Katharine Kenny - Vice President, IR Bill Nash - President and CEO Tom Reedy - Executive Vice President and CFO

Matthew Fassler - Goldman Sachs Brian Nagel - Oppenheimer & Co Craig Kennison - Robert W. Baird Sharon Zackfia - William Blair Scot Ciccarelli - RBC Capital Markets Seth Basham - Wedbush Securities Armintas Sinkevicius - Morgan Stanley John Murphy - Bank of America John Healy - Northcoast Research James Albertine - Consumer Edge Unidentified Analyst - Morgan Stanley Richard Nelson - Stephens Inc. David Whiston - Morningstar

Good morning. My name is Carol and I will be your conference operator today. At this time, I would like to welcome everyone to the CarMax Fiscal 2019 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. Thank you. I would now like to turn the call over to Katharine Kenny, Vice President, Investor Relations.

Good morning and thank you for joining our fiscal 2019 first quarter earnings conference call. I am here today with Bill Nash, our President and Chief Executive Officer; and Tom Reedy, our Executive Vice President and CFO. Before we begin, let me remind you that our statements today regarding the company’s future business plans, prospects, and financial performance are forward-looking statements that we make pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current knowledge and assumptions about future events that involve risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, the company disclaims any intent or obligation to update them. For additional information on important factors that could affect these expectations, please see the company’s annual report on Form 10-K for the fiscal year ended February 28, 2018 filed with the SEC. Before I turn the call over to Bill let me thank you in advance for asking only one question and getting back in the queue for your follow-up. Bill.

Great, thank you Katharine and good morning everyone. Our used unit comps for the first quarter were negative 2.3% against another tough year-over-year comparison. The comps were driven by lower traffic and better conversion and represented a significant improvement from the previous quarter. Total used units grew by 1.6%. While used vehicle valuations were still higher than in last year's first quarter the year-over-year change in our mix adjusted vehicle acquisition cost was more favorable in the first quarter than in the fourth quarter. Industry data indicates some signs of recovery in the used vehicle market place since a slow down at the end of last year. These signs include improving supply at auction and more normalized depreciation. Our website traffic grew in Q1 by 16% similar to the previous quarter again due to website and SCO enhancements. Gross profit per used unit remained consistent at 2,215 compared to 2,212 last year. We had another strong wholesale quarter with units up 9.6% year-over-year. This again was due to our buy rate which rose to a multi-year first quarter high and to the growth in our store base. As I said in the past when used vehicle prices are higher we can offer our customers more for their vehicles which supports our buy rate. Our gross profit for wholesale unit was flat at $1,012 in both periods. The decrease in other gross profit was driven by lower service profits again negatively impacted by our lower used unit comps. Remember as we said last quarter as lower unit volumes we would expect service overhead to delever. We also experienced a reduction in third party finances due to shift in sales by finance channel. These were partially offset by increased EPP revenue. EPP revenue grew with sales but also benefited from provider cost decreases which created an opportunity for some margin enhancement and $4 million related to the new revenue recognition standards. Before I turn the call over to Tom let me cover our sales mix and SG&A expense. As a percentage of our sales zero to four year old vehicles decreased to about 77% versus over 78% in the first quarter last year. Large and medium SUV and truck sales were almost 28% up about a 0.5% from both last year's first quarter and the fourth quarter. On SG&A expenses for the quarter increased about 9% to 438 million or a year-over-year increase of $143 per unit. There are several factors that impacted the SG&A expense including the opening of 18 stores since the beginning of the first quarter of last year which represents a 10% growth in our base, an increase of $9 million or $43 per unit related to share based compensation expense and our continuing investment in technology platforms and digital initiatives. Now I will turn the call over to Tom.

Thank you Bill and good morning everybody. In the first quarter our sales by finance channel were primarily a result of the mix of credit applications we received. While application volume was slightly down year-over-year, we did see some growth at the very high and low ends of the credit spectrum. We experienced growth in CAF and Tier 3 originations. Tier 2 fell due to a combination of application volume and a change in the year-over-year lender behavior which we discussed last quarter. Tier 2 accounted for 17% of sales compared with 19% last year. While we experienced some tightening by Tier 2 last spring performance has been relatively stable since that time. Third party Tier 3 represented 10.9% of used unit sales compared to 10% last year and CAF penetration net of three day payoffs grew to 42.9% compared to 41.9% in last year's first quarter. CAF net loans originated in the quarter grew by 8% to 1.7 billion versus 1.5 billion last year. This was due to growth in the average amount financed which was in line with the increase in CarMax's average selling prices. And the growth in CAF penetration rate on top of the modest increase in CarMax unit sales. CAF income increased 5.7% to $116 million. This was due to a combination of the 8.7% growth in average managed receivables and the continuation of modest compression in portfolio interest margin. Total portfolio interest margin was 5.7% of average managed receivables compared to 5.8% in the first quarter of last year and 5.6% last quarter. For loans originated during the quarter the weighted average contract rate charged to customers increased to 8.4% compared to 7.8% a year ago and 7.9% in the fourth quarter, a reflection of our response to the current interest rate environment. Ending allowance for loan losses was 134 million or 1.13% of ending managed receivables, up slightly sequentially from the fourth quarter but down from 1.18% in the first quarter of last year. Moving to capital structure during the first quarter we repurchased 3.3 million shares for 207 million and now I'll turn the call back over to Bill.

Thanks. During the first quarter we opened three stores, one in Greenville, North Carolina which was a new market for us and then two in existing markets, Dallas and Miami. In the second quarter of fiscal 2019 we plan to open another three stores. Our second store in the Albuquerque market which is in Santa Fe opened earlier this month. The other stores will open in Macon, Georgia which is a new market for CarMax and in our existing Oklahoma City market. You will note that there has been a decrease in non-com store contribution relative to recent quarters. This was due to a change in mix and the timing of store openings. As I mentioned earlier our website traffic continues to grow but we are improving the customer experience and growing leads through a variety of enhancements. This quarter for example we continued to make improvements to the speed and technical performance of the site. In addition we expanded and improved our personalized vehicle recommendations throughout the site. We also released the capability for customers to search based on the desired monthly payment. We continue to leverage our new CRM system. We're testing new ways to communicate with customers such as text thoughts, messaging, and appointment alert reminders. This allows us to improve the shopping experience and connect with the customers on their terms. As you know over the last couple years we placed a great deal of focus on the development and testing of new customer experiences such as finance pre-approval, home delivery, online appraisals, and the new expedited pick up test. Many customers have now tested each of these products both individually and in various combinations. These tests have allowed us to learn how to best build the features to meet their needs. In addition we continue to improve the features as consumer behaviors and expectations change. Our next step is to combine all these pieces into a comprehensive e-commerce experience that is comparable to our in-store experience. Because customers are now able to do more digitally before they come to the store we're also empowering our associates with new tools and training to leverage the customer's digital progress making it simpler, easier, and faster for them to complete their purchase. In the next few quarters we plan to take this comprehensive experience to new markets and learn how to best operationalize it in a scalable way. We will provide more information on these tests in future quarters. Now we will be happy to take your questions.

[Operator Instructions]. And our first question this morning comes from Matt Fassler from Goldman Sachs. Please go ahead.

Thanks so much and good morning. My question relates to credit, you spoke about the increase in the rates you are charging for CAF at retail both year-over-year and sequentially. In addition to the fact that we've got kind of a firm underlying used car price, can you talk about what impact that might be having on demand to the extent that it raises the effective price of the car bit more than the underlying tech market would?

Good morning Matt. You are talking about the impact of the interest rate rise may have on the demand for the used cars?

Exactly.

Yes, so well I think it's a factor. I believe that the bigger factors -- the used car consumer is interested in monthly payment and bigger factors that drive the monthly payments are the purchase price, the down payment, and the term. The small movements in credit rate don't have as significant impact as those other three items.

Are you seeing -- given that the average price seems like it's still rather firm and the market is still tight, are you seeing any change in the other two or is it potentially impacting mix in any way?

No, we are not seeing any market change in regards to that.

Got you, thank you so much.

Our next question comes from Brian Nagel from Oppenheimer. Please go ahead.

Hi, good morning.

Good morning Brian.

Congratulations on this quarter. My question with regard to the used car business, so clearly there was a significant pickup acceleration in fiscal Q1 and Q4 now Bill in your prepared comments you talked about I guess less, you mentioned less pricing pressure. So the question I have is, was that it, as you look at this quarter and going from a negative 8 to negative 2 call it was the absolute primary factor less pricing pressure, if not what were the other factors and as I think about the pricing dynamic, I guess this is maybe a somewhat of a follow up to Matt's question but how does that progress through the quarter and how should we think about it so far here in fiscal Q2?

Okay Brian, good question. So I think the best way to talk about this is first start talking about what I talked about in the fourth quarter. So in the fourth quarter we had higher acquisition prices, we talked about the spread, it was unfavorable between late model used and the new. We obviously had a tough comparison. We also talked about, there was a post election talk from the prior year. We also saw there was a more supply to prior year on large SUV, more affordable ones. So there was a litany of things but certainly the higher acquisition price in that spread was a major call out. And what I would tell is it is still -- there's still a large spread year-over-year on acquisition although it is trending in the right direction. I also think that if you look at the Consumer Price Index it looks like new cars are holding their value, have started to hold their value again better than used cars which started in this quarter. So I think both of those helped this quarter. And again we're still continuing to work on a lot of our initiatives and make progress on it so we have another quarter of that and that I think helps to benefit. And then there's other known things like what competitors are doing, how they're pricing that kind of thing. So, again I think this quarter there's a lot of noise similar to last quarter but some of the trends, some of the more macro trends are trending in favorable direction of course.

Got it, thanks for all the detail.

Our next question is from Craig Kennison from Baird. Please go ahead.

Hey, good morning and thanks for taking my question. You mentioned lower traffic and better conversion as more activity moves on line, that's been the trend. I'm curious about any updates to changes in your store staffing model that you're experimenting with and whether there's any opportunity to broaden any of those experiences to -- or experiments to change your cost structure there?

It is a good question Craig. In previous calls I've talked about some of the waste initiatives that we've been looking at and we've been focused on stuff that goes right into cost of goods sold and we've also been focused on stuff with SG&A and under SG&A one of the things we've been focused on is better workforce utilization. And we've made changes over the last year on how better to leverage our workforce and with technology advancements we will continue to make sure that we're taking steps to better leverage our work force. So, that's still work in progress at this point.

Thank you.

Our next question comes from Sharon Zackfia from William Blair. Please go ahead.

Hi, good morning. I have one quick question and then a real question so Katharine forgive me. The one quick question was just on the marketing spend, it looked relatively flattish year-over-year. I didn’t know if that was timing or if marketing is just going to be more constrained this year in general? And then secondarily I'm just wondering if on the delivery pilots you are doing or anything related to e-commerce if the credit characteristics of the customer are any different than your in store customers?

Okay Sharon on the marketing spend there was some timing there so I think the way you should think about that is it'll be similar when you look at it on a year-over-year basis, it should be similar on a per unit basis. So there was some timing at play there. On the delivery pilot you were asking have we seen any different mix in our credit customers?

I'm just wondering if the credit characteristics of that customer are materially different at all from your in store customers?

Yeah, generally as you look at this over time Sharon there has tended to be a little bit more skewed towards lower credit as you'd expect. People are less desiring to see heftier value saved. We don’t have any -- it is not big enough a break at this point to talk about anything in that pilot. I mean things are -- it is too new because this is different.

Yeah and I think that what comes speaking to is more relevant to the pre-approval process not necessarily the whole delivery experience. I mean we're seeing where customers are -- the customers that would take us up on it are looking for convenience and/or they just can't physically for whatever reason get to the stores. But as far as the overall mix of customers that take that versus coming to the stores we haven't seen any big difference at this point.

Okay, thank you

Our next question comes from Scot Ciccarelli from RBC Capital Markets. Please go ahead.

Good morning guys. I know you guys don't do a whole lot on the forecast side but based on everything you see are there any reasons, logical reasons in your view why used vehicle values would not assume a more normalized depreciation curve now that we're call it closing in on a year away from the all those lost vehicles from the flooding last year?

Yeah, you know Scot I would like to speak to this. In this first quarter like I said in my opening remarks we did see a more normalized depreciation curve although it is starting at a much higher price point just given what happened at the end of last year with the hurricanes that kind of thing. So -- but as far as going forward I would be expecting -- I don't know, I just know that in the first quarter we've seen a return to a more normalized depreciation.

Understood, okay, thank you.

Hey Scot I do think that we would expect to continue to see the supply of vehicles from everything we understand. That's why vehicles will still continue to roll into the auction lanes which obviously will have an effect on acquisition prices.

That makes sense. Okay, thanks guys.

Our next question comes from Seth Basham from Wedbush Securities. Please go ahead.

Thanks a lot and good morning. My question is around online lead growth as I had asked about in recent quarters could you give us some commentary on whether or not you continue to have elevated [ph] lead growth online and the quality of those leads?

Yeah, Seth we do continue to have double-digit lead growth. Our website traffic right now, the majority of the growth is being driven by SCO which we've obviously talked about several quarters now. And the improvements that we're making there as far as the lead quality it is similar to last quarter. The mix is similar so there was no real change in the mix of leads. And the leads, specific types are performing like they have in the past whether they come online or whether they come through the store.

Got it and just as a follow up to that then if you're talking about a similar level of lead growth and similar level of quality what drove the improved conversion this quarter in your view?

Well, we did have more actual traffic. Web traffic this year and then I think the stores continue -- I talked in our opening comments about the training and the tools that we're giving associates to better enable them to progress the customer. So I think it's a combination of store execution but I do think it's also increased traffic coming to the website.

Thank you.

Our next question comes from Mike Montani from MoffettNathanson. Please go ahead.

Hi, thanks this is Gail Alexio [ph] on for Mike. I was wondering if you can please help us understand maybe how you think about getting the comps to accelerate with the multichannel initiatives that you have in place, maybe discuss the home delivery and appraisal, and what you learn from the pilot and how you see the bullet as to roll that out further?

Well, a lot in that question. Look, we are focused on driving comps. You know we are continuing to grow store base so we will grow the business that way. But we're really focused on continuing to leverage our existing footprint and reach customers in ways that we haven't previously been able to reach. So I think the initiatives that we've been working on will help us leverage our infrastructure in ways that we haven't and we should be able to continue to drive mid single-digit comp growth across the enterprise. So we feel good about that.

Okay, thanks and maybe have you considered accelerating market penetration because there are still 40% of the country where you have no presence while maybe some of your competitors are pretty rapid at growing their footprint nationwide?

Yeah, so it is going to be a combination. We are very comfortable at the pace of which we're opening new stores in this 13 to 16 range because it also allows us to focus on the execution of the business. But we also feel like we can increase market penetration just through our existing footprint for the reasons I cited in the earlier question. So we're focused on both.

Okay, thank you.

Our next question comes from John Murphy at Bank of America. Please go ahead.

Good morning guys, maybe kind of just to follow up that, I'm just thinking about the sort of installed base of stores and the online efforts, just curious if you think that there may be markets above and beyond sort of the smaller markets that you're getting into in the winter, you're talking about that might be much larger than the 600,000 MSA and just curious is there kind of a strategy here to going to smaller markets or is it just where the opportunity is right now and that as we go one, two, three years out large MSA's might make sense? And also as we think about the store base is there a potential over time to maybe call some inefficient stores and leverage your online efforts a lot more to create greater productivity in markets?

Yeah John, well this year we're opening up more stores and the small MSAs that's just a function of the property that we've got. You'll see us still opening up stores in larger markets to your point really reaching about 70% of the population and there's a lot of large markets that we can continue to add additional stores. So, while there have been more in small markets -- will be more in small markets this fiscal year it's a more a factor of timing and you'll see us going, continue to put more stores in larger markets in the future as well.

And then just in the existing store base as the base develops over time would you ever consider in some markets shrinking the store base because you might be able to get a lot more efficient with your online efforts?

Yeah, at this point I don't see the need to do that and we obviously evaluate all our stores. We're pleased with all of our stores. You know we haven't -- we've never had to shut one, the performance has been good and keep in mind we just opened up our 192nd store so it's not like we have hundreds and hundreds and hundreds of stores or thousands of stores. I feel really good about where the stores are placed and being able to leverage those in that infrastructure which I think is really important when you're looking to sell large volume vehicles like we do.

Great, it is very helpful. Thanks.

Our next question comes from John Healy from Northcoast Research. Please go ahead.

Thank you. Bill, I wanted to ask a little bit about the wholesale business. In the last few quarters that business has done exceptionally well in terms of units and we're just trying to understand -- I know you mentioned the buy rates are up but how are you guys growing that business as much as you are with the call it the traffic in the stores and is there decoupling there that's kind of more permanent and how should we think about the wholesale business kind of growing more long-term for you guys and I used to think it was just more related to kind of the comps and measuring the traffic but just trying to think about that business for the next couple years?

Yeah John, the way I think about wholesale, over the long period of time wholesale and retail should grow I would say roughly similarly. Now you've seen -- you have covered this long enough that you know that in certain quarters one maybe up, one maybe down or over multiple quarters. Certainly wholesale has been. Performing very nicely which is a benefit to the diversified model when retail sales may be down wholesale may pick you up a little bit. And what I would tell you is that I think it's a factor of one, one of the things I said in the opening remarks is obviously with prices at an all time high that certainly helps us because we can continue to put more vehicle, I mean more money on the customers vehicles which bumps that buy rate up. But I would also tell you, it also goes to the execution and the improvements that we've made on making sure that we can react quickly to market, making sure that we understand the market factors quickly. So there's an execution piece at the store level where I think they're doing a better job than they have ever done. So, I don’t think you should think that hey, this is always going to outgrow the retail. I think I still have the long-term view that over the long-term both of that will grow about the same.

Fair enough and just along that lines when you look at that customer that's come in are they -- is there any change in converting them at the purchasing car with you guys, is it a similar ratio or has that evolved over the last year or two any different than we've seen in the past?

No, that's pretty similar.

Thank you so much and great quarter.

Thank you John.

Our next question comes from James Albertine from Consumer Edge. Please go ahead.

Good morning and thanks for taking my question and congratulations as well. If I may on the EPP comment that you had earlier just want to unpack a little bit what you think is driving the lower provider costs and if you can shed a little bit more detail or light on the accounting adjustment, I don't recall you mentioning the same adjustment in the fourth quarter, just want to understand kind of what's going on there with in terms of the recognition of revenues in that business? Thanks.

Yeah sure Jamie. And as you might imagine they're a bit intertwined. The reason that we're able to get some cost reductions from our providers on the EPP revenue is that those plans have been exceeding their expected performance from a cost kind of benefit perspective for the last several vintages I guess is the way to describe it which means that there's room to either decrease the pricing or take a little bit more margin. This quarter we realize some cost benefits, we believe we are able to take a little bit more margin for the shareholders and not impact penetration which turned out to be the case. And so that's where that growth arose from. As far as the accounting it is arriving from the new revenue recognition standard which has a very immaterial impact on our core business accounting but it does have some impact on extended planned revenues. So our vendor agreement that I referenced before provides for payments to CarMax. If the long-term performance of those plans exceeds certain thresholds and certain of those plans and certain of those vintages are exceeding this thresholds. In the past when those payments came to us we just recorded them as when we received a check, but under the new accounting standard we have to estimate the amount that we expect to receive, record it as receivable and then true it up each quarter based on the circumstances at the time. So that $4 million that you see represents the true up of that receivable from what we learned during the quarter, during the fourth quarter. I mean I am sorry during the first quarter. And we also -- we added a minor receivable of about $13 million after tax on the balance sheet for recognition of this phenomenon if you will. So the 4 million like our loan loss reserves we will have to evaluate just on a go forward basis and we'll plan to disclose any material adjustments to that expected receivables so investors can discern which revenue relates to activity in the current period versus payments that we are getting from prior vintages. I think that will just make it a little bit more clear. But it is real dollars, it's money that we expect to collect on a cash basis, just relates to plans that are already out there and in place.

Thank you for the detail. If I may just a clarification on the performance that you noted, it was a little bit better than the providers and yourselves perhaps we're expecting, is there any mix related driver to that -- I am just trying to get a sense of…

I don't think it's a mix related thing, I think it's just that an overall performance is better than they had apprised to.

Got it, understood, thank you again.

Our next question comes from Armintas Sinkevicius from Morgan Stanley. Please go ahead.

Good morning, thank you for taking the call. The recent performance for Carvana has been pretty incredible and I know you've invested quite a bit in the customer experience capabilities, so just curious if you could compare and contrast their approach versus the capabilities you have and if you decided to go down that path, a similar path that they have gone down what are some steps you have to do to adjust the business model or tweaks because it seems like you have many of those capabilities already in-house?

Like I said in my opening remarks we've been testing different pieces of the capability whether it's online finance, online appraisals and we've been doing it somewhat in isolation, somewhat in combination and now our focus is really bringing all that together in a comprehensive e-commerce package that we can roll out and continue to adapt it as the customer's expectations continue to change. So we feel really good about all that and I think it complements our existing base and our infrastructure. It allows us to provide, certainly gives us an advantage to deliver exceptional customer service whether it's online, whether they want to do a mix of the online versus in-store, or if they want to come all into the store. I don't want somebody to have to hit our website and then immediately have to decide right then I want home delivery or I don’t want home delivery. I want the customers progress on their terms and if part of the way through this you don’t home delivery, I want it to be an easy smooth transaction. So we are going to let the customer drive the process, however, they want to drive it versus okay we've got one solution for one type of customer and that's what we're focused on.

Got it and what has been your experience with regards to the transportation of vehicles as far as the cost benefit there?

Well, I would tell you we are probably one of the biggest transporters of vehicles. We probably move close to 2 million cars a year. So we're very familiar with transportation. I think we have an excellent logistic system which we're heavily focused on continuing to make that even better through investments and I think that it has been and will continue to be a big differentiator for us.

Thank you.

Our next question comes from Rick Nelson from Stephens. Please go ahead.

Thanks and good morning. Tom, can you tell us if you are seeing any difference in website traffic or store traffic in markets where you are competing with these online home delivery concepts?

Yeah Rick, so what I can tell you is if I look at the large markets where competitors are making headway I would tell you we're also making headway. So there's no direct correlation to any type of impact. We just don't see it. So again we feel good about where we are in those markets.

Thanks and good luck.

Our next question comes from David Whiston from Morningstar. Please go ahead.

Thanks, good morning. I just want to get a little more understanding on the big picture of what went on this quarter because you're saying your comps are down due to macro pricing factors which I assume means having new vehicle incentives but used pricing was also up, so can you help me reconcile that and then kind of related maybe is there high use demand in certain vehicle segments that's skewing these pricing upward?

No, I think what we have is a bit of a carryover from the spike in prices from last fall. So you have a starting higher price. We saw normal depreciation but you're starting from the higher pricing. When I say normal depreciation cycles, the year actually starts off with some appreciation because of sales that generally happen at tax time. So, that is different than what we saw last year's first quarter where it was more of a flat environment, you didn't really any appreciation. So you have a little bit of a double hit on the acquisition cost and that you still have the residual left over from what we experienced in the fall, added to that you have some appreciation that we saw from the normal seasonal appreciations/depreciation. So, that acquisition price that you mix adjusted, it is a little bit more favorable than it was the first quarter. So that's trending in the right direction. The other thing that I cited was the spread between new and used that had gotten smaller. New cars last quarter with their incentives had actually lost more value than used cars which is kind of atypical. During this quarter we started to see where that looks like that's turning back to normal where the new cars hold their value a little bit more. So there's a lot of noise going on with this for the quarter.

Is it fair to say you're expecting pretty sharp fall offs as soon as this quarter is over due to the hurricane tailwind going away?

But it's hard to say. I mean I would have thought that it would have happened a little bit quicker but considering that we had a normalized appreciation and depreciation cycle it's really hard to say. I would say to my comment earlier we think supply is going to continue to increase. If the supply continues to increase then that will continue to lower the prices of used vehicles.

Okay, thank you.

[Operator Instructions]. Our next question comes from Brian Nagel from Oppenheimer. Please go ahead.

Hi, good morning again. So my follow up question also on the used car business, we noticed continued decline in that Tier 2 penetration, recognizing that some of this is out of your hand and this reflects the market conditions. But you have recently made changes to your lending group within that pocket, so how should we think about that co-order sales going forward?

Are you referring to Tier 2?

That's correct.

Yeah, I think we are always looking at that group. We think that we believe there's a value in having a portfolio of lenders and some of the experience we had last year and into the first quarter of last year is evidence why it's important to have a group of lenders. But as I mentioned in my prepared comments we did see a deterioration in performance. We defined performance as sales volume to the applications that that group sees or those lenders see. And so we do see deterioration performance after the first quarter of last year. Since that time it's been pretty consistent. In fact modestly better than it was in recent quarters. So on a go forward basis I can't tell you how our partners are going to behave, it's going to be depending on the marketplace and what they're seeing in their portfolio. Obviously we'll continue to pay attention to it, we will continue to try to manage and optimize it but things have been pretty stable in the last three quarters.

Brian, you still there. Well, I think we lost Brian. Operator are there any more questions.

We have no one in queue at this time. I will turn the call back over for any closing remarks.

Well listen before I close I do want to take a moment to recognize Cliff Wood who has been our Chief Operations Officer. He's retiring next month, he has been with CarMax for more than 24 years. I've had the privilege to work with him for 21 of those years. He's been instrumental in building our industry leading operations, he's been a key champion for our associate-focused culture and we all wish him the best in the future. As always I also want to thank our 25,000 associates that are out there for what they do every single day, how they take care of each other, our customers and their communities and I thank you all for joining the call today and for your interest in CarMax and we will talk again next quarter. Thank you.

This concludes today's conference. You may now disconnect.