Good day, and welcome to the CarMax second quarter fiscal year 2023 earnings release conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to David Lowenstein. Please go ahead. Thank you, Samara. Good morning, and thank you everyone for joining our fiscal 2023 second quarter earnings conference call. I'm here today with Bill Nash, our President and CEO, Enrique Meirmor, our Executive Vice President and CFO, and John Daniels, our Senior Vice President, CarMax Auto Finance Operations. Let me remind you, our statements today that are not statements of historical fact, including 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 that could affect these expectations, please see our Form 8-K filed with the SEC this morning and our annual report on Form 10-K for the fiscal year ended February 28, 2022, previously filed with the SEC. 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. Great. Thank you, David. Good morning, everyone, and thanks for joining us. Before I get started, I want to share that my thoughts are with our associates, their families and communities that are being impacted by Hurricane Ian. We have a significant number of stores in the storm's path, and as always, the safety of our associates is our top priority. We've taken steps to support our associates and our communities, and we will continue to monitor the situation and take actions to provide assistance as needed. Now to our results. This quarter reflects widespread pressure the used car industry is facing. Macro factors including vehicle affordability that stem from persistent and broad inflation, climbing interest rates, and low consumer confidence all led to a market-wide decline in used auto sales. In addition, wholesale values were affected by steep depreciation in the quarter. Despite the impact of these factors on our results, we continued to grow market share. We also continue to make progress on the key initiatives that will further strengthen our competitive differentiation over time. We have weathered a number of difficult cycles in our history, and each time, we have successfully managed through them and have leveraged key learnings to further strengthen our operating model. We remain on track to achieve our long-term strategy and goals. For the second quarter of FY 2023, our diversified business model delivered total sales of $8.1 billion, up 2% compared with last year's second quarter, driven by growth in average selling prices, partially offset by lower retail and wholesale volume. In our retail business, total unit sales in the second quarter declined 6.4% and used unit comps were down 8.3% versus the second quarter last year. Our performance was impacted by the macro factors that I mentioned previously. We believe industry sales were also impacted by a shift in consumer spending prioritization from large purchases to smaller discretionary items. In response to the current environment and consumer demand, we have continued to offer a higher mix of lower-priced vehicles. We began the second quarter with a low single-digit decline in comp sales during June that reflected a continuation of softer, although improving sales, which we discussed on our last earnings call. Comps then fell sharply at the beginning of July, with August ending in mid-teen declines. Last quarter, we reported market share data. We will do that again this quarter as the data provides additional context and highlights our performance relative to the industry. Based on external data, we continued to gain share through July, the latest period for which title data is available. We reported second quarter retail gross profit per used unit of $2,282, up $97 per unit versus the prior year period, a reflection of our ability to manage used margin in any environment. We continue to focus on striking the right balance between covering cost increases, managing margin, and passing along efficiencies to consumers to support vehicle affordability. Wholesale unit sales were down 15.1% versus the second quarter last year, partially as a result of our deliberate decision to reallocate some older vehicles from wholesale to retail to meet consumer demand for lower-priced vehicles. We estimate that without this shift, our wholesale units would have been down less than 10%. Performance was also impacted by depreciation of about $2,500 and as we intentionally slowed buys in reaction to rapidly changing market conditions. Wholesale gross profit per unit was $881, down from $1,005 a year ago, and reflected softening market conditions as well as our decision to retail a higher mix of older used vehicles. Our ability to source these vehicles from consumers is a competitive advantage. Relative to younger vehicles, more of them fall out during the reconditioning process as they are not able to meet our standards for consumer sales. When that happens, we wholesale those vehicles often at lower than normal margins. In the third quarter, we have been focused on aligning our offers to current conditions and adjusting inventory to more efficiently incorporate older vehicles. Buying vehicles at appropriate prices for market conditions is one of our core competencies. We bought approximately 343,000 vehicles from consumers and dealers during the second quarter. While down 8% versus last year's period, this was up approximately 50% from the second quarter of FY 2021 and reflects customers' responsiveness to both our nationwide online instant offer tool and our offers. We purchased approximately 323,000 cars from consumers in the quarter, down 11% versus last year's record results. We also sourced approximately 20,000 vehicles through MaxOffer, our digital appraisal product for dealers. This was up 130% versus last year's period and up 18% compared to this year's first quarter. Our self-sufficiency remained above 70% during the quarter. We remain focused on providing the most customer-centric experience in the industry with a leading e-commerce platform that integrates buying and selling cars with our best-in-class store experience. In regard to our second quarter online metrics, approximately 11% of retail unit sales were online, up from 9% in the prior year's quarter. Approximately 53% of retail unit sales were omni sales this quarter, down slightly from 55% in the prior year's quarter. Our wholesale auctions remain virtual, so 100% of wholesale sales, which represents 21% of total revenue, are considered online transactions. Total revenue resulting from online transactions was approximately 30%. This is up from 28% in last year's second quarter. CarMax Auto Finance or CAF delivered income of $183 million, down from $200 million during the same period last year. As a reminder, last year's quarter benefited from a reduced provision coming out of the pandemic. We will continue to provide strong credit offers to our customers as we move rates with the market. John will provide more detail on customer financing, the loan loss provision, and CAF contributions in a few minutes. At this point, I'd like to turn the call over to Enrique, who will provide more information on our second quarter financial performance, as well as the steps we are taking to further align our expenses to the current sales environment. Enrique? Thanks, Bill, and good morning, everyone. Second quarter net earnings per diluted share was $0.79, down from $1.72 a year ago. Total gross profit was $737 million, down 9.6% from last year's second quarter. This decrease was driven primarily by wholesale vehicle margin of $141 million, which was down 26%. The year-over-year decrease was driven by both lower volume and margin per unit. As Bill noted, we faced sharp depreciation throughout the quarter and have been adjusting accordingly to better position ourselves to manage through the current environment. Total used vehicle margin was down slightly at $495 million, a decrease of 2%. Total used unit volume of -6.4% was largely offset by higher margin per unit. Other gross profit was $102 million, down 15% from last year's second quarter. This decrease was driven primarily by the effect of lower retail unit sales on service. Service results declined $13 million as lower sales and secondarily, impacts from inflationary pressures drove a deleverage in results. EPP fell by 3% or $3 million, reflecting the combined effects of stronger margins, stable penetration at approximately 60%, and the decline in retail unit sales. Third-party finance fees were flat over last year's second quarter as lower volumes in fee-generating tier two were offset by lower tier three volume for which we pay a fee. On the SG&A front, expenses for the second quarter increased to $666 million, up 16% from the prior year's quarter, reflecting a slowdown from the year-over-year increase during the first quarter. Approximately 3 points of the increase this quarter reflects a change in an accounting estimate in the prior year quarter. SG&A, as a percent of gross profit, deleveraged to 90.4% from 70.4% during the second quarter last year. A key contributor of deleverage was a 9.6% decrease in total gross margin dollars compared to last year's quarter. The increase in SG&A dollars over last year was mainly due to two factors. First, a $50 million increase in other overhead. The primary drivers of this increase include investments to advance our technology platforms, strategic and growth initiatives, a $14 million one-time impact from a prior year change in an accounting estimate related to non-CAF uncollectible receivables, and a variety of other smaller cost headwinds. Second, a $34 million increase in compensation and benefits, excluding share-based compensation, primarily driven by the annualization of the strong growth in staffing we experienced in the back half of last year, as well as wage pressures. Partially offsetting this increase was a $4 million decrease in share-based compensation. During our first quarter earnings call, we discussed how we had actively taken steps to better align our staffing expenses in our stores and customer experience centers or CECs to the sales levels we were experiencing at the time. However, as Bill Nash noted, sales declined sharply in the second quarter versus our expectations starting in July. Accordingly, during the second quarter, we pulled additional levers to further align our expenses to our sales levels. We expect these savings will materialize more fully in the coming quarters. This included further reducing staffing through attrition in our stores and CECs, pausing on a portion of the hiring and contractor utilization in our corporate offices, as well as better aligning marketing spend to sales. In regard to marketing, our intent is to continue to maintain a strong level investment on a per unit basis that is at least consistent with the full year FY 2022 levels. For the second quarter, total marketing dollars were flat year-over-year, but reflected a robust investment on a per unit basis. As part of our omni-channel journey, we have reduced the variable cost component of our operating structure. Given the macro environment, our near-term priority will be on allocating resources towards those initiatives that will further drive efficiency and effectiveness across our fixed costs. At the same time, we will continue to selectively invest in customer-facing initiatives that will enhance our omni-channel experience and support our long-term growth. From a capital structure perspective, we ended the quarter with an adjusted debt-to-capital ratio in the middle of our targeted range of 35%-45%. During the second quarter, we repurchased approximately 1.7 million shares for $163 million. Now I'd like to turn the call over to John. Thanks, Enrique, and good morning, everyone. Once again, the CarMax Auto Finance business delivered solid results while transitioning from a lending environment that has seen historically low levels of credit loss and extremely favorable funding costs. During the second quarter, CAF's net loans originated was over $2.3 billion. CAF's penetration in the second quarter, net of three-day payoffs, was 41.2% compared with 43% last year and 39.3% in Q1. The weighted average contract rate charged to new customers was 9.4%, which was higher than the 8.5% in last year's second quarter and the 9% seen in Q1. This rate increase, combined with the quarter-over-quarter increase in penetration, reflects CAF's ability to strategically pass along a portion of the added funding cost to consumers while still providing highly competitive offers. Our lending partners continue to complement each other in also providing attractive credit offers. Our tier two penetration rate was consistent with last year at 21.6%, and tier three accounted for 6% of used unit sales, compared with 7.2% a year ago. Although the lower credit consumer continues to show demand by actively shopping and applying for credit, they continue to be challenged with affordability and being able to complete the purchase. CAF income for the quarter was $183 million, a decrease of 8.6% or $17 million from the same period last year. Last year, our loan loss provision of $35 million was a significant tailwind as the overall performance of the consumer remained remarkably strong. This quarter's $76 million provision results in an ending reserve balance of $478 million or 2.92% of managed receivables, up from 2.85% last quarter. This seven basis points adjustment is once again predominantly attributed to the proportionately higher quarterly volume of tier two and tier three loan originations compared to the pre-existing $16 billion portfolio. Of note, as the macroeconomic conditions pose a challenge to the credit consumer, we remain confident in our ability to leverage our vast experience and robust credit platform to ensure our tier one credit losses remain comfortably within our targeted operating range of 2%-2.5%. As was seen last quarter, our provision headwind was significantly offset by our total interest margin, which grew $31 million year over year. Our margin of 7.29% was up 11 basis points from last year's second quarter and was supported by a $9.4 million benefit from our hedging strategy. Regarding our industry-leading online finance experience, during the quarter, we significantly expanded our pre-qualification product launched in March. As a reminder, this unique multi-lender product results in no impact to your credit score and generates customized real-time credit decisions on our full inventory. As of the end of the second quarter, this product was available to over 50% of our consumers and is expected to go nationwide during the third quarter. Now I'll turn the call back over to Bill. Thank you, John Daniels. Thank you, Enrique Meirmor. Given the realities of the macro environment, we will further sharpen our focus on driving additional operational efficiencies as we continue to navigate the near-term pressures facing the used car industry. At the same time, we will remain focused on continuing our work to achieve our long-term goals, including further improving our omni-channel experience for both our customers and associates, as well as growing our diversified business model. Some of our key initiatives include, first, we are leveraging data science, automation, and AI to improve efficiency and effectiveness within our customer experience centers. During the second quarter, we expanded our associate-facing guided action software from chat to phone calls and developed additional work streams for our consumer-facing digital assistant. Over time, we anticipate these tools will enable us to reduce associate time spent per customer as we enhance our ability to provide live interactions at the highest value moments. Second, as John mentioned, we continue to scale our industry-leading finance-based shopping experience. This best-in-class pre-qualification product leverages a streamlined, simple application and generates multi-lender credit terms on cars within our retail inventory in just minutes. With this tool, customers have all the information they need to quickly understand APRs and monthly payments across different contract terms and effortlessly compare vehicles to ultimately secure the right financing options for them. Third, we are expanding MaxOffer to acquire vehicles and build on our market-leading position as a buyer of cars. As a reminder, buying directly from consumers and dealers lowers our acquisition costs, enhances our inventory selection, and provides profitable incremental wholesale volume. We are currently live in over 40 markets and anticipate launching additional markets later this year. Finally, we are upgrading our auction experience to be even more user-friendly. We're testing a modernized vehicle detail page to be mobile-friendly and efficiently display the most relevant information dealers need to preview our wholesale inventory, similar to how customers shop our retail inventory. We're also testing AI capabilities to enhance our online vehicle condition reporting. In addition, we have rolled out self-service checkout capabilities nationwide. These tools will enable us to drive incremental operational efficiencies as we continue to scale our wholesale volume, all while providing an even better experience to our wholesale dealers. As I close, I want to reiterate that while the market conditions and consumer behaviors remain challenging, we believe that these pressures are transitory and that our foundation remains strong. We are well-positioned to navigate this environment as we have during challenging times in the past and remain excited about the future of our diversified business. With that, we'll be happy to take your questions. Samira? Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question, and as a reminder, please limit yourself to one question, and if you have a follow-up, please press star one again. We'll take our first question from Craig Kennison with Baird. Please go ahead. Okay, good morning. Thanks for taking my question. I'm sure there will be several macro questions, but I'd like to ask about your sourcing tools. I'm a little surprised to see an 11% drop in vehicles sourced from consumers, given the secular momentum you've had with your online instant appraisal tool. Can you shed a little more light on the traction you're seeing with that online instant appraisal tool and whether the slower pace is a function of slower traffic online, or is it a decision to buy more selectively? Yeah, good morning, Craig. Thank you for the question. Look, I think it goes back to a couple things. First of all, we're really excited about both our online offer tool and the Max Offer that I talked about earlier. While we did see a decline, the environment. I mean, I think the biggest factors of that decline, one, which I already highlighted, was the fact that we've kind of changed the retail selectivity, taking some of those wholesale cars and putting them over in retail, which if you take that out, it would then mean our decline was, you know, less than 10%. Depreciation, you know, you followed us long enough. Anytime we get a depreciating market, we're lowering our offers. That has an impact on what you ultimately end up buying from consumers. I would say the third thing, which is a smaller than the other two, but we actually slowed some of our buys in certain pockets, in certain geographic areas, in certain price points, either because we didn't need the cars or just because of the dynamics of the quickly changing environment. I think those are the three factors that really led to the decline. Thank you. Sure. We'll take our next question from Brian Nagel with Oppenheimer. Please go ahead. Hi, good morning. Good morning. Thanks for taking my question. I wanted to focus on just the trend through in the quarter with the used car unit sales. Bill, you know, you talked in your prepared comments about the market slowdown. It began in July. My question there is, Look, the macro pressures are very well documented out there, but is there anything you noticed in particular that could explain that slowdown? You know, did you see some variability geographically or, you know, across the product spectrum? And then there's a quick follow-up within that question. Any comments on how the business is tracking, you know, in here into Q3 in September in particular? Yeah, Brian, you know, it's a great question. You know, if you remember the last call, I talked a little bit about June and how we were feeling good about June because it was doing better than the first quarter. As I said, you know, we saw a big drop-off in July and then that softness continued you know into August, where we ended up in a mid-teen decline for comps. There's not one single thing that I can point to that we can say, "Oh, because of this happened in July is why we saw the drop-off." I mean, there's lots of, I think, pressures out there. I talked about the broad inflationary pressures. You know, obviously consumers are having to make decisions. Groceries are higher than ever. I think, you know, we've seen more interest rates increases. Consumer confidence, certainly during the quarter, all-time low as far as recent history. I mean, even lower than, you know, the height of the pandemic. So I just think consumers are prioritizing their spend a little differently. But there's not one single thing that I can point to like, "Oh, this happened, and that's why we saw the decline." I think it's just the continuation, kind of the deterioration of the overall consumer. Moving into September, we're seeing the same softness, you know, that we saw in August. I would tell you even more recently, just given the hurricane, as you can imagine, that's contributing to additional softness as well. Now, you know, the thing with hurricanes or any weather events, you generally will get that back later on. But, you know, as far as September goes, it will absolutely put pressure. We have about 22 stores are currently closed and have been closed for varying amounts of time. We've also seen on the wholesale side, and just from a depreciation standpoint, just a continuation of that depreciating environment that we saw in the first quarter as well. That has continued into September. Wait, could I ask a follow-up? You know, I'll make it quick. I apologize. You know, just so you're talking about the depreciation in the wholesale, I mean, should that lead then to more attractive prices in the used car business and potentially undermine what has been a significant challenge for consumers? Yeah, I think you're thinking about it the right way, Brian. In fact, I believe this is probably the first quarter where the gap between used and new got a little bit wider in, gosh, probably six or seven quarters, you know. It'll take some time. I think, you know, depreciation and prices correcting on used will absolutely benefit the used market over time. I think we got to keep in perspective, you know, this quarter was challenging. I mean, we haven't seen $2,500 in depreciation. That rivals, in absolute dollars, that rivals back what we saw at the height of the Great Recession. That rivals what we saw at the peak of omni-channel. It's a very unusual thing and, you know, brings challenges. I think that, you know, we've proven over time that we've been able to navigate those and that we'll do it better than pretty much anyone. I appreciate it. Thank you. Sure. Our next question comes from Sharon Zaxio with William Blair. Please go ahead. Hi, good morning. Good morning. I follow the company long enough to see you guys navigate a lot of different cycles. You know, congratulations on continuing to gain market share, although I'm sure it's small solace with the comp trends that you're seeing. I guess, you know, historically, you haven't been a company that really has done layoffs materially, if at all. Obviously, you slowed, it sounds like, staffing, acquisitions, and open hires. I'm curious, just given the contraction in profitability here, where you've kind of erased, I think, seven years of profit in this quarter. I mean, how do we think about those initiatives, Enrique, that you talked about in terms of slowing SG&A spend? Because, you know, there are certainly scenarios that I can get to where SG&A spend exceeds, you know, gross profit in the back half of the year, as we go into kind of the seasonally slower time. You know, help us think about kind of how much money you can take out right now, you know, whether that's in SG&A as a% of gross profit or SG&A dollar growth, just any kind of barometer so as we mark to market, you know, where sales are, we have an idea of where that SG&A spend is kind of coming in. Yeah. Thanks for the question, Sharon. You know, our objective is on winning in the long term, and that really requires that we remain focused on making the right investments to continue to differentiate ourselves from our competitors. We have an active and a creative portfolio of omni-channel-related initiatives that we've been investing in, and we've been able to do that in large part because of our strong balance sheet and our performance. You know, but that being said, certainly, you know, with the current macro environment, we have started to pull the levers I mentioned in my prepared remarks to better align our cost structure to the current environment. We're also gonna be tilting our resources more towards initiatives that drive efficiencies that I talked about and Bill talked about in our prepared remarks as well. We'll be slowing some of the velocity down on our growth-related investments, but certainly not pulling back. I think we're doing the right things at the current moment in terms of better managing our costs. We have a strong and active eye on the consumer, and we, you know, we're very experienced in managing through these cycles. But we also wanna make sure that when the industry picks back up, that we're in a really strong position to capture the upside. I think in terms of the balance of the year and, you know, how to look at SG&A, we do expect the levers that we pulled during the second quarter will start to manifest themselves more fully over the next few quarters. I think the other component, certainly in any kind of SG&A leverage is purely just the gross profit, right? Where that stands to be in the fourth quarter and moving into next year, that's another factor. What we can control certainly very strongly is the SG&A. We feel good that we pulled the appropriate levers for the time being. Yeah. Sharon Zaxio, the only other thing I would add to that is we're absolutely entering this from a position of strength. You know, to Enrique Meirmor's point, there's lots of leverage. I mean, just from the expense side, there's a lot of growth expense that we're continuing right now to prepare ourselves for the future. There's these initiatives, there's advertising, there's variable spend. All those we can still pull on. Not to mention there's a whole host of other levers just for, you know, to preserve cash if that's ever needed. You know, I think where we are at this point is look, we've pulled the levers. We know it's a challenging time. We're coming at this from a position of strength. There's initiatives that we know that will help us both in the near term and the long term. Let's get them done. When this market turns, and it will turn, when it turns, we'll be able to take off because we've already done these things. We will keep absolutely an eye to the outside environment. Can I just ask a follow-up, just given the mid-teens% decline in comp trends we've seen, I guess? Sure over the last 3 months. I mean, can you kind of mark to market for us what that is in terms of SG&A as a% of gross profit? I mean, have you let it go over 100, or is that, you know, is that a kind of mark where you would say, "Okay, now we have to pull back more? Yeah, no, I think, you know, like we've said, as we've pulled back on the levers that we can control right now. We think we're better aligned with the current environment. You're gonna see those savings manifest themselves kind of moving forward. We did pull those stronger levers kind of, you know, halfway through the second quarter, so you don't fully see it in this quarter's P&L. Moving forward, we should start to see more of those savings. Yeah, I think, Sharon, the way to think about it is, look, we had in absolute dollars an improvement in SG&A from the first to second, as Enrique talked about. We would expect these dollars to manifest more. You'll see a reduction there. The other wild card in the equation, though, is just gross profit dollars, and that's gonna be driven by the macro factors, as Enrique talked about. Okay, thank you for that. Sure. We'll take our next question from Michael Montani with Evercore. Please go ahead. Hi there. Thanks for taking the question. The first question I have is just around the wholesale side, if we should assume kind of similar, you know, trends in terms of volume and GPU pressure, you know, to start the third quarter on wholesale, given the challenging macro. Yeah, Michael. Good morning. You know, in previous calls I've talked about, because I've gotten asked questions about retail margin and wholesale margin, and you know, what I've said in previous quarters is all else being equal, we feel pretty good about keeping strong retail margins. Wholesale would be coming under pressure, and it you know, if we're gonna enter into a depreciating environment, that's gonna cause the pressure, like I talked about before. The other reason I mentioned that it could come under pressure is just because of that retail selectivity and because we're moving some cars, older cars over to retail, and then the corresponding, what we call kicks. You know, you say, "Okay, let's retail this car." You go build it or you start to build it and realize, okay, we can't get this to the standards. We move that, you know, back to wholesale, and we generally perform worse on those in the normal wholesale. We knew there was gonna be some pressure. I think if you look at recent performance, let's call it certainly last year, I think every quarter last year on a GPU standpoint for wholesale was over $1,000. And then you look at the year before that, I think we had another quarter that was over $1,000. If you look at that and then compare it to the 5 years prior to that, there were probably equal or more quarters in the last year than we had in the last 5 years over $1,000, and that's because of the massive appreciation that we saw last year. I think the way to think about it going forward is probably more in line with what you would normally see, you know, the average wholesale that we'd make in any given quarter over, you know, three, four, five-year period. I think that's the way to think about it, especially in this depreciating environment, especially as, you know, we continue to push more or try to push some more of these older vehicles over just from an affordability standpoint. We'll take our next question from Adam Jonas with Morgan Stanley. Please go ahead. Hey, Bill. I'm sure your team's following the proposed rulemaking from the FTC, that motor vehicle dealers trade regulation rule, that's now collecting comments, and it's aimed to increase transparency on pricing and advertising and some downstream. Yeah stuff like aftermarket add-ons. If this rulemaking is approved, I know there's gonna be a lot of puts and takes. Have you guys done any preliminary work on what impact this might have on CarMax in terms of compliance costs or SG&A expense, or any potential revenue impacts? Thanks. Yeah. Adam, it's a great question. Obviously, we commented during the comment period as many folks did, just because the requirements in some cases are a little onerous. We started to look at it. Obviously, whatever ultimately gets decided, we will make sure that we do follow. We haven't put, or we aren't prepared at this point to really talk about additional expenses or anything, because again, to your point, it's so much up in the air and there's so much discussion and debate about it, there's a lot that's really unknown. One thing I will add, though, I mean, to your point and the verbiage you used, Adam, you know, transparency and clarity around pricing, add-on products, et cetera, you know, I think our business model sets us up perfectly for that. We already are very transparent, honest online. We can show our EPP products online, the pricing there. So I think we're in a great position to do that, and obviously we'll do whatever is required, so. I think the bigger complications for us, and I think really needs to be looked at is, you know, some of the requirements on signing paperwork, physical signatures, managers, that kind of thing. Well, everybody's operating in a world of online. Again, it'll be interesting to see how it pans out. We'll take our next question from John Murphy with Bank of America. Please go ahead. Good morning, guys. I just wanted to ask a question on pricing. I mean, the year-over-year comparisons are always relevant, but you know, sequentially as things are changing here, they might be you know, more relevant than typically. When you look at the retail price, yours was down about 2% sequentially quarter-over-quarter, but wholesale was down 7%. I mean, and you talked about doing sort of more older vehicles in that you know, in the retail side. So I mean, you know, that 2% is absorbing even lower priced vehicles. So you know, the gap actually may be even larger between those two. I mean, Bill, what are you seeing in the market where retail pricing, we're hearing this from a lot of other folks, is holding up a fair amount better than wholesale pricing? I mean, do you think that the market is sort of anticipating and dealers are anticipating some kind of weakness or looking to maintain, you know, grosses? It just seems like there's, you know, things are softening, but a lot more on the wholesale than they are on the retail side. Yeah. John, I think some of it has to do with timing. I mean, if you think about it, although there was depreciation in the quarter, and although, as you pointed out, we have an older vehicle mix, both of those bring down your overall retail prices. It wasn't enough to offset when comparing to, like, a year ago. If you think about it, we ended last year with an appreciation of about $7,500 bucks. We've only experienced about $2,500 in depreciation. You know, that dynamic will become less and less as we get later into the year. There just wasn't enough to offset that overall appreciation which is why you still see us above last year. I think the other thing that you got to think about is a lot of the cars that were sold in the second quarter were bought, actually a majority of them were bought prior to the quarter even starting, so they're at a higher price. I think there's definitely some timing there. You know, on the wholesale side, obviously, if you're moving some of the you know, the nicer, more expensive stuff into retail, that's gonna, you know, impact your wholesale a little bit more. I think that's the dynamic that you have going on there. We'll take our next question from Chris Bottiglieri with BNP Paribas. Please go ahead. Hey, guys. Thanks for taking the question. I'm still a little lost on kind of how these hedges affect profitability. I don't know if you quantified this quarter. Then two, just like, given, like, bigger picture question, trying to think the impact of the next couple of years. Like, given the decline in used volume as the tightening in the securitization market and spreads and kind of defaults picking up a bit, can you just kind of maybe refresh us on how the fluctuations of these variables impacts loan originations at net margins so we can better model the cadence of cash moving forward? Yeah, maybe I'll jump in first on the hedge. Very similar dynamic to what we saw in the first quarter, right? The vast majority of our receivables are funded through the ABS market as we know, and we have accounting hedges on those. However, we do have alternative financing vehicles with our banking partners, our long-standing banking partners. A portion of those receivables have a cash flow hedge, but not an accounting hedge. That's really due to our desire to maintain flexibility in our funding profile. Those receivables are gonna get marked to market every quarter like they did last quarter. Really where you see a change or benefit or a potential hit is when there are sharp and material rises or decreases in interest rates. That's exactly what happened again this quarter. We would only expect this again to be material for CAF during periods of material changes. It's very similar to the first quarter. We saw sharp changes in movements in the interest rates, and that's what happened. It was $9 million, the same amount from the first quarter. Great. I'll touch on your other question, Chris, correct me if I don't cover everything you ask. With regard to just, you know, overall interest margin, obviously rising cost of funds that we've said, I think we signaled last quarter, you know, you could begin to see a change in our net interest margin. You know, maybe it's hit a peak and it could come down. Again, that's where our accounting, the way that we do our accounting benefits us. Obviously, as the margin increases over time, you know, that higher margin receivable continues to hang around for longer. Obviously, our margins have tightened. Had the hedge not been in there, we probably would have seen a downturn this quarter. You know, we're obviously gonna be in a tighter environment, so we would maybe continue to see that come down. We're obviously on our side continuing to manage margins very carefully through our pricing. We'll do what we can but still remaining competitive for our customers. Again, I think there will be pressure on our net interest margin going forward. Again, we'll manage that as well as we can. Gotcha. Thank you very much. We'll take our next question from Rajat Gupta with JP Morgan. Please go ahead. Great. Thanks for taking the question. Maybe just a couple quick ones. You know, first on retail GPU, Bill, if I heard you correctly, you mentioned that you believe you could still maintain the current retail GPU level in the current pricing environment, you know, in the next few quarters. Did I hear that correctly? Just want to clarify that, and I have a follow-up. Thanks. Yeah. Yeah. Raj, when I was speaking to that, I was talking about it earlier. Although I do feel good about being able to maintain strong retail margins, but I always will caveat that with, you know, depending on a lot of different things, sales elasticity, what competitors are doing, inventory levels, our own inventory levels. There's a lot that goes into it. You know, we really are still realizing some nice benefits from, you know, although we've lapped self-sufficiency, you know, we still feel like there's a little bit there. Then the fact that we are selling these older vehicles gives us a little bit more margin. This quarter, we were able to pass along some of it to the consumers in the form of offsetting some of the inflationary pressures, as well as take a little bit more. Again, we feel good about our retail margins and where they are today, and we'll just continue to watch some of the more other external factors as we go forward. Got it. Maybe just, you know, to follow up on Enrique Meirmor’s comment around advertising, you know, looks like you want to still maintain a healthy advertising spend per unit. But just curious, like, in terms of, like, the focus of the company right now, is it more to make sure you're able to continue to gain market share, or is it more around managing overall profitability, you know, with maybe higher interest rates or, you know, maybe lack of pricing discounts? Just curious as to, like, what, you know, what's really the strategy in the near term? Is it one for the other, or you think you could get both at the same time, doing the volume and profitability? Thanks. I'll answer and then I'll just give you some of my thoughts, and if Enrique has any more. As far as advertising goes, as Enrique said, look, we're really excited about this industry and where the industry is going. Granted, we've got some challenging things right now, you know, we still want to continue to invest in advertising. We're gonna do it. We kinda think about it on a per unit level. You know, ultimately, advertising as a whole will come down if the sales are down. We feel like, you know, continuing to invest in the business. Now, obviously, you may change where you spend it. You know, for this quarter, the majority of it was awareness, and from an acquisition standpoint, it was more customers versus buying vehicles. But it's also one that we can continue to monitor. You know, everything we do from an advertising standpoint, we measure ROI. We have certain targets that we're going after. If we see things that aren't panning out, we'll certainly pull back or pivot to something else that is. Enrique, you have any thoughts on that? Yeah. What I would say is, you know, compared to a few years ago, the marketing team overall has done a tremendous job of really giving us a line of sight into profitability and the dollars we're investing and how that then translates to an ROI. We feel really good about the investments we've been making over the past couple of years. If you compare ourselves to two years ago, you know, I think we've increased the dollars per unit by over 50%, right? That's because we feel really good about our ability to get visibility. I think we can continue to drive awareness and at the same time drive that profitability. Rajat, I think we can get the best of both worlds. Yeah. I think the other thing that's important to remember, too, Rajat, is we got a lot of great things going on. You know, I'll give you an example. The pre-qualification that both John and I talked about, we haven't even marketed that yet. That's an area for opportunity. Again, as we think about advertising, it really allows us to kind of say, "Okay, what do we wanna highlight? Do we wanna highlight online offers? Do we wanna highlight the omni-channel experience? Do we wanna highlight, you know, being able to buy online? Do we wanna highlight pre-qualification?" There's lots of things, so we're constantly moving it around. Again, that's kinda how we're thinking about it. Guys, maybe just on the cash piece, you know, do you feel comfortable being able to continue to pass on interest rate increases to the consumer? Or is that also gonna be more thoughtful based on, you know, just more competitive lenders out there? Yeah. Rajat, appreciate the question. Yeah. As I said in my prepared remarks, I was extremely pleased with the penetration we had. It did show that we were able to pass along, you know, some of the increases onto our customers, yet still manage the elasticity, capture the volume that we could. Again, three things we're trying to manage here is stay highly competitive for our consumers, from our offer standpoint, you know, manage that margin, and then make sure that we can capture the right amount of sales. It's a delicate balance, but I think we've done a great job, and I think we'll continue to do that. We'll take our next question from Seth Basham with Wedbush Securities. Please go ahead. Thanks a lot. My first question is on CAF and just thinking about your loan loss reserves and where you're at right now. What does that imply for what you're reserving, what your allowance rate is for your core Tier 1 securitized managed receivables? Yep. Right now we are comfortably, Seth, within the 2%-2.5% range. You know, the increase that you saw, as I mentioned, is predominantly coming from that Tier 2 and Tier 3 volume that's a larger percentage in the new originations than it is in the portfolio. We feel real good about staying in that targeted range, and that's reflected in the reserve. Got it. You haven't really taken up your allowance rate for those receivables despite the fact that we've seen collateral values come in sharply and the macro environment deteriorate. How should we think about the dynamics there and the potential for higher loan losses for those core receivables? Yeah. We modeled that pretty extensively and, you know, we felt like, again, assuming there isn't just an absolute plummeting of the values, you've got people that are buying, you know, vehicles on our books that bought it 5 years ago, three years ago. You know, obviously it's been a slow ramp-up and, you know, hopefully it's a slow ramp down. But modeling that, it really was relatively immaterial in a $477 million reserve. So, we feel we are well reserved. We can absolutely absorb that in what we have today. So we've considered it, but we think we've got the right, you know, the right reserve as it sits today. Got it. Thank you. Take our next question from Joe Enderlin with Stephens. Please go ahead. Hey, guys. Thanks for taking our question. A question for the older vehicle mix. As the vehicle supply normalizes, could you see these older vehicles remain part of the mix to support higher GPUs than historical levels? Or how are you thinking about that moving forward? No, it's a great question. It's, you know, the great thing about that is we now have so much more of that inventory available, we can put out whatever the customer wants. As we go forward and maybe get to a more normalized area or period, if consumers are looking for this, we now have a source to make sure that we put it out there. I think this also will benefit us. If you think about the fact that new cars right now, there aren't as many being sold. There'll have to be something that fills that gap. This is a great. I think this will be a great tool to do that. Again, we'll put out there whatever the consumers want. Got it. Thank you, guys. Thank you. As a reminder, it's star one to ask a question. We'll take our next question from David Whiston with Morningstar. Please go ahead. Thanks. Good morning. Buyback spending was roughly flat from Q1. Stock's obviously a lot cheaper now, but of course, there's macroeconomic pressures which can make one want to conserve cash. It's that delicate balance. Do you anticipate being able to be at least flat in second half versus first half? Are you going to pull back on buybacks or be even more aggressive? Hey, David. Yeah, thanks for the question. Yeah, and as you pointed out, in the second quarter, you know, we're on the same pace as we were in the first quarter, so continue to buy back our shares. What I tell you is that our capital allocation philosophy remains the same. First and foremost, our cash goes into growing the core business, so that's our retail business, that's our wholesale business, that's our CAF business, and making sure those are in a position to continue to grow. From there, we also look for growth opportunities, but investments that we make, and then we return capital back to shareholders. Our philosophy has remained the same. Okay. Just on your SG&A control, I just wanna make sure I understand a comment you made earlier, on staffing. Are you doing any replacement hiring if someone does leave voluntarily? Yeah. We absolutely don't have a pause on hiring at this point. We're very strategic. We have a prioritization of hiring. As folks leave in critical positions, we absolutely will replace them. At the same time, if you have a vacancy, you wanna make sure, okay, is this something that's supporting our near-term initiatives, that kind of thing. While we've prioritized, we have not paused overall hiring. Yeah. Just to be clear, that managing headcount is also done through attrition as well, right? That's how we've been managing that. We'll see those benefits again more sharply as we progress into the future quarters. Okay. Thank you. Thank you. It appears there are no further questions at this time. I'd like to turn the conference back to Bill Nash for any additional or closing remarks. Thank you. As always, you know, I wanna thank our associates for everything they do, how they take care of each other and the customers, and the communities. Again, you know, my thoughts are definitely with those being impacted by the hurricane. Please, please stay safe. Thank you all for joining the call, and we'll talk again next quarter. This concludes today's call. 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