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. "