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 2020 Fourth 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. I would now like to turn the call over to Stacy Frole, Vice President, Investor Relations.

Thank you, Carol. Good morning. Thank you for joining our fiscal 2020 fourth quarter and year-end earnings conference call. I am here today with Bill Nash, our President and CEO, Tom Reedy, our Executive Vice President of Finance; and Enrique Mayor-Mora, our Senior Vice President and CFO. Let me remind you, our statements today 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 the 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, 2019 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?

Thank you, Stacy. Good morning, everyone. And thanks for joining us. As you read in our earnings release this morning, we delivered record used vehicle sales and EPS for both our fourth quarter and full-year results. And we did this while maintaining attractive GPUs and undergoing the largest transformation in our company's history. For calendar 2019, we also grew our comp market share of 0 to 10-year-old vehicles to 4.7%, which was an increase of 4.2%. While we're extremely proud of this performance, given the rapidly evolving and unprecedented time that we currently are in, we are not going to repeat the earnings commentary included within this morning's release. Instead, we would like to take this time to focus on the current environment and answer any questions you may have. First and foremost, our thoughts are with our communities, all of which have been affected by the coronavirus. I also want to thank those who are battling this pandemic on a day-to-day basis. Over the past few weeks, we've put significant measures in place to reduce the risk of exposure and further spread of the virus in our communities. The health and safety of our associates, customers, and our communities are very important to us. We are following the mandates of public health officials and government agencies, including the implementation of enhanced cleaning measures, social distancing guidelines, and in many localities closing our stores. Our team has also done a great job in mobilizing our associates at corporate locations to work remotely from home with only a critical few remaining in our offices. During this challenging time, we remain committed to living our values. We're current providing pay and benefits for up to 14 days to our associates who have been impacted by store closings or required to be quarantined.…

Thanks, Bill. Good morning, everybody. While the situation in the nation and our stores is unprecedented, those who have followed us over the years know that this team has dealt with similar circumstances in the capital market. Recent focus at CAF and our consumer finance group has been on our associates, our customers, and our funding channels. As Bill mentioned earlier, our teams have done an excellent job in mobilizing our associates to work remotely, while responding to the increasing demands of our customers. For the few whose work requires them to be in the office, social distancing guidelines are emphasized at CAF. During these uncertain times, we are endeavoring to do what is right for our customers. In this environment, we understand some customers may need help. We have in place a variety of measures at CAF that we believe will support our customers during difficult times, while enhancing the long-term collectability for the portfolio. This includes suspending repossessions, waiving late fee for March and April and providing additional loan payment extensions when available upon request. As one would anticipate, origination volume tracked with our sales performance during the month of March, starting out strong and then decreasing as stores closed and demand slowed. At this point in time, we have curtailed our in-house tier 3 lending, but have made no changes to our core lending standards as it is too early to identify any specific trends and customer demographics in credit mix. However, we're watching it closely. Not surprisingly, in the second half of March, we did experience an increase in delinquencies and a greater demand for payment extensions. At this point, we're not able to predict the future impact on portfolio performance. But we'll continue to analyze the data as it becomes available. In either case, we…

Thanks, Tom. And good morning, everyone. CarMax's competitive advantage lies in the combination of our focus on associates, strength and diversity of our business model, our ability to manage through challenging times and our strong balance sheet. This positions us well for when the economy rebounds and should position us to further distance ourselves from our competitors. At the end of the year, our adjusted debt to capital ratio was at the lower end of our targeted range of 35% 45%. Not being highly levered provides us with flexibility that is beneficial to have in the current challenging environment. We have always been focused on maintaining a solid balance sheet with a strong liquidity profile. We've done this to maintain flexibility in our capital structure, and to help shield us from potentially difficult macroeconomic environments. Let me give you a current liquidity snapshot as to where we stood at the end of March. As of March 31, we had approximately $700 million of cash and cash equivalents on hand. More than $300 million of unused capacity on our revolving credit facility, and more than $2.5 billion of inventory. We also own the real estate and buildings in more than 140 of our locations across the country, with a net book value in excess of $1.8 billion. From a debt perspective, we currently have approximately $2.5 billion of long-term debt consisting of approximately $1.1 billion outstanding on to our revolving credit facility, $800 million of senior notes and term loans, and approximately $535 million in financing obligations, largely related to sale leasebacks on select stores. It's important to also note that we have no near-term maturities as the earliest is in 2023. As you can see, we are in a solid financial position. However, in the current environment, it's also important…

Thank you, Enrique. Thank you, Tom. As you heard us say numerous times today, the situation is dynamic and changing quickly, sometimes by the hour and by locality. But our diverse business model and recession tested team has a long track record of prudent decision making to ensure the long-term health of the business. It will be difficult in the near term, but as Enrique mentioned, we are financially strong and we believe we are taking the appropriate measures to ensure we will withstand the current conditions and be in a favorable position when the economy and consumer rebound. In addition, we shouldn't overlook that we came into this crisis with a rock solid foundation. We produced record vehicle sales and EPS in FY 2020 and we did this while maintaining attractive GPUs, expanding our market share and undergoing the largest transformation in our history. FY 2020 was a great year and we look forward to building on the success in the future. Now, we'll be happy to take your questions.

Thank you. [Operator Instructions]. Our first question today comes from Scot Ciccarelli from RBC Capital Markets. Please go ahead.

Good morning, guys. Hope everyone's doing well down there in Richmond and healthy at this point. Bill, I think everyone pretty much understands that the world changed pretty significantly in early March. And of course, you're dealing with half your stores being closed on top of what I would think is a pretty broad consumer paralysis for big ticket purchases. So, with that being said, I was hoping you might be able to provide a little bit more color quantification on what you've seen over the last few weeks, as I think that context would probably be helpful for investors. Thanks.

Sure. Thank you, Scot, for the question. Yeah, let me give you a little color first of all on the store closures. So, like I mentioned, about half are closed on limited operations currently – and I say currently because it changes by the hour, it's a very fluid situation. We have approximately 70 stores that are completely closed. We have another approximately 25 or so that are modified operations. And so, when you think about that, think about modified operations, as primarily it's appointment only. So, the consumer can't just show up at the location. All the rest of the locations are all impacted by this because of social distancing guidelines, which are set by each locality. So, for example, in some stores, you can't have more than 10 customers in the showroom at any point in time. As far as adding a little bit more color on the sales, all of the open stores are substantially off on sales year-over-year over the last two weeks. Most of the stores that have been opened during that time, so for the last two weeks, are selling 50% or less than 50% of what they sold last year. Now, I don't think that should be a surprise to anyone because I think, during that time period, pretty much 70% to 80% of the US have been told to stay at home. So, given that, consumer demand has been progressively going down. So, hopefully, that color adds a little bit.

Yeah, that's really helpful. And can I just clarify something that you brought up on the GPUs, the gross profit per unit pressure comment? Are we talking like a couple hundred dollars, but you're still making a positive spread? Or is this more like selling cost or even below cost because you just need to liquidate inventory and generate cash? Thanks.

Yeah, Scot. It's really kind of too early, because we're really talking about the last two weeks. If I go back to the Great Recession, I think during that period, we had a couple hundred dollars. This albeit is a very different – it's kind of unprecedented. So, at this point, it's really hard to tell you other than I'm sure we'll come under some pressure.

Got it. Thanks a lot, guys. Good luck.

Thanks, Scot.

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

Great. Thank you for taking the question. As I think about the world pre-coronavirus and post-coronavirus, we were thinking SG&A would be up year-over-year in fiscal 2021, albeit a lower magnitude than fiscal 2020 because of the omnichannel expansion. Now, you mentioned pausing capital expenditures and store openings. How should we be thinking about the expansion of omnichannel? And sometimes, it makes sense to push with the expansion because customers aren't coming into the stores. It makes sense to try to reach them in other ways that they see fit, but if you could help us think through your pace, if you've accelerated, paused, slowed down and the impact to SG&A as well. That would be helpful.

Okay, sure. So, look, if we talk pre-coronavirus, as we were coming into FY 2021, I think what we had said in the past, FY 2020, we needed 5% to 8% comps. And if we had come into FY 2021, just only continue our focus on omnichannel, we felt like we could actually do a little bit better than that assuming that we weren't doing some other initiatives. And to be frank, we were planning on doing some other initiatives. So, it would have still taken probably a 5% to 8% comp to leverage for FY 2021. Obviously, we're in a different world right now. As Enrique talked about, some of the things that we're doing. I agree with you on the omnichannel expansion. We're going to continue to push forward on that. As I said, we're going to focus on some of the things that are most relevant in this environment first. And I think what might help a little bit is explain how we've been doing our rollout and how it's going to change. So, historically, when we've been rolling out omnichannel, it's been very systematic. We've got a great change management and process. We generally start the process six weeks beforehand. We go in, we train the managers, we train the associates. And then, it's a very systematic rollout as we continue to ramp up our CECs, our customer experience centers, so they can support those ways. Obviously, the in-store training is out the window at this point, but the stores obviously have less volume, so we can focus more on training, which is why we're going to go as quickly as possible to make sure that we get, first of all, the customer self-progression. So, that's the hub online that really allows a customer to do the whole transaction or as much as they want to online ahead of time, as well as the express pickup, which in all cases, we're calling it the curbside pickup, but think about it as what we used to refer to express pickup where customer can do everything online, they can swing by the store, and previously they could take the car for the test drive, they can come in and sign any few documents that remained. We're now calling it curbside because literally they never have to come in the store. They can come, the car can be waiting there for them, really touchless. We want to make sure we get that rolled out everywhere and then we'll continue to ramp up, make sure that the CECs can support. But in the interim, you've got some stores that are going to be doing what the CECs are doing until we get that ramp up. So, we'll get everyone there. Our goal coming into this year was to finalize the rollout. We're just approaching it in a different way

Okay. So, you're not so much changing the pace of the rollout and sort of your end targets. You're more changing how you're approaching the process, it sounds like.

I'd say, the pace we are changing that we're going to be putting out these two features as quickly as possible. We want to have curbside pickup in all of our locations within the next week or so. So, we are pushing some pace on some of these things. But we're going to continue to roll omni. I'm really pleased with the fact that we started this investment both in the technology and the whole omni experienced several years ago. I think given the current situation, having these alternatives for customers, albeit the volume is down low, it's going to be really important. And we see customers on a daily basis for a variety of different reasons and they need reliable transportation and we want to make sure that we give them an experience that they feel safe in transacting with us.

Got it. Much appreciated.

Thank you.

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

Hi, good morning. I'm hoping to get some more color on what you're seeing in the asset-backed market. And having lived through this before, I guess, 12 or 13 years ago at this point, how would you compare and contrast what you're seeing currently versus 2008, 2009 and how much liquidity do you think you have? Obviously, sales are down. So, that kind of extends your runway. But based on your current rate of sales, how long can you kind of go before having to tap some sort of additional funding?

Yeah. Hey, Sharon. As I mentioned in my prepared remarks, I think the – I guess if you could call it silver lining is, at the reduced sales pace [indiscernible] on how much capital we need in order to keep funding CAF. And so, as I mentioned, I think we believe there's several months of runway there before we need to access some additional type of funding. Now, that said, you asked about the ABS market. Currently, it's disrupted. I do think that the government has taken action much quicker this time than last time around. If you remember, 2008 and 2009, we were blocked, potentially locked out from the public ABS market for over a year. And during that time, we were able for the first year to cobble together transactions with partners and lending banks to fund CAF originations through all of 2008 before TALF kicked in and then we did a couple of TALF deals. So, it's really hard to draw conclusions on how this will compare to that. But I think we're hearing of activity and interest in the ABS markets. I'm confident that – we've been here before. The same team is working on this. We'll use every tool at our fingertips to keep things going. But we've got all the plays we did during the recession. We're looking at all those type of activities. Hopefully, it doesn't come to that. But I feel very good about us being able to continue to provide funding for our customers, like we did during the Great Recession across the credit spectrum.

Thank you, Sharon.

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

Good morning to everyone. First off, I hope you're all well. And also, I do want to congratulate on a very nice fourth quarter before all this mess started. So, I've got a couple of questions. I want to shove them into one. Okay. So, first off, with regard to – Bill, you talked about some of the actions either you're taking or you may have to take with regard to valuing your inventory. The question I have there is, and I'll make sure I ask this correctly, is this more a function of – as you look at revaluing this inventory potential in the environment, is it more a function of accounting? Or is it to reprice these cars to try to move them quicker in a very dampened sales environment? So, how should we think about there, just the flow of those cars? And then, the second question, I guess this is much more for Tom on the CAF side and as a follow-up to some of the prior questions, so as we look at this right now and you've mentioned that the securitization market is disrupted, so has CarMax so far skipped what would have been a normal securitization? And if you had, could you do a securitization right now at potentially less favorable terms. Thanks.

Hi, Brian. So, first of all, thank you for the comments on the fourth quarter. I tell you, the team here feels like that was a year ago since the fourth quarter given everything that's happened, but I do appreciate the recognition. As far as valuing inventory, I think at this point, Brian, it's more about making sure that we have the cars priced appropriately to make sure that we're moving them versus accounting at this point. Our auctions are a huge competitive advantage. We can stay on top of kind of how things are being priced, what they're going for. So, as you know, we always try to make sure we continue to move our inventory, so we can replace it with cheaper vehicles. But keep in mind, some of our stores right now are on lockdown. And so, we have some inventory sitting in some stores that we can't get access to, although that's even changing daily. So, it's more about making sure that we get the price right and moving it. And then, you want to talk on the ABS?

Yeah. Brian, if you look at the cadence of how we've originated in the past, you probably would have expected us to be coming to market with the deal sometime this month, several weeks from now. Obviously, we're keeping a close eye on the market, not likely that we do something in the next week or two. But as I mentioned, I think we've got a good amount of runway with our current facilities. And there are a number of alternatives we have to make sure that we can be funding customers, keep credit available to them. And when the markets do open up, and we can drop a deal in there.

Hey, Brian. I think the other thing, just going back on the inventory just for a second, we're really focused on all inventory, so not just saleable, but raw and work in process, getting the overall number down, not only to keep the inventory flowing and to get it to the right level. But keep in mind, because we own all that inventory, that's also additional cash flow that comes in. So, I think that's an important piece to remember as well.

Thanks, guys. Appreciate all the color.

Thank you.

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

Good morning, guys. It's very good to hear from you guys. And thank you for all the very helpful disclosure. It's actually really helpful. Just a question as we think about the ABS market potentially falling and just sort of your understanding of how TALF 2.0 is going to work and how much that will break the logjam because it sounds like it's going to be very powerful. And then, sort of just the follow-up to that ahead of time is, when you think about the existing pools out there for CAF, how do the defaults, but importantly, the waivers work on monthly payments because I would imagine that might trigger something in the existing ABS pool? And are you getting waivers inside those pools to have consumers skipping payments? How does that mechanically work? And does that create any issues for you?

Okay, I'll hit both of those for you. I'll try my best. Now, as far as TALF, I'm hoping that – we're hopeful that that's not what it comes to. That was a great tool back in 2009 to free up markets that had been seized up for a long time. It's a, frankly, a great deal for investors that are interested put enough capital. You can look at how it works. We don't know all the details yet, but we'd expect to be very similar to what was rolled out in 2009. So, it does create liquidity, but it is a cumbersome process both for investors and for issuers. It's not an easy transaction. But to the extent that the markets remain locked up, it was something that definitely was a remedy back in 2009. Like I said, we're hopeful that we don't need to go there. We have other alternatives that we can embrace as a bridge if we need to. As far as the various pools and the activity with extensions, those tools really don't have – as you know, they're non-recourse deals and they're structured based on the cash flows of the various pools receivable. And they pay down CAF's – the receivables are paid off. So, to the extent that we have extensions, what that means is that you're going to have a delay in the pay down of the loans. But the pools are structured, so that they go lockstep with the actual amortization. There's no debt amortization schedule on the deal. So, from the perspective of public deals, they're out there. We've got the initial capital invested in them. And obviously, we're very intent on making sure that we maximize the residual coming off of it because that represents CAF income, but they're structured to stand on their own and play out of course as the cash flows come in.

So, there's no triggers or any risk whatsoever if defaults or payments are waiting for a period of time at all. The risk at the end of the day is that we don't collect our residual cash flow to the extent we initially intended. But there could potentially be some reputational risk if you have pools that don't perform. But as I mentioned earlier, it's non-recourse and there's nothing that we'd have to come out of pocket or do to save them. Now, the reputational risk, I think is a little bit kind of moot because CarMax will not be the only person in this boat, to the extent that automobile ABS deals start to get compromised. And if you remember back to the Great Recession, we saw significant step ups in losses. And we didn't see any deals fail. Everyone got paid including us.

Okay, great. Thank you very much, guys. And good luck with everything going on here. Thank you.

Thanks, John.

Our next question comes from Michael Montani from Evercore ISI. Please go ahead.

Hey, good morning. Thanks for taking the questions. I just wanted to ask, first off, if you can remind us back in 2008, 2009, how high did bad debt expense get in relation to the overall size of the book, maybe if you can remind us of that. And then, the follow on was just for CapEx as well as fixed versus variable in SG&A, so what should we look at for CapEx this year, assuming it can't just go to zero because probably some has already committed. And then, secondly, fixed versus variable in SG&A, how much potential reduction could you do and what's the timeline to do those kind of reductions given the unprecedented environment?

Good morning. This is Enrique. So, let me start with a CapEx question. So, historically, we've spent about $350 million in CapEx annually. And given the current environment, we're not prepared or in a position really to give guidance, but I can give you some color. So, a couple of things. We've put a pause on the majority of our capital expenditures from new stores. We've paused our new store expansion. We've paused our remodels. And we've really paused work that is not currently essential from a CapEx standpoint. So, if it's essential, we're doing it. If it's not, we're on pause currently. So, in terms of providing guidance on CapEx, we're not in a position currently to do that, given the limited visibility. As visibility grows and we'll be in a better position to do that. In terms of expenses, we really are managing to the current state of business. So, for example, we have a hiring freeze in place. We've been cutting advertising. We're adjusting labor hours, we're really at this point evaluating every and all expense and spend. In terms of fixed versus variable, the way we've looked at our business historically has been about 75% fixed, 25% variable. However, what I'd say is that in this current state, everything is on the table. So, you can take a look at the fixed bucket and say, well, we're looking at that as well. So, let me give you some color around that. So, marketing historically has been viewed as a fixed cost, while we're currently taking a look at the spend there to make sure we're matching the current business environment as well.

And by the way, the only thing for – I'll let Tom talk about the ABS. On the CapEx, if you go back to 2008 and 2009, I believe, we ran about $20 million on kind of maintenance capital. So, obviously, we had less stores down there, but that kind of gives you an idea that we can take that number down substantially, although to Enrique's point, we're not going to really provide guidance at this point. And then, can you repeat your question…?

Michael, were you asking about how the loss has trended in the pool during the Great Recession?

Yeah. And I'm sorry if I'm missing this, but you guys I know had done a change in the accounting from kind of gain on sale. And I just wanted to make sure kind of we all had the benefit of incremental color around how the book performed during that time, in particular with losses.

Sure, yeah. If you look at the pools that originated leading up to the Great Recession, we saw losses roughly double from where they – we tend to target – we typically target 2.25% to 2.5% loss experience over the life of the loans. We saw some of those pools roughly double during the Great Recession. As I mentioned, all the deals remain intact and everyone received cash, including ourselves, throughout that period. The other thing I guess I'd point out is, immediately following that period, and I'm not making any predictions now or how long the period might be, the pools that we originated immediately following that disruption were some of the best performing from a loss perspective that we've had.

Thank you.

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

Thanks a lot. And good morning. My first question is just in terms of the warehouse availability today. You mentioned $1.3 billion end of February, but where are you today on that?

We're a couple of weeks lower than that. But as I said, I think we're still comfortable that we have good runway on it. As I mentioned, several months.

Okay. And if you were to sell a loan today in the marketplace and some sort of other transaction besides the ABS market, do you think you'd be able to sell those at a premium? That would be speculation, but my gut would be that, yes, I think – I look at the kind of the cast of characters, the things that we did back when capital was constraint during the recession. All of them were less attractive than our than our plan A, which is originating and going into the ABS market and keeping all of the upside. Anytime, you start getting into hold on sales or partner type of transactions, people want a share of the returns, so they're going to be a little bit less attractive economically. But that's something we'll consider as we balance our options going forward.

Got it. And then, my follow-up is just around the cash burn today. If you could give us a sense more quantitatively about how much cash you're burning on a weekly basis, that would be really helpful.

Yeah. As we said in our prepared remarks, we are in a financially strong footing. We have a very strong balance sheet. We have solid liquidity. And we feel confident that we are actually taking the necessary steps in this kind of environment in terms of pulling out cash, pulling out costs. We're not exactly sure how long the current situation will last. But we are striving to put ourselves in a position to come out of this in a financially healthy environment – situation, sorry.

Very good. Thank you. Good luck.

Thanks.

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

Hey, good morning. And thanks for taking my question as well. Many have been addressed already. But could you please characterize used car prices since the outbreak? And then, as an unrelated question, just comment on the strategy behind the Edmunds investment. I know it's not a virus topic, but still curious about that.

Sure. So, on the first question on kind of the depreciation, it's interesting, if you look at some of the NAAA data, it was fairly – from January through February, it was fairly strong, more from an appreciation standpoint. So, we saw vehicles normally rising at this time of year and it was fairly strong. You get into the middle of March, and what we saw was a very sharp decline. And back in 2008 and 2009, we saw a very big decline throughout that whole year where there was a concentrated decrease from like August to November of 2008. I think this, what we've seen in the beginning of February, the middle of February and later, has been a very precipitous decline like that. Now, we don't know how long it'll go on. And again, as I said earlier, depends on store closures and that kind of thing. But it was a sharp decline starting from about the middle of the month. As far as Edmunds goes, you know that we've been focused with – the whole omnichannel, we've been focused on engaging with our customers, shopping, letting them shop online, and really giving them more control and independence. And part of that is making sure we have expert advice and guidance. And Edmunds is a very trusted, unbiased resource. They have lots of extensive automotive editorial and research data. And they've also been investing a lot over the last couple of years in digital innovations, and it aligns with our continued focus on enhancing the customer experience online. So, we feel like there's lots of synergies between the two companies. We've already tapped into and working with them on some content and putting that on our car landing pages, but we think there's lots of opportunities that will benefit both companies. And as we progress in the partnership, we'll have more to talk about at a future point.

Thank you.

Thank you.

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

Thanks. I'm curious, you push online and curbside pickup into those stores over the near term, will that allow you to open those stores that are currently closed and reduce inventory at a quicker pace?

Yeah, it's a good question, Rick. So, what we're seeing currently, generally what happens is a mandate will come down, everyone needs to close. And we immediately – we closed because a lot of times the mandates aren't exactly clear as it pertains to us. Most localities that close have carved out automotive service and sales, but many of them have stipulations. So, for example, you can open – you should be open, but you should only allow appointment only. We do think that with the curbside and the push to online, it's going to make it very much easier to work the appointment only type of locality. So, we're encouraged by that. And to your point, if you can get those locations up and at least somewhat productive, it helps from an inventory standpoint.

Just a follow-up, [indiscernible] auction side as you push virtual, do you think those auctions that are closed can open up?

Yes. So, again, just like the stores, you have a couple of different situations. You have some auction locations like the stores that are completely closed down and the localities haven't even made it available to get the inventory out. You have other locations where you can get the inventory out. And when we're able to, we do that. We'll move it to another location where we will do an online sale. So, I think that's one of the reasons why we're pushing. We've talked about in the past testing simulcast, testing online. And this has just positioned very well to move very quickly on this to make sure that we can continue to liquidate inventory as well as understand what's going on in the marketplace. So, the onlines will help us to get those vehicles sold even if the store locations are closed.

Thanks.

Thanks, Rick.

Our next question comes from Derek Glynn from Consumer Edge Research. Please go ahead.

Yes, hi. Good morning I hope you all are well.

Good morning, Derek.

How do you think the used to new value equal will evolve for the consumer in the context of this economic shock? And also, in an ultimate recovery, would you expect to see a notable shift in demand from new to used similar to what we've seen in past downturns? Did you feel this is a completely different type of downturn that may throw off that relationship we've seen historically?

Yeah, Derek. I tell you it's a tough question. Coming in from the fourth quarter, what we saw was the new to used spread widen. So, I think that was a little bit of a tailwind for late model used vehicles. I think in this current environment, I've seen some numbers projections on SARS. It's going to be down dramatically, I think, for this year, given some of the numbers that are coming out from the manufacturers. I think part of it's going to depend on what the manufacturers do from an incentive standpoint as the consumer start to rebound. But as I've always said, the wholesale market is very quick to self-adjust. So, if used car prices come down because of incentives, an increase in incentives, that will ripple into the wholesale market and the wholesale markets will adjust quickly, which is another reason why you want to manage your inventory very quickly.

Okay, got it. And then, apologies if I missed this, but can you remind us of any relevant covenants we should keep in mind, particularly around maximum leverage ratios and how you're thinking about that?

Yeah, we have two main covenants. We have a leverage ratio covenant and we have a fixed charge coverage covenant. And those are calculated on a 12-month look-back basis. So, as you know, from our year-end report, we had a very strong past 12 months. So, we have a lot of cushion there. In fact, we could double the performance of those two ratios and still be well within the cushion.

Got it. Thank you, guys. Best of luck.

Thank you, Derek.

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

Hi. Thanks for taking my follow-up questions. So, I just want to understand, for this discussion again, just the flow of inventory here. As far as acquisition goes, are the auctions open now and is CarMax in those auctions buying cars? It sounds like from your prepared comments, you're still where possible taking trade-ins. So, I guess, the bigger question there is just the auction. Then the second question I have, and I know this is more of a touchy feely type question, but given that CarMax is now much more digitally focused, much more omnichannel and you have a better reading of your customers, is there any way to look out and say makes a ton of sense right now that the consumers in this sort of state of paralysis, but is there still – is there a way to measure kind of the underlying – the true underlying demand for cars? Are consumers still looking for cars to maybe help us gauge how demand will look once this hopefully temporary shock passes?

Okay, Brian. So, first question, are the auctions still open? Right now, the two major auction players, ADESA, Manheim. ADESA is closed right now for the time being. So, there are no sales happening. Manheim is still open, but everything is virtual. Your question, are we still out there buying? Yes, we're still out there buying, albeit at a very reduced rate, obviously, because of consumer demand. Yes, we still have our appraisal lane open in the stores that are open for the reasons that I said earlier. There are customers who just need to get cash and get out of their car. So, we want to make sure that we're there for that. As far as the omni focus and kind of consumer demand, every day, I'm in touch with the stores. And every day, I hear stories about who's coming into the stores right now. And so, the folks that are coming into the stores and buying cars today are the ones that absolutely have to have cars. Just to bring it to life a little bit, you have medical providers that need to make sure that they can get to work. We've seen customers come in who have lost their jobs and need to downsize their car, and so they're selling a car and then downsizing the car, or they're just selling their car to get cash. You see customers that have relied on ride sharing that no longer feel comfortable there and they want to buy a vehicle. So, the consumers that are in there today are ones that need a vehicle. You're not having consumers come in who would like to have the vehicle at this point. And I think that's similar to what we saw back in 2008 or 20090. I think as far as the demand going forward, it really is going to depend on a couple of things. I think, one, how quickly the country – how we can get our arms around the virus is the first and foremost. And then, even after that, I'm sure you've seen some unemployment numbers. Consumer confidence obviously is taking a hit with so many folks that are unemployed. So, it's really hard to understand what the demand is going to be once we come out of this and how long it will take for business to get back to normal. Again, it's just the reason why I'm really glad that we have invested in the technology and we have invested in the omni experience to make sure that the customers that are out there that are looking for a vehicle, we can meet them on their terms and give them the experience that they are looking for, which I think that will help us to continue to gain market share regardless of the economic cycle.

Thanks for the color again.

Sure.

Our next question comes from Michael Montani from Evercore ISI. Please go ahead.

Hey, thanks for taking the follow-up. Just wanted to ask about some of the initial experiences from the CECs, what you all have been able to learn there, how that process is going. And then, related question is on remote appraisals, kind of where we stand in that process. Just trying to look ahead here and see if there's some things that you're doing now that, incrementally, would benefit you on the other side of all this?

Yeah, absolutely. I think both of those are – we're going to continue making progress on both of those. As far as the CECs, we're very pleased with the fact that we now have five customer experience centers that are stood up at this point. They're helping the stores through this. It still remains one of those things that we feel like there is a lot of upside as we continue to train those associates, as we continue to leverage technology, they're getting better and better at what they do. So, we think we'll continue to make sure we work on the effectiveness. Up to this point, it's really been about kind of rollout and stabilization of the CECs. Now, we're really moving into the phase of optimization of the CECs and really leveraging them to make this a better cost alternative than even the traditional format. As far as the remote appraisals, obviously, as we roll omni everywhere, you will have the option to have an appraisal done online. We at this point have pulled just the appraisal only pieces that are in non-omni markets, but it's one that we continue – we'll continue to work on and that will be a solution that we'll have in all markets, whether you buy a car from us or not, but it is one that we're continuing to fine tune.

And this concludes our question-and-answer session for today. I will now turn the call back to Bill Nash for any closing remarks.

Well, listen, thank you all for your questions today and your continued support of CarMax. I do have just a couple thoughts before we leave. One, I want to reiterate that similar to other challenging times, it will be difficult in the short term, but we have the expertise. We have the resources, the liquidity, the financial stability, and the partners in place to withstand the current environment and be well positioned to when the economy and the consumer rebound. As I think about the leadership and the associates that we have in the field, this is a crisis tested team and I'd rather not have anybody else than the team that we have today to work through this. So, I'm very encouraged by that. And I can't say enough about how appreciative I am for everything that our associates are doing to take care of themselves, take care of the customers and the communities. And to our associates, I would just – I want to tell them that the concern that you demonstrate to each other and our customers, that's core to our values. And I'm incredibly proud to be a part of this team. I know it's not easy. I know it's a challenging time for all of us. It's a challenging time for the nation. But I also know that we're going to come through this better and stronger than ever. So, again, thank you for your time today. I hope everyone stays healthy. And we'll talk again next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.