Wake up, Buy Here, Pay Here people. It's a beautiful day. Go grab yourself another cup of joe and say hello to Jim and Michelle Rhodes on the Buy Here, Pay Here morning show. Take it away, you two. Hey, good morning, everyone. Happy Friday. Happy to have you here on the Buy Here, Pay Here Morning Show, where Nathan Syme, dealer out of Birmingham, is sort of standing in for Michelle today. Michelle is... under the weather and um as being a trooper kind of standing by to help out with some of the technical stuff because i just always botch the buttons nathan i just it's it's hard for me i can barely think about the stuff i'm supposed to talk about much less remember that which yeah So it's all good. We're happy to be here with you and have you to contribute to the conversation. We're just fresh off of our last V-A meeting of the month of January where we recapped year over year data. And so while that information was fresh, seemed like a good time to to bring it to our listeners and kind of give them a sense of what we have learned through that experience and kind of how the year has compared for a lot of our dealers so i also need to make the announcement this morning that uh nathan has become the coo of uh white hat way and we're we're thrilled about that he brings a lot of experience and a lot of errors areas in the entrepreneurship he's he's Ours is probably like the fourteenth business he's involved in now. I exaggerate, but he's he's definitely involved in in multiple things and he continues to be a dealer. As you can see, he's in his location in Birmingham today. And so great. We're grateful, Nathan, for you to step in. You obviously bring a skill set and experience in areas that we really value and are going to benefit from a lot. So we're happy to have you be part of the program and part of the mission. Yes. Well, I'm excited too. It's great to be part of a team of people that have a mission and a value set that matches mine and matches, I think, many of the folks that listen. And so when you want to be a part of something, you want to be a part of something that you feel makes an impact and a difference in people and not just something that's a bunch of busy work. So I'm very thankful to be a part of the team and I feel good about everybody that has been, that I've been introduced to, you know, behind the scenes that don't make everything go. So yeah, I'm excited about it. I'm looking forward to it and we're ready to rock. Yeah, good. We appreciate that. So we'll dig into the data. We've got numbers to talk about. And I just want to share before we jump in, I've got some additional detail on my side that you're not going to see on the screen today. But when we look at this pool of data, we're talking about a pool that represents uh dealers uh up to selling you know a thousand a year i mean this is the kind of data pool that we're talking about and in terms of you know numbers these folks are are selling it looks like the the the total portfolio or total pool rather that we're gonna look at today is in the sixty million dollars of annual sales so you know you're talking about a pretty substantial pool of numbers and I think when I do these kinds of things, Nathan, I'm always thinking about some dealer who's, you know, there's supposed to be fourteen thousand dealers out there. And, you know, if we think five hundred of them are in a twenty group or a V eight group, then that means there's a whole lot of dealers out there that don't have a good point of reference. And those are the ones I think about when we have these kind of conversations and bring the numbers to give folks a feel for what's happening. And in particular day is to talk about how the year wrapped up versus twenty twenty four. And for us, that's where it started for VA. You were one of the initial beta members in the very first VA group, one of the first three members and and late twenty three. And we kicked off data and twenty four. And so that's what really we're here to talk about is kind of look over the numbers in in comparison to to that. Let me get that on the screen and we can start to kind of share what it is that we're we're um we're going over so let me just kind of explain first that there uh our volume our average in twenty twenty four was three eighty five in this pool let me get where it makes from reading this number no three sixty five these numbers are kind of small so i apologize because it's in document form i think that's as large as i can make it for our viewers but But we're at three sixty five for an average for annual volume in twenty twenty four. And that was down to three forty six in twenty twenty five. So that's small. It's a you know, it's a five percent decrease. It's it's just it's something to be aware of. You know, we've heard dealers talk. You were part of that meeting last night and then your own group earlier in the month. And dealers are talking about it being slow. They're talking about a slow January right now. A lot of talked about reduced volume, but basically what we're seeing is across this pool, it was only slightly down in terms of sales. And the dollars were down about three percent. So even though the units were down five percent, the actual dollars must have come up slightly across this pool because the actual dollars of sales were down from just over an average of five million to about four point nine. So just a slight decrease there. And then we get into gross profit, which, you know, we don't. In our meetings, I find we don't talk about these numbers a lot, the sales numbers and the gross profit numbers. We end up moving on to to kind of the collections numbers. And maybe that's right during the conversation in that direction. But I think as we kind of take the wide view and look back gross profit, you can see on the screen for our viewers. And this is one of those podcasts where you really probably want to catch it on YouTube because we are going to be referring to numbers on the screen. I'll do the best I can to recount those for folks who are listening by audio only. But I would just say on gross profit, we're talking about just a slight increase. Dealers, again, we said prices must have been up some. Gross profit looks to be up some. A small amount, thirty nine thousand dollars annually on average. So just about a two percent gain in gross profit. So pretty minor. And then we get into charge off numbers. So obviously, you know, you've been part of these conversations. You've seen the data from your own group, Nathan. We know that charge offs for most of our dealers were up in terms of count and in terms of dollars. So I didn't bring together the count for today. We can bring that as part of a future conversation. But when we get it to net charge offs year over year, That number was up. We were showing an average of one point zero eight two for twenty twenty four. And the number was one point four six seven in twenty five. So, you know, that that represents about a thirty five percent increase. So that's that's a pretty and we know that a lot of dealers had a pretty rough twenty four as well. Right. So, you know, it'd be good if we had the numbers going back beyond that. But I can say that, you know, it shows that that is significant. an increase and obviously we're we're working to try to help dealers find ways to to get that number down you heard some things in in your own meeting i think where we talked about you know ways to reduce that but kind of as a dealer yourself what is what is your aim when it comes to looking at net charge offs going in next year you know as we talk about in our in our conversations in our groups The only thing we can really do to cut down that charge offs is to repo charge off less and to gain some recovery. Obviously, net charge off for us is the gross principal balance of the charge off at the time or of the balance of the account at the time that the customer quit paying and ultimately charged off. And then we would bring back against that the recovery value. of the repos that we brought back in. And so that gives us a net charge off. But so those are the only numbers we can either reduce and reduce our charge offs. We can charge off less or we can get more recovery. So your thoughts on how we might move those numbers going into twenty six? Yeah, I mean, I think the dealership conversations that I've had have been around working with customers more. uh, being more creative and in keeping them in the car. And so, uh, I think they're attacking the, you know, just trying to keep the charge off from happening and doing a little bit more to do that because obviously sales are down, right? Sales are down, repos are up. Cashflow is probably impacted by that in some way. And so the idea that, you know, whereas before you might just say, Hey, no problem. I can charge this off and have a new customer walk in the door. And, you know, as soon as it's ready to go and sell it now, that's not so much the case. So maybe we're not as quick to pull the trigger on, on a repossession as we would have been before. Yeah. And yeah. And so, you know, and the other, the other side would be, you know, do you repo quicker? That's the other thought. So do you, do you protect the, um you know the value of the of the collateral and and go after it faster um you know i've heard it said by some dealers before you know you know they they they want to trust they want to trust the vehicle they don't want to they don't they're not sure about the customer side so I think you can have a philosophy approach either way about which way you want to attack them. I think the V-A groups are a good place to have those back and forth conversations about that dichotomy. Do we repo quicker or do we work with them longer? Yeah. And I think, um, you know, there's, there's, it's always been a thing for me to differentiate between a repo and a charger, because as you know, sometimes we can allow a customer to redeem. If we feel like we resolve the situation, sometimes we're going to repo quickly, certainly early in the contract when a repo quickly as a way of setting a tone and, and, you know, a measure of, of enforcement and accountability. And then if we feel satisfied that the customer has, you know, kind of learned from the situation and we'll, uh, know behave differently going forward then we could allow them to redeem and and not have that result in a charge-off and i think you know the the variable there is we look at is the customer a a flight risk so to speak are they if we put them back in the car if we have gps and we know we can recover the collateral again and then we're really when we allow the customer redeem we're taking a chance on will they disappear or will they damage or destroy the collateral because if neither of those is the case then we we're really not taking a lot of risk and agreeing to put them back in the car and so this is part of what i think we have to differentiate between actual repos and then charge-offs right yeah and i think dealers for the most part, have a pretty good sense of that. Like, is this a customer that I trust? Or is this, you know, this customer just had a momentary life event that occurred that caught, you know, we all ask the same questions and there are reasons to say yes and reasons to say no. And, you know, I think most of our dealers know what that is and have a good sense of it. But I do think if you repo quicker, the redemption is easier for the customer. I agree. The dollar amount's lower. And although the customer may feel a little offended because you repoed them quicker, you can also communicate with them, this is how we make sure that it's feasible for you to get your car back. We wait too long and the number becomes really Right. Yeah, for sure. And I think the quicker we get in there, we also have to keep in mind that when a customer finances with us, especially for the first time, then all they really have to go on, besides what we told them on the day they bought the car, was whatever the experience they've had with other dealers, in the past. If they finance with other buy here, pay here dealers, then they're used to doing business the way that that dealer did business. And that sometimes we have to set a new precedent around that. And so that's part of what we try to do. So let's move on to net charge offs as a percentage of sales. This is not a number I think about a lot, but I know from an accounting standpoint, a lot of CPAs and accountants would be looking at these kinds of numbers. And so when you look at it, like on the the P&L or income statement, then we showed that in twenty twenty four, that number for this group was nineteen point four percent of sales and it was up to twenty seven point seven. in uh in the year of twenty five so you know that's a pretty substantial change i mean you're talking about a forty two percent increase and so that's uh that's pretty substantial when you look at it in that way it's relative to how much business we're doing and so now it you know it shows up on our income statement and this is the difference for a lot of our dealers and being profitable or not so so you know we we talked in some length uh in our meeting last night about you know the difference in profit versus cash flow so we're going to get to some cash flow numbers here in just a little bit but i think you know for our cpas out there and we love them and need them and i think for us we we recognize obviously in the work that you and i do nathan it's like it's important to differentiate sometimes the timing of the year and especially even with our lenders and we need those folks too. And I think sometimes those dealers who had a rough profit year last year had a decent cashflow year. So they had more charge offs, which meant what? They recovered more repos, right? They brought back in cash value. on those repos and so they might not have suffered as much on the cash side. So we'll get to those numbers next. And the last one I show on this particular sheet is interest income, which obviously this one is a reflection of to one extent portfolio size the amount of so if we're growing obviously our interest income should be growing as the portfolio increases but then the other part of which is the effectiveness at collecting you know if we our portfolio can be growing uh or portfolio could stay the same we can collect more and the interest income number could move in this case You know, we don't have that exact breakdown about how many of these dealers were growing portfolios. But we do know that and I extracted I didn't say that at the top of the broadcast here that I did extract dealers that one, we have a number of dealers in VA who did not didn't join in time to have their twenty twenty four data intact. So we had to extract those dealers. And then we had a few dealers who acquired portfolios. pretty sizable ones, which would move some of these numbers that we're talking about. So I chose to leave them out of the pool as well. But when you see the interest income, we were showing that the average came in at a one point one six in call it one point one seven in twenty four. And that number was up to one point three eight. in in twenty five. So an increase of about eighteen percent year over year with this particular group and their interest earnings. So again, back to you know, you think you're charging off where your portfolio is shrinking. And so, you know, it wouldn't have as much interest earnings. And so in this case, we actually did see some increase in interest earnings, which, you know, we don't, again, we don't have enough information here because the results are going to vary across these operations as to how they did what they did. But it is interesting to see that they did, in fact, you know, increase that. We can go to the next slide, Michelle. I think I can do it on my side. I would say that that would make sense. Right. If you have more delinquency and you are working more with your customer base, then you will naturally be earning or realizing more interest on each payment than you would principal because somebody gets behind, their payment might go to all interests and not any of it go to principal. There could be a combination of those things. If you're repolling more and you've got a you've got a lot more you know the age of your portfolio is not as mature and so you're getting that i i would think that that lines up with the other numbers yeah and um i should explain that all the numbers that we look at in v-eight are for banked or collected interest we're not working with any accrued values at all we're just looking at what actually went in the bank So now we start to get into the cash flow information and we take a pretty simplistic approach. In fact, Nathan, as I work with these numbers, I remind myself again and again, I'm so thrilled with how much information that we're able to glean from a small batch of numbers. You know, as a dealer yourself, you turn in your numbers. I think we're at about twenty five numbers that we capture from each dealer each month. How long does it take you just generally speaking? I mean, total from pulling the reports to inputting it, you know, maybe an hour, maybe, you know, forty five minutes is probably somewhere in there. Yeah, I think that varies by software, but I've had dealers say they can do it in twenty minutes or whatever. But, you know, I've also had dealers that struggle with it just because their software is not great and, you know, we're not. So we have to support the dealers in finding all the numbers, you know, and so this is part of what happens there. But I would say, I'm just saying that we're able to do a lot of calculations and ratios off of those twenty five numbers and it becomes a lot of really meaningful stuff. So this I think this cash flow section is a good example. So for those not seeing the screen, the way we calculate cash flow is we look at interest collected. We look at principal collected, which gives us a P&I collected when we add those two together. And that average for this pool in twenty twenty four came out to we'll call it three point three million. So dealers collecting about three point three just in P&I in twenty twenty four. And then the repo recoveries in twenty twenty four were another four forty six. That's a whole conversation about whether to treat repos as cash. I mean, we we do for the purpose of this calculation, because in our way of thinking, whether whether a dealer liquidates that car at auction or a wholesale car, you bring it back in, you stock it in at three thousand dollars wholesale value, whether you liquidate that car then at auction, Nathan, or whether you put it back in your inventory. it's effectively a credit toward your inventory. It's cash you didn't need to spend at the auction. And so we treat it like cash for that purpose. And so that's why it shows up in our cash section there. So the total cash yield then on average in twenty twenty four came out to three point seven. call it three point seven three was the number for twenty twenty four. And then the way we arrive at a cost of replacing inventory, we have the dealer's volume. We know the average cost of car. We know the down payment of what has sold. And so if we treat it like the dealer is always going to replace. the units that have sold in the interest of maintaining the same inventory level. That's how we arrive at an approximated cost. I have it here as kind of an estimated inventory replacement cost after adjusting for the down payments because we don't create a separate line item for down payments. We just adjust it from inventory. So you're really looking at roughly a cash in deal number. And those dealers averaged in twenty twenty four two point one eight. what is the number on the screen that was the cost? So dealers averaged in twenty twenty four net cash flow before operating expenses. This is important. This doesn't include operating expenses. So dealers could go back and look at these own kind of numbers for themselves and get a feel for what you know, what how that looks like in their own operation. But At one point five four basically is our number after adjusting for the cost of replacing inventory. So all that's left to pay out of that really is is going to be we have our, you know, your interest expense on a line of credit or, you know, any kind of outside debt, external debt would be in the expense side. obviously but if if we have one point five in in cash flow then we're going to cover our expenses and if there's money left over we could in theory reduce our debt or we could go on vacation or you know that's effectively would be cash in our pocket after we took out operating expenses so this is where we we don't have a um a consistent measure a method and we don't validate operating expenses in v-eight we just chose to keep it super simple and that's one of the ways we do it and so we don't we don't lean on that number in our v-eight summary but your thoughts about those numbers no uh i i like you know i like how the cash flow uh works i think repo recoveries are absolutely uh looked at as cash i know i see it that way i can recondition this car and I didn't have to buy it again. Sure. That's money. Yep. That's cash. And so just jumping ahead then to the numbers for twenty twenty five, that bottom line number net cash flow before operating expenses in twenty four was one point five five, we'll call it. And in twenty five, it came out to two point two one. So an increase of almost seven hundred thousand dollars. So, you know, that's pretty substantial. So here we talked about all these, you know, these profitability numbers are down. Sales might be down. But in reality, our cash flow. and twenty five was better in this pool of dealers. And I'll just quickly note the repo recovery number was only up from four forty six to five ninety call it five ninety one. So not a not a huge, not a huge difference. It doesn't make up for, you know, the and at a glance, it looks like P&I was up from three point two to three point eight. So, you know, dealers collecting more. So it just it looks like, you know, we we We might not have been selling as much. We were able to focus on collections and even despite having the higher charge off experience, we still managed to bank more money year over year. So I think that's an important thing to think about. And it's an illustration of how our business is just different. I mean, you finance a car today. Nathan's got a three-year tail on it. You know, you have profit this year. And the charge off for that call, if it does repo later, you hope it doesn't happen in year one, right? And so it's a tale that we deal with in our business that a lot of businesses don't have to contemplate. And so it's part of what happens here. Now, another example would be adjusted gross profit. So Michelle, do you mind putting that number on the formula or the explanation on the screen down at the bottom of our banners? Adjusted gross profit. is basically gross profit plus interest income minus your net charge offs. So the way I ask people to think about this is basically all the quote front end buy here, pay here, profit, or lease here, pay here, profit in your business before operating expenses, all right? So when we look at that number in twenty four, it came in at an average of two point zero eight. And in twenty five, it came in at one point nine five. So, you know, a decrease of about six percent on profitability. But so just right there on a single sheet, you can see that, you know, cash flow and profit aren't always in the same conversation you know they're not timed the same and so we we have to kind of be watchful about that and then the last one i have is uh interest coverage so this one is one that and there's a form on that one too michelle if you don't mind sharing that one interest coverage is is a pretty significant one i would say it's one of the go-to calculations for us we track this on a on a rolling basis on a year-to-date basis and this is an important one for a lot of lenders to consider because it's really a pretty good, if you had a one go-to metric on your portfolio health, you know, a lender likes to see interest collections cover the cost of losses. So in this case, net charge off. So that's our formula on interest coverage, is how much interest did we bring in? And in that same time period, what was our net charge off experience? Did the interest that we collect cover our net charge off? And you think about, Nathan, in our business, One of the reasons you as a dealer have to charge more than Capital One has to charge a prime borrower is because you have higher risk. You can anticipate higher losses. That's why the interest rate is higher. And so when we look at interest coverage here, we're looking at, did that interest cover our losses? Yes or no. And on average, our dealers actually, despite the heavier charge-offs, they averaged and A positive number. So in this case, you'd be looking for a hundred percent or better. If you, if you were, because we're looking at it as a percentage, you know, you would want to cover one hundred percent of your net charge off with, with interest. And so at this case, it came out in twenty four, it came out to one hundred and twenty eight point three percent on average. And in twenty five, it was down to one twenty three, but still positive. We're still above the red line, so to speak. in terms of interest coverage. So, you know, it's just, it's meant to give a wide look. I think, you know, this is something that we're just trying to give folks a feel for what is really changing. You know, there's a lot of chatter, you see a lot in social media, there's a lot of, you know, kind of end of the world kind of, You know, the terminology sometimes people are just really frustrated. And, you know, if you're in it from day to day, sometimes it can feel like you're you're having a tremendous amount of charge offs. It feels like you're really getting beat up. And on any given day or week, it can be that way. But when you look at it in a broader picture for us here on twenty five over twenty four, it's a mixed picture. It's, you know, profit was one thing. Cash flow was something else. And then this last one is a pretty good indication of portfolio performance. and we were only down slightly year over year so um and i would say you know everybody says oh charge offs were terrible in twenty four and they were and then they were worse in twenty five and so but but for our pool of dealers the average was above the line so you know it's it's um it's apparently not as bad for everybody now in fairness i can say that You know, just like I always used to say about going to conferences, Nathan, it has been my experience that the people who go to the conferences and the ones who sit on the front row are sometimes the most successful dealers. Why? They're the ones who are most interested in comparing KPIs. They're the ones who are interested in education and learning and make sure they stay caught up on all the stuff, compliance and otherwise. And so I think there's a chance that this V-eight pool is something similar. Dealers who are in V-eight are the ones who are attentive to their business or looking to make sure that they, they find ways to identify tips and ways to improve. So there's a chance that these pool represents that we don't, we don't have any way to know that for sure. But I would say that's part of what we have to consider as we look at this is these, these are dealers who are, are at some level interested in improving their business. Right. Yeah. And I think it sets them. It's the mindset of the dealers who are part of these groups would, would, yeah i see what you're saying that's interesting that makes sense yeah and i think we saw some of that in our conversation last night and we you know as we've started the new year we've just kind of been doing a little bit of a reset and checked with all of our members because we we know when people as the dealers make time to show up for these meetings or contribute the data that you're you're sending in every month and then you give time to sitting in the meeting then we want to make sure that it helps you move the needle, that we can see improvement in the numbers at the areas that matter most to you. I think part of what we're doing and that you're helping us do as COO is work through these check-ins with dealers, see where we're at, find out exactly where we can add more value. It's not all just in the data, but certainly we feel good about the data that we've compiled . Oh, yeah, for sure. And I would say as in any organized business, you go through different phases. I was part of the original beta group. It was three of us, right? We were just happy to have a bunch of guys that we could get together and have a common conversation about and be open with and have some confidentiality. And then... As this virtual groups have sort of taken off and matured, I think now you're dealing with lots of different folks at different stages. And I think that that is impacting our need to change as well. The real challenge for us is going to be uh making sure that we're connected to our to our dealers and understand what they need and then be able to deliver that yeah yeah you know we accept the challenge and we're we're looking to uh you know we're two full years now in on our data and so that's that's meaningful and we're learning more about what works and what doesn't work in our virtual format but uh but yeah i hope what we shared here today is is useful and i think about those dealers that are out there just don't have a real good point of comparison and they don't know you know, kind of what, what is possible, what are people doing? And so hopefully this kind of gives at least one point of reference. And obviously we would love to invite folks that are listening to jump in and be part of one of these groups. We've got, we group our dealers by where we basically set our grouping by number of accounts. So we've got one hundred to five hundred accounts and then five hundred to two thousand. And so we just kind of drop people in and groups based on their portfolio size and that that's some reflection of the stage of their business so again reach out if you want to be part of a v-eight dealer group we'd love to hear from you thanks nathan appreciate you joining us thank you guys all right see you soon stand by just a minute
