Future Credit Losses with Full LOS Implementation
Q: What losses and reserves to expect when LOS is 100%?
A: Management notes that the Loan Origination System (LOS) has sustained a 21% improvement over 12-13 months. With prior years averaging $400 million in credit losses, this implies the business is $80 million better. While they could maintain these improvements, they aim to serve more customers through risk-based pricing, which may affect future losses and reserves. They plan to learn more over the next few months and will provide clearer guidance in a couple of quarters.

Underwriting Adjustments Post LOS Rollout
Q: How has underwriting changed since LOS implementation?
A: After initially being "too tight," management revisited assumptions for higher-ranked customers (ranks 5 and 6), who comprise 55%-60% of their customer base . They've eased terms and down payments for these customers while keeping underwriting tight for lower-ranked customers (ranks 1-4) . This approach has resulted in 15%-20% more down payments from lower-ranked customers, positively impacting the portfolio.

Adjusting Credit Policies and Impact on Volume
Q: How will credit adjustments affect lost and gained volume?
A: By responsibly loosening credit for higher-ranked customers, management expects to regain volume lost over the past year. They have seen robust traffic recently and aim to drive growth in key regions like Arkansas, Missouri, Texas, and Oklahoma. Utilizing risk-based pricing allows them to serve more customers appropriately, balancing credit risk and volume .

Recapitalization and Funding Strategy
Q: Why not raise more funding to accelerate acquisitions?
A: While considering raising more equity, management sought to minimize dilution. They anticipate factors like falling interest rates and upcoming initiatives to assist customers, particularly on the collection side. Believing they can achieve benefits through management actions without significant additional equity raise, the recent funding provides necessary breathing room.

Competitive Environment and M&A Update
Q: Update on competition and M&A opportunities?
A: There's substantial M&A activity with minimal competition on the buy-side. Many dealers face challenges like higher interest rates and floorplan costs, making them receptive to selling. Management is being selective and plans to resume acquisitions after securing proper funding in the next quarter.

Pruning and Adding Dealerships
Q: What's the strategy for closing and adding dealerships?
A: They are closing older dealerships needing investment where returns aren't adequate. Even with controlled underwriting, lack of sales volume can make a location unviable. Plans include adding new locations with 5-6 times more potential that complement their footprint and leverage partnerships like Cox Automotive to improve gross margins.

Service Contract Adjustment Impact
Q: Clarify the service contract adjustment and margin impact.
A: Due to customers using multi-year service contracts faster than expected, management recognized a $13.2 million onetime adjustment. Going forward, revenue will be recognized over a shorter period, resulting in a positive 100 basis point impact on gross margin.

Tax Refund Season Expectations
Q: Expectations for this year's tax refund season?
A: Anticipating an unusual season, they are preparing early with inventory and advertising campaigns. Starting promotions now, they aim to capitalize on opportunities by being ready earlier than in past years. The addition of Jamie Fisher brings new perspectives to their strategy.

Consumer Confidence Impact
Q: How is consumer confidence affecting business?
A: Improved consumer confidence among lower-end consumers is a significant benefit. Management focuses on serving customers effectively and now has more tools to assist them wisely. Despite optimism, they plan to maintain prudent risk-taking given the current economic backdrop.