next question comes from Chris <unk> with Needham. Please go ahead. Your line is open.

Hey, good morning.

Following up on that question I guess, we've talked a lot about pricing in the quarter pricing going forward.

Okay, and then the follow-up question that's helpful was just around some of the cost savings. So you had called out $150 million, you know, which could work out to somewhere around $200 a car here, potentially as reinvestment fuel if you decided to do it. And then on the COGS front, I believe you've said in the past that there could be another $100 or $200 there as well. So I just wanted to understand, you know,

Is this something that you know should we reset our cause you guys had sort of reset G. P. Your expectations kind of higher with your performance does this conversation around pricing mean that investors should maybe restate GPU expectations modestly lower or is it too soon to tell or how kind of intertwined with those big yes, no Chris that's a great question.

Operator: Yeah, okay, a lot in that question. Let me tackle the COGS and the SG&A. You're thinking about that the right way. They're separate, separate initiatives. On the COGS side, if you recall last year, we were going after, over a couple of years, we were going after $200 in COGS savings. Last year, we actually got $125. At the beginning of this year, we actually talked about going after another $125 for this year. We're ahead of where we thought we'd be from a $200 goal. I will tell you we're still on track for that $125 for this year, partway through the year. That is a separate and distinct initiative versus the SG&A savings. We don't want to get those two muddied up.

You know, is that separate and distinct? Am I kind of in the ballpark there in terms of some of the COGS opportunity and then kind of bottom line? If it does require several hundred dollars of reinvestment into sharper pricing, you know, is that something that you all are committed to doing in order to kind of reinvigorate the top line?

I had said at the beginning of the year as you know from a modeling standpoint, you can kind of think about year over year on a retail GPU will be similar.

Is that hey, you know in any given quarter, there's going to be some some some puts and takes and I think thats what youre seeing here I think we still feel comfortable for the year as a as a whole to use that kind of retail GPU target, but what I will tell you is if you think about the third quarter. If you look at last year's third quarter. It was a record high so I would expect us to certainly come off of that.

From from from last year and be more kind of in and the historical historical range and I think you didn't ask it but I think you can think about wholesale being the same way on a on a year over year. I think you can keep that target that we talked about being very very similar but.

Operator: To your question about, hey, if you know, would you be willing to reinvest all of that back in to be, you know, to make sure that you're competitive? What I would tell you is yes, but I would also tell you I don't think that's necessary. I think that we'll be able to take some to the bottom line, absolutely, but we'll invest some of them back in an appropriate amount. As I sit here right now, I don't, I can't see a scenario where you'd have to take all that savings and put it back into price. Again, I also want you to know that we're going to continue to be price competitive.

But so much retail last year's third quarter wholesale was one of the strongest probably the top two or three.

Would you be willing to reinvest all of that back into, uh, you know, to make sure that you're competitive?

Gpus that we had in wholesale for the third quarter. So I would expect to come down and be more in line with kind of historical averages on that one for the quarter. Okay. Okay. Thank you for that and then just I might get my years, Brian here, but at the end of 'twenty. Two I believe it was calendar 2022, when you guys had to them.

Operator: Thank you.

Inventory at that period of time and dealers were being more aggressive on price and it kind of took you longer to work through because you wanted to hold margin versus pricing.

What I would tell you is yes, but I would also tell you. I don't think that's necessary. I think that uh, we'll be able to take some to, to the bottom line. Um, uh, absolutely. But we'll invest some of them back, an appropriate amount. And, you know, as I said here right now, I don't I can't see a a scenario where you'd have to take all that savings and put it back into and and and to price. But again I also want you to know that we're going to we're going to continue to be uh price competitive.

Operator: Thanks, Mike.

Thank you.

[Unknown Speaker]: Thank you. Our next question comes from Chris Pierce with Needham. Please go ahead. Your line is open.

Thanks Mike.

Sort of a longer reset to your inventory levels.

Bill Nash: Hey, good morning. Just kind of following up on that question, I guess. We've talked a lot about pricing in the quarter, pricing going forward. Is this something that, you know, should we reset our, because you guys have sort of reset GPU expectations kind of higher with your performance. Does this conversation around pricing mean that investors should maybe reset GPU expectations modestly lower, or is it too soon to tell, or how kind of intertwined would those be?

Our next question comes from Chris Pierce with NIDAM. Please go ahead; your line is open.

I just want to confirm that's sort of not what we're talking about here because it's kind of your commentary about September and it's being more one time or I guess I'd just love to hear you kind of talk through that and I apologize if I got the dates wrong given your.

Hey, good morning.

What are you actually did get the date wrong, it's really I think what you're referring to is the big depreciation event, which we saw in calendar 'twenty three and 'twenty four.

Operator: Yeah, no, Chris, that's a great question. What I had said at the beginning of the year is, from a modeling standpoint, you can kind of think about year over year on a retail GPU will be similar. I also said, hey, any given quarter, there's going to be some puts and takes, and I think that's what you're seeing here. I think we still feel comfortable for the year as a whole to use that kind of retail GPU target. What I will tell you is, if you think about the third quarter, if you look at last year's third quarter, it was a record high. I would expect us to certainly come off of that from last year and be more kind of in the historical range.

Believe there was one in 2000 and end of 'twenty three and there were two in 'twenty four.

That we worked through and just to remind everyone on those events.

It was about for each of them. It was about $3000 in each of the event over a few months. So the degree of it was was different back then than it is here in this event a couple of different things one it was $1000 over about a month's period and then you saw some stabilization and then we're also going into a period, where you're going to see.

Just kind of following up on that question. I guess we talked a lot about pricing in the quarter pricing going forward. Is this something that, you know, should we reset our? Because you guys had sort of reset GPU expectations kind of higher with your performance. Does this conversation around pricing mean that investors should maybe reset, GPU expectations, modestly, lower? Or, is it too soon to tell or how kind of intertwined, would those be? Yeah. No. Chris that's a, that's a, that's a great question. And, you know what, I had had said to the end of the year is, you know, from a modeling standpoint, you can kind of think about year-over-year on a retail GPU. Will will be similar. Uh, I also said, hey, you know, in any given quarter there's going to be some some, some puts in and takes. And I think that's what you're seeing here. I think we still feel comfortable for the year as a as a whole.

Generally seasonal depreciation so we wanted to make sure we get we got through that but yes.

Those events that you were talking about basically at those times you look at that last this thing with all the things that we talked about earlier that go into that equation and we held our margins a little bit more because at the time that that made sense. This one actually it makes sense, let's get this stuff through.

Operator: I think you didn't ask it, but I think you can think about wholesale being the same way on a year over year. I think you can keep that target that we talked about being very, very similar. Similar to retail, last year's third quarter wholesale was one of the strongest, probably the top two or three GPUs that we had in wholesale for the third quarter. I would expect to come down and be more in line with kind of historical averages on that one for the quarter.

And so again, we will we will tackle these things as they come up.

Okay. Thank you and good luck. Thank you.

Use that, uh, kind of retail GPU Target. But what I will tell you is, you know, if you think about the third quarter, if you look at last year's third quarter, it was a record high. So, I would expect this to certainly come off of that from, uh, from from last year and be more kind of in in the historical historical range and I think you didn't ask it, but I think you can think about wholesale being the same way on a, on a year-over-year. I think you can, you know, keep that Target that we talked about being very, very similar. Um, but similar to retail, you know, last year's third quarter wholesale was 1 of the strongest, probably the top 2 or 3. Um, uh,

Thank you.

And as a reminder, it is star one on your telephone keypad, if you would like to join the queue.

Bill Nash: Okay. Thank you for that. I might get my years wrong here, but at the end of 2022, I believe it was calendar 2022, when you guys had too much inventory at that period in time and dealers were being more aggressive on price, and it kind of took you longer to work through because you wanted to hold margin versus pricing, and there was sort of a longer reset to your inventory level. I just want to confirm that's sort of not what we're talking about here because of your commentary about September and this being more one-time. I guess I'd just love to hear you kind of talk through that and apologize if I got the dates wrong given your same-sum question on upper quarters.

GPUs that we had in wholesale for the third quarter, so I would expect it to come down and be more in line with kind of historical averages on that.

We have a follow up from Rajat Gupta with Jpmorgan. Please go ahead.

Alright, Thanks, just kind of wanted to follow up on Caf.

Going back to the comment you can expecting flat to slightly down.

Just a little bit more on the third quarter.

The gain on sale from the 900 million.

But we don't give you lose like a quarter of net interest income on that 900 million. So.

Like a wash is that does that.

On the right way to think about it.

Could you give us a little more color on how you get to.

Operator: You actually did get the date wrong. It was really what I think what you're referring to is the big depreciation events, which we saw in calendar 2023 and 2024. I believe there was one in the end of 2023 and there were two in 2024 that we worked through. Just to remind everyone, on those events, it was about, for each of them, it was about $3,000 in each of the events over a few months. The degree of it was different back then than it is here. This event, a couple of different things. One, it was $1,000 over about a month period, and then you saw some stabilization. We're also going into a period where, you know, you're going to see generally seasonal depreciation. We wanted to make sure we got through that.

So even if you have like 80 million provision in the third quarter and maybe the fourth quarter. It was just hard to bridge, though.

Sure Yeah, I think <unk> got a couple of things going on there first yes, you've got the income, but youre going to realize that all upfront, whereas again, the receivables that youre going to no longer have there you were going to gain that income over time. So that's a bit of a pull forward of your overall NIM walk will be impacted there is no doubt about that bridge out youre correct, but yes, obviously when we <unk>.

For the quarter, okay? Okay, thank you for that. And then just, I might get my years wrong here, but at the end of 22, I believe it was calendar. 2022. When you guys had too much inventory at that period in time and dealers were being more aggressive on price and it kind of took you longer to work through because you wanted to hold margin versus pricing and it there was sort of a longer reset to your inventory levels. I just want to confirm that sort of not what we're talking about here because it's kind of your commentary on September and this being more 1 time where I guess I just love to hear you kind of talk through that and apologies. If I got the dates wrong given your No, No Quarters, you actually did get the date wrong. It's it was, it's really what? I think what you're referring to is the the the big depreciation events, uh, which we saw in calendar, 23 and 24.

Look at the provision going out that's a key piece of it.

But again youre, bringing on.

Higher NIM receivables as well, so I think thats.

That's helping benefit you to bring that NIM backed up in probably by the fourth quarter off of where you are in the third quarter. So I think all of that's playing together, yes, I think you've got the servicing economy up to 5% retention rate.

Operator: Those events that you were talking about, basically at those times, you know, you look at that elasticity with all the things that we talked about earlier that go into that equation. We held our margins a little bit more because at the time that made sense. This one actually, it made sense. Let's get this stuff through. Again, we'll tackle these things as they come up.

And are there things that you know should provide a tailwind.

And again I'd, probably say, it's more slightly down again plays into what the origination provision, whereas the NIM, where the losses go ultimately about yes, I'd say, probably slightly down more than flat for the full year for the full year electric for third quarter No no for.

Bill Nash: Okay, thank you and good luck.

I believe there was 1 in 20, in end of 23, and there were 2 and 24, um, that that we worked through and and just to to remind everyone on those events, uh, it was about for each of them. It was about $3,000 in each of the event over a, a few months. So the degree of it was was different back then than it is here. And this this event a couple different things 1. Uh it was a thousand dollars over about a month period and then you saw some stabilization and then we're also going into period where you know you're going to see generally seasonal depreciation. So we wanted to make sure we get we got through that. But um yeah those events that you were talking about uh basically at those times, you know, you look at that elasticity with all the things that we talked about earlier that go into that equation and, you know, we held our margins a little bit more because at the time that that made sense, this 1 actually it made sense. Let's get this stuff through. Um and so again we'll we'll tackle these things as as they come up.

Operator: Thank you.

[Unknown Speaker]: Thank you. As a reminder, it is star and one on your telephone keypad if you would like to join the queue. We have a follow-up from Rajat Gupta with JP Morgan. Please go ahead.

Okay, thank you, and good luck. Thank you.

For the full year, so take last fiscal year. This fiscal year, that's what I referred to.

Thank you.

Okay.

Okay. Thanks for the color.

And as a reminder, it is star and 1 on your telephone keypad. If you would like to join the queue.

Thank you we.

We do have another follow up from Brian Nagel with Oppenheimer. Please go ahead. Your line is open.

Enrique Mayor-Mora: Oh, hi. Thanks. Just wanted to follow up on GAB. Just going back to the commentary on still expecting flat to slightly down. Could you help us a little bit more on the third quarter? You're going to get the gain on sale from the $900 million, but you're also going to lose like a quarter of net interest income on that $900 million. It almost feels like a wash. Is that the right way to think about it? If you could give us a little more color on how you get to still flat income, even if you have like $80 million provisions in the third quarter and maybe in the fourth quarter. It's just hard to bridge that. Thanks.

We have a follow-up from Rajat Gupta with JP Morgan. Please go ahead.

Great. Thanks for slipping me back in here. So my follow up question.

Oh, hi, thanks. Uh, just want to follow up on CF. Um, you know, just going back to the commentary and still expecting flat to slightly down.

We've discussed this in the past, but did you notice anything with regard to <unk>.

Used car unit demand anything notable with regard to kind of a different type of vehicles.

Um, could you help us a little bit more around the third quarter? You know, you're going to get the gain on sale from the $900 million?

Trend high end low end.

I think shift.

As we push here through the fiscal year.

Yes, I think.

A couple observations I mean, I still just the industry as a as a total youre seeing older vehicles.

Uh, but you're also going to lose like a quarter of net interest income on that $900 million. So it almost feels like a wash. Is that the right way to think about it? If you could give us a little more color on how you get to that.

If you look at older vehicle registration older vehicles being older than 10 year old 10 years old that market segment is doing better than the zero to 10.

Operator: Sure. Yeah, I think you've got a couple of things going on there. First, yes, you've got the income, but you're going to realize that all upfront, whereas again, the receivables you're going to no longer have there. You were going to gain that income over time. That's a bit of a pull forward. Your overall NIM will be impacted. There's no doubt about that, Rajat. You're correct. Obviously, when we look at the provision going out, that's a key piece of it. Again, you're bringing on higher NIM receivables as well. I think that's helping benefit you to bring that NIM back up probably by the fourth quarter off of where you are in the third quarter. I think all that's playing together.

You know, still flat income. Even if you have like $80 million in provisions in the third quarter, and maybe the fourth quarter, it's just hard to bridge that.

In the first quarter I think we kind of had a barbell effect, where you're under $25000 of cars were up year over year, but so were like your 40000, plus this quarter pretty much everything was down under 25000 was was.

As a percent of sales was up a little bit over over last year, but as far as.

Yes, you've got the income, but you're going to realize that, you know, all upfront. Whereas, again, the receivables you're going to no longer have, you were going to gain that income over time. So that's a bit of a pull forward. Your overall NIM will be impacted, there's no doubt about that, RA, you're correct. But, um, yeah, obviously when we look at the provision going out, that's a key piece of it. Um, but again, you're bringing on.

The other ones are either down or a little bit flat. So you still pick up some more as a percent of sale in the under $25000 car.

David Lowenstein: Yeah, I think you got servicing income. You have the 5% retention.

And then bill to that and I know, you're you've been merchandising different sort of stages.

Operator: Right.

David Lowenstein: There are things that, you know, should provide a tailwind.

Operator: Yeah, I'd probably say it's more slightly down. A lot plays into what's the origination provision, where's the NIM, where the losses go ultimately. I'd say probably slightly down more than flat.

What the consumer preferences, but.

Higher NIM receivables as well. So I think that's, um, that's helping benefit you to bring that NIM back up in the, you probably by the fourth quarter off of where you are on the third quarter. So I think all that's playing together. Yeah, I think you got servicing income, you have the 5% retention, right? Um, so there are things that, you know, should provide a tailwind. Yeah.

So as you look forward.

Are you pushing further into that that older inventory.

Within the system.

Operator: For the full year.

Operator: For the full year.

Operator: Not for the third quarter.

We've obviously brought them and focused on this I think if we look at the <unk>.

Operator: No, for the full year. Take last fiscal year, this fiscal year, that's what I'd refer to.

What we call that value Mac sale, let's call it six years and older or more than 60000 miles we had.

Enrique Mayor-Mora: Understood. Great. Okay, thanks for the color.

And again, I'd probably say it's more slightly down again. A lot a lot plays into what's the origination provision? Where is the name? Where the losses go? Ultimately. But yeah, I'd say probably slightly down more than flat for the full year, for the full year to sell it for the for third quarter. No, no, no, for the full year. So, take last fiscal year, this fiscal year, that's what I'd refer to.

You know a bump up in sales and that were up if you look year over year, we had a nice little tick up which means.

Understood. Great. Okay, thanks for the call.

[Unknown Speaker]: Thank you. We do have another follow-up from Brian Nagel with Oppenheimer. Please go ahead. Your line is open.

Thank you.

We had more of that available I think our goal will be continue to have more of that available, but I also think that we have to make sure that theres also a.

Jon Daniels: Okay, thanks for slipping me back in here. My follow-up question, I think we've discussed this in the past, but did you notice anything with regard to, I'm looking at used car unit demand, anything notable with regard to kind of the different type of vehicles? I mean, was there a stronger trend, high-end, low-end, that type of, and did anything shift as we pushed here through the fiscal year?

We do have another follow-up from Brian Nagel with Oppenheimer. Please go ahead. Your line is open.

A good selection of later model used cars as well because that appeals to a lot of Carmax customers. Also so you can't go to at some point you have the benefit that you get of having older higher mileage will be offset because you don't have.

Operator: Yeah, I think a couple of observations. I mean, I feel just the industry as a total, you're seeing older vehicles. If you look at older vehicle registration, older vehicles being, you know, older than 10 years old, that market segment is doing better than the 0 to 10. In the first quarter, I think we kind of had a barbell effect where your under $25,000 cars were up year over year, but so were your $40,000 plus. This quarter, pretty much everything was down. The under $25,000 was, you know, as a % of sales, up a little bit over last year. As far as the other ones, they were either down or a little bit flat. You still picked up some more as a % of sale in the under $25,000 car.

Some of the vehicles that the core carmax customers looking for so we'll walk that we'll walk that line.

Okay, thanks for slipping me back in here. So my follow-up question, you know, we I think we've discussed this in the past. But did you notice anything with regard to on? I'm looking at a used car unit demand. Anything notable with regard to kind of, you know, the the different type of vehicles. When was there a stronger Trend? High-end low-end, that type of and is there anything shift? You know, as we as we pushed here through uh the fiscal year.

yeah, I think, um,

Okay I appreciate it thanks.

Sure.

Thank you.

And we don't have any further questions at this time I will hand, the call back to bill for any closing remarks, great. Thank you Nikki well listen thank you for joining the call today and for your questions and your support as always I just want to thank our associates for everything they do to take care of each other and the customers and our communities and we will talk again next quarter.

Thank you, ladies and gentlemen that concludes the second quarter of fiscal year 'twenty 'twenty six carmike.

<unk> release conference call.

May now disconnect.

A couple observations. I mean I still just the industry as a as a as a total you're seeing older vehicles. Like if you look at older vehicle registration older vehicles being you know older than 10 year old 10 years old, that market segment is doing better than the the the zero to 10. Um, you know from the in the first quarter I think we kind of had a barbell effect where you're under 25,000 cars were up year-over-year but so were like your 40,000 plus this quarter. Uh, pretty much everything was down. The, the under 25,000 was was, um, you know, as a percent of sales was up a little bit over over last year. Um, but you know, as far as uh the other ones they were either down or or a little bit flat. So you still picked up some more as a percent of sale and the, the under 25,000 car

Jon Daniels: Bill, to that end, I know you've been merchandising different, so to say, to reflect the consumer preferences. As you look forward, are you pushing further into that older inventory within the system?

And then Bill to that end, you know, and I know you're, you know, you've been, you know, merchandising different. So to say to, to reflect the consumer preferences, but, you know, so as you look forward is is, is there are you are you pushing further into that that older inventory?

Operator: Yeah, look, you know, we've obviously, Brian's been focused on this. I think if we look at what we call that value max sale, let's call it six years and older or more than 60,000 miles, we had a bump up in sales in that. We were up, you know, if you look year over year, we had a nice little tick up, which means we had more of that available. I think our goal will be to continue to have more of that available. I also think that we have to make sure that there's also a good selection of later model used cars as well, because that appeals to a lot of CarMax customers also.

Operator: You can't go to, at some point, you have the benefit that you get of having older, higher mileage will be offset because you don't have some of the vehicles that the core CarMax customer is looking for. We'll walk that line.

Jon Daniels: I appreciate it. Thanks.

On on within the system. Yeah, look, I, you know, we've obviously run them in focused on this, I think if we look at the the what we call that valuemax sale, let's call it 6 years and older, or more than 60,000 miles, we had, uh, you know, a bump up and sales and that we're up. You know, if you look here over here, we had a nice little tick up, which means, uh, you know, we had more of that, that available, I think our goal will be continued to have more of that available, but I also think that we have to make sure that there's also, uh, a good selection of later model, uh, used cars as well because that appeals to a lot of Carmax customers also. So, you know, you can't go to at some point you have, you know, the the benefit that you get of having older higher higher mileage, will be offset because you don't have uh, some of the vehicles that, you know, the core CarMax customer is looking for. So we'll, we'll walk that. We'll walk that line.

Operator: Sure.

I appreciate it. Thanks.

[Unknown Speaker]: Thank you. We don't have any further questions at this time. I will hand the call back to Bill for any closing remarks.

Sure.

Operator: Great. Thank you, Nikki. Thank you for joining the call today and for your questions and your support. As always, I just want to thank our associates for everything they do to take care of each other and the customers in our communities. We will talk again next quarter.

Thank and we don't have any further questions at this time. I will hand the call back to bill for any closing remarks. Great thank you Nikki. Well, listen, thank you for joining the call today and for your questions and your support. As always, I just want to thank our Associates for everything they do to take care of each other and the customers in our communities and and we will talk again next quarter.

[Unknown Speaker]: Thank you, ladies and gentlemen. That concludes the second quarter fiscal year 2026 CarMax Inc. earnings release conference call. You may now disconnect.

Thank you, ladies and gentlemen, that concludes the second quarter fiscal year 2026 CarMax earnings release conference call. You may now disconnect