Q3 2025 Earnings Summary
- Significant improvements in credit quality and underwriting due to the new Loan Origination System (LOS), with 60% of the portfolio now under the new controls, leading to better portfolio performance and lower charge-offs. The company believes that most benefits are coming from how they are originating the paper and are focused on underwriting improvements.
- Strong customer demand and increased application volumes, with application volume up over 3.5% and the strongest January application volume in a very long time, indicating potential for sales growth. The company is seeing strong volume and website visits even through February, suggesting their business model thrives in uncertain environments.
- Expansion through acquisitions of larger dealerships, such as the Texas Auto Center dealerships, which are large dealerships selling higher volumes than legacy stores, expected to contribute significantly to sales volumes and add 5,000 or more accounts over the next 18 to 24 months.
- Cumulative overall tax refunds remain materially down from pre-COVID levels, and the tax season started off to a slower start, which could negatively impact sales volumes. The company is still waiting on a good chunk of that money, indicating potential challenges in the critical spring selling season.
- The improvements in net charge-offs are primarily due to tightened underwriting standards and the implementation of the loan origination system (LOS), rather than an improvement in the consumer's financial health. This suggests that the core consumer remains under stress, potentially limiting future growth as the company remains reluctant to relax underwriting standards.
- Recent acquisitions have increased SG&A expenses by $2.9 million, an increase of 6.7%, creating headwinds in achieving operational leverage in the near term while the acquired stores build their customer base. These acquisitions may take 18 to 24 months to add 5,000 or more accounts, delaying profitability benefits.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenues | +8.7% (from $299.61M in Q3 2024 to $325.73M in Q3 2025) | Total revenues grew significantly as improved sales performance and pricing enhancements drove growth. The rise in sales revenue (up 9.6%) indicates a robust demand environment, which, combined with operational efficiencies, boosted overall revenues relative to the previous period. |
Sales Revenue | +9.6% (from $240.40M to $263.48M) | Sales revenue increased strongly due to improved market demand and possibly an enhanced product mix or pricing strategy. The higher sales revenue relative to the previous period suggests that customer acceptance has improved despite competitive pressures. |
Net Income | Turnaround from a loss of $8.54M to a gain of $3.16M | Net income turned positive as a result of better margin management and favorable revenue mix changes. The marked shift from a loss to profit reflects effective cost control and revenue acceleration initiatives that outweighed the rising expenses seen in other areas. |
Cost of Sales | +7.2% (from $158.25M to $169.37M) | Cost of sales increased moderately, reflecting higher production and operational activity. Despite this rise, the comparatively lower percentage increase than revenue gains helped improve the gross margin, suggesting that inventory efficiencies and operational improvements were at work. |
SG&A Expenses | +6.6% increase in Q3 2025 | SG&A expenses experienced a modest uptick, which is likely associated with scaling operations and investments in growth (such as marketing and integration costs). This increase, while contributing to higher overall costs, appears to be in line with the company's expansion efforts relative to Q3 2024. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Gross Margin | Q3 2025 | no prior guidance | 37% to 38% | no prior guidance |
Acquisitions Impact | Q3 2025 | no prior guidance | 5,000 or more accounts | no prior guidance |
Capital Structure | Q3 2025 | no prior guidance | Extension and upsizing of ABL facility to $350 million, plus completion of its sixth ABS transaction | no prior guidance |
Risk-Based Pricing | Q3 2025 | no prior guidance | 34 stores actively utilizing the new scorecard | no prior guidance |
Operational Improvements | Q3 2025 | no prior guidance | Continued investments in collections infrastructure and process improvements | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Loan Origination System (LOS) Implementation and Impact on Credit Quality | Consistently discussed from Q4 2024 through Q1 and Q2 2025 with emphasis on improved underwriting, lower loss frequency and severity, better deal structures, and initial risk‐based pricing pilots (e.g. ) | Q3 2025 continues to highlight LOS benefits, showing a larger share of the portfolio (58%) under LOS controls, improved credit quality, further fine‐tuning of underwriting and an expanded risk‐based pricing pilot (34 stores) | Recurring with enhanced operational benefits: Continued positive sentiment and further integration of risk‐based pricing indicate maturing confidence in LOS performance. |
Tightened Underwriting Standards and Legacy Loan Portfolio Concerns | Addressed in Q1 and Q2 2025 with focus on tightening standards for higher‑risk customers, improved down payments and refined loan terms; legacy (“back book”) loans were highlighted as a drag (e.g. ) | In Q3 2025, the tightening measures remain while emphasis is on shifting the portfolio toward LOS‐originated loans and reducing legacy risks; additional caution around macro factors is noted | Persistent with a shift in focus: While the tightening remains, there is a gradual transition away from high‑risk legacy exposures, reflecting a more positive view of future portfolio quality. |
Sales Volumes, Customer Demand, and Digital Engagement | Earlier periods (Q1 and Q2 2025, Q4 2024) reported declines in retail units and revenues alongside challenges in demand, with mixed signals on digital engagement and efforts to boost conversion via CRM enhancements | Q3 2025 shows a marked improvement with sales volumes up 13.2%, strong customer demand (boosted by promotions and partnerships) and sustained high website visits (improved digital engagement) | Improving sentiment: Transition from moderate weakness to robust sales performance and better digital traction, reflecting effective operational adjustments. |
Strategic Acquisitions and Their Operational Expense Impacts | Discussed throughout Q1, Q2 and Q4 2024 emphasizing acquisitions (e.g., Texas Auto Center) that initially increased SG&A expenses while promising future customer portfolio growth | Q3 2025 continues discussing recent acquisitions, noting a $1.8M SG&A bump and short‐term headwinds with an expected addition of 5,000+ accounts over 18–24 months | Steady, optimistic growth despite near-term cost pressures: The strategy remains consistent, with a focus on long‑term portfolio expansion despite immediate SG&A burdens. |
Vehicle Affordability and Consumer Financial Health | Regularly mentioned in Q1, Q2 2025 and Q4 2024 with concerns over high retail prices, procurement cost targets, and the impact of inflation and rising living costs on customer credit profiles | In Q3 2025, affordability remains a concern amid macro pressures (inflation, tariffs) and is linked to the need for tighter underwriting and risk‑based pricing; the emphasis is on serving financially challenged working people | Consistently critical but managed: Ongoing challenges with affordability underscore a cautious tone, with measures in place but persistent external pressures. |
Technology Investments and Digital Transformation | In Q1 and Q2 2025 as well as Q4 2024, technology was broadly discussed (LOS, ERP, CRM), with a strong push to improve operational efficiency and customer experience | Q3 2025 focuses heavily on LOS‑focused enhancements (portfolio shift to LOS, quicker sales process, risk‑based pricing pilots) plus significant CRM and collections improvements, signaling a centralized digital transformation strategy | Refined focus: Shift from broad technology discussions to targeted LOS and digital process optimizations, with positive long‑term efficiency and customer experience impacts. |
Revenue Recognition Adjustments and One-Time Accounting Impacts | Raised in Q2 2025 regarding accelerated deferred service contract revenue (a 25% quicker revenue recognition and a roughly 1% gross margin benefit) | There is no mention in Q3 2025 earnings call | No longer mentioned: This topic, discussed in Q2, has dropped out in Q3, indicating it is a one‑time adjustment rather than a recurring concern. |
Future Credit Performance Uncertainty and Emerging Risk-Based Pricing | In Q2 2025, future uncertainties were noted amid portfolio transitions and a pilot risk‑based pricing program was introduced; Q1 had only indirect references | Q3 2025 discusses uncertainty due to macroeconomic challenges and emerging opportunities with risk‑based pricing (with expanded trials in 34 stores) | Emerging focus with cautious optimism: Continued uncertainty combined with an expanded risk‑based pricing initiative highlights a careful yet proactive approach to managing future credit performance. |
Shareholder Value Commitment | Previously mentioned in Q1 2025 and Q4 2024 with explicit references to maximizing shareholder returns through operational excellence, strategic acquisitions, and cost improvements | Q3 2025 does not mention shareholder value explicitly | Less emphasized: While earlier periods focused on commitments to shareholders, the current period omits explicit discussion, suggesting a strategic shift to operational topics over shareholder rhetoric. |
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Underwriting and Unit Recovery
Q: How has underwriting trended and impacted unit recovery over the past year?
A: Management acknowledged that after tightening underwriting last year due to the rollout of the loan origination system (LOS), unit sales were down 19.9% in the third quarter. They have since relaxed some underwriting standards thoughtfully, leading to a current run rate implying volumes down 6% to 8% versus fiscal year '23, the company's high watermark. They are focusing on risk-based pricing to regain volume without compromising core controls. -
Provisioning and LOS Impact
Q: Is the lower provisioning due to consumer strength or underwriting improvements?
A: Management believes most benefits are coming from underwriting improvements rather than consumers being in a much better place. Over 60% of the portfolio is now under the new LOS with enhanced controls, and only a little over 20% represents older loans from fiscal years '21 to '23. The focus on risk-based pricing and better underwriting gives consumers flexibility and makes them less susceptible to broader macroeconomic issues. -
Tax Refund Season and Customer Demand
Q: What are you seeing in the application pool and tax season demand?
A: Tax season started slower, with cumulative refunds flat to last year and still materially down from 2019. They expect to realize more sales in March. Refunds per customer are up slightly, and they are seeing stronger demand, partly due to their advertising campaign. Overall application volume increased over 3.5%, with January being the strongest in a long time. They see an opportunity to serve higher-quality customers and elongate the tax season. -
Process Improvements and Future Gains
Q: How much more benefit can you get from process improvements and the LOS?
A: There is more to gain from process improvements. They began the Cox partnership 9 months ago and are still in the first phase. In underwriting, there's an opportunity to possibly relax standards and focus on risk-based pricing. They have increased stores using risk-based pricing from 10 to 34, covering over one-fifth of the organization, with promising results. They will share more about strategy after tax season. -
Acquisitions and Account Growth
Q: When did acquisitions close, and how quickly will they ramp up accounts?
A: They closed one dealership in Hot Springs, Arkansas, last December, affecting half of the prior year's quarter. More impactful were two large Texas Auto Center dealerships closed in June, selling higher volumes than legacy stores. There was no SG&A from these locations in the prior year quarter. -
COO's Opportunities Ahead
Q: What opportunities do you see as the new COO?
A: Jamie Fischer, joining from a company twice the size where it was difficult to move the needle, is excited about opportunities like investments in changing how they collect. These projects allow her to make a significant impact on the company's success story.
Research analysts covering AMERICAS CARMART.