America's Car-Mart Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
September 4, 2024

There are 7 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the America's Car Mart's First Quarter Fiscal 2025 Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Vicki Judy, Chief Financial Officer of America's Car Marts. Please go ahead.

Speaker 1

Good morning, and welcome to America's Car Marts' Q1 fiscal year 2025 earnings call for the period ending July 31, 2024. Joining me today is Doug Campbell, our company's President and CEO. We've issued our earnings release earlier this morning and it is available on our website along with a slide detailing our cash on cash returns. We will post the transcript of our prepared remarks following this call and the Q and A session will be available through the webcast after the call. During today's call, certain statements we make may be considered forward looking and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view.

Speaker 1

These statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. The company cannot guarantee the accuracy of any forecast or estimate nor does it undertake any obligation to update such forward looking statements. For more information, including important cautionary notes, please see Part 1 of the company's annual report on Form 10 ks for the fiscal year ended April 30, 2024, and our current and quarterly reports furnished to or filed with the Securities and Exchange Commission on Forms 8 ks and 10 Q. Doug will start us off with his thoughts on the business and strategies for this fiscal year.

Speaker 2

Thank you, Vicki, and thank you everyone for your interest in Americas Car Mart and for joining us to hear more about our Q1 results. As I mentioned in the earnings release, I'm pleased about the improvement in sales volume versus the prior year when viewed sequentially. If you recall, we were down almost 20% in the 3rd quarter. We then finished down 13.6% in the 4th quarter and have closed the gap to be just under 10% now. We're pleased that website traffic increased both year over year and sequentially indicating strong consumer demand.

Speaker 2

However, application volumes were slightly softer contributing to the decline in sales. We believe that part of this decline is the need for more affordable vehicles. We've been working hard to bring down the average retail price during the quarter. When viewed sequentially, we had a reduction of approximately $100 in the average retail price when you exclude ancillary products. Vehicle procurement prices are a good leading indicator for our average retail prices.

Speaker 2

And with the progress we've made during the quarter, we expect these benefits to both improve and continue. Gross margin continues to be a positive story, up 30 basis points for the quarter. We remain very focused on gross margin improvement through pricing discipline, reduced transportation costs and lower vehicle repair costs. The biggest challenge for our industry and for us is ensuring we match inventory levels and pricing to the demand and the type of consumer we're seeing

Speaker 3

in the

Speaker 2

marketplace. We've taken several actions in the value chain to lower vehicle acquisition costs, which means we can pass those savings on to our consumers. Our partnership with Cox Automotive is a key component in our plan to address affordability for consumers and improve gross profit margins for the company. Recall that this partnership is centrally managed removing the day to day burden from our location managers to oversee the complete process for the disposal of our assets. We've been optimizing agreements with vehicle repair shops and consolidating suppliers to lower acquisition and transportation costs.

Speaker 2

We've set new expectations for vehicle quality, especially with preferred vendors and continue to consolidate vehicle vendors. The vendor consolidation process is also improving title flow, which speeds up the time in getting inventory to the sales lot and then displayed online. For example, in fiscal year 'twenty three, we purchased an average of 10 vehicles from close to 400 vendors monthly. In fiscal year 'twenty four, we dropped that to roughly 2 70 vendors and this year we plan to bring that down to under 200 vendors. While we still need local relationships in many markets that we operate, the partnership with Cox Automotive is giving us additional options.

Speaker 2

Like any transition, the onboarding process of a new partner for our business operations is not without its challenges. However, we believe those are mainly behind us now as it relates to the procurement and the remarketing of vehicles. I'll switch now to the consumer facing aspects of our business. The LOS is fully in place at 147 of our 156 dealerships. The remaining 9 dealerships which were acquired are still in their earn out period or have yet to be integrated.

Speaker 2

As of July 31st, almost 40% of our total portfolio dollars originated within the LOS. The speed of accomplishing sales and financing process is at least 1 hour faster for each customer. Because more of these sales are starting online, it allows for a better overall customer experience and we're pleased to see this kind of adoption and it gives us additional data on consumer preferences and the pre qualification trends we're seeing. The benefits from LOS that we discussed last quarter, which include curtailing originating terms, generating better deal structures, and ultimately improving loss rates continue to build momentum. Deals originated through the loan origination system versus our legacy system have a lower frequency and severity of loss, thus producing a lower overall cumulative net loss rate than loans originated during the same period.

Speaker 2

This improvement is also very much in contrast with our back book of originations, which are now approximately 33% of our portfolio when looking at overall dollars from fiscal year 2021 through fiscal year 2023.

Speaker 3

I'll let

Speaker 2

Vicki get into more detail here in a moment on that. We're moving quickly to reshape our future without changing our core mission, keep customers on the road. Our initiatives are strengthening Car Mart's competitive position, enhancing our ability to innovate and increasing operational efficiency. I reported last quarter on the implementation of additional multiyear tech investments in our business, specifically an enterprise resource planning system or ERP. This was a significant multiyear investment and it's weighing on our operating expense line.

Speaker 2

The benefits of this ERP conversion are designed to improve efficiency and operational flexibility within finance, accounting and customer management functions and provide capacity for growth. We went live on the system on May 1st and are confident that we can help provide leverage in SG and A. We also completed important enhancements to our CRM during the quarter, which are designed to assist us in credit application conversion. A better customer experience will drive higher conversions to sales. We're very pleased with the recent addition of the 2 dealerships at Texas Auto Center, which delivered strong results as expected in the quarter, including a record month in July.

Speaker 2

We have ambitious plans to grow America's Karma and become a more dominant company in their segment. This is evident in the turnaround we're beginning to see. Our teams will be a key component of our success. I'll now turn the discussion over to Vicki for more details on our financials. Vicki?

Speaker 1

Thanks, Doug, and good morning, everyone. In my commentary, the comparison that I will cover will be the Q1 of fiscal 2025 versus the Q1 of fiscal 2024 unless otherwise noted. Total revenues decreased $19,000,000 or 5.2 percent largely due to the decline in retail units sold. Interest income increased by 7.2%, primarily due to the increase in the consumer contract interest rate to 18.25%, which was increased from 18% in December of 2023. The weighted average interest rate was 17.4% at July 30 1, 2024, compared to 17% of the total revenue of $0.23 As Doug pointed out earlier, our priority in both sourcing and sales is on vehicle affordability as our customers are persistently squeezed by several economic factors affecting their paycheck.

Speaker 1

Average units sold per dealership per month were down from 34.2% to 30.9% or 9.6%. The average retail sales price was up 2.4%, primarily attributable to increases in ancillary products. We continue to back the appropriate underwriting risk with sales volumes and have limited originations at a select number of dealerships to focus on collections and originating only the highest credit scoring applicants. This has contributed to lower productivity on average. Earlier, Doug explained that the back book of originations from fiscal 2021 through fiscal 2023 accounts for 33% of the portfolio and that 40% of the portfolio originated through our new underwriting system.

Speaker 1

We're pleased with the benefits we're seeing on down payments and deal structures. Down payments for the quarter were up 20 basis points to 5.2%. While this is not an enormous increase overall, the distribution of the down payment by customer score is improved and is expected to be significant in terms of customer success. This also builds on last quarter's sequential increase of 40 basis points on down payment. Our average originating term was 44.3 months, down from the prior year's quarter average of 44.7 months.

Speaker 1

Like the down payment, we continue to fine tune and optimize the distribution of the term by customer score. At the end of the quarter, the weighted average total contract term for the portfolio is 48.1 months. The weighted average age is 12 months or up 16%. This should have positive impacts on the portfolio losses going forward and have contributed positively to the increased collections per active customer. Our management and dealer teams have worked hard to improve total collections, which increased 4.3% over last year.

Speaker 1

The monthly average total collected per active customer rose to $5.62 from $5.35 More customers are paying via digital channels, but it is valuable to leverage our hybrid approach because the local face to face relationship is a difference maker when they need contract modifications or assistance. Net charge offs as a percentage of average finance receivables for the quarter were 6.4% compared to 5.8%. We experienced an increase in both the frequency and severity of losses with severity accounting for approximately 65% of the increase. The majority of this increase continues to be from the back book of the fiscal year 2022 and 2023 originations. These originations now have a weighted average age of approximately 22 months at the end of July and are expected to have less of an impact on net charge offs as we move forward.

Speaker 1

The net charge off percentage is trending back to pre pandemic averages and is closer to the low end of our historical range of 5.9% to 8.7%. Our priority is customer success and to work with them to resolve payment delinquencies before repossessing the vehicle. We're pleased that our delinquencies or accounts over 30 days past due dropped 90 basis points to 3.5% at quarter end and our recency was over 82% for the quarter. The results we're seeing from our LOS originations were the primary driver in a 30 basis point improvement in our allowance for credit losses as a percentage of finance receivables net of deferred revenue and accident protection plan claims. This puts the allowance at 25% at quarter end, which resulted in a $4,300,000 reduction in the provision for credit losses.

Speaker 1

Inventory levels at quarter end were up $7,100,000 compared to fiscal year end, primarily due to the addition of our most recent acquisition, which added approximately $5,100,000 to the inventory balance. Despite this addition, we reduced inventory by $2,600,000 compared to the prior year quarter end. We've been sharing our cash on cash returns profile during this past fiscal year and are pleased that our originated contracts in the Q1 are expected to produce cash on cash returns of 72.4%. The supplemental material to the earnings release reflects our history of earning strong cash on cash returns in various market and macroeconomic conditions. We're very focused on the quality of originations and deal structures to maximize these returns and profitability.

Speaker 1

Moving to SG and A. SG and A expense was $46,700,000 This was a slight increase compared to last year's Q1. As mentioned in the release, we had over $2,000,000 in savings in payroll and related costs due to prior cost cutting measures. This was offset by increases in the licensing and expenses related to our technology implementation, along with the increased SG and A related to the acquisition, which created some headwind in leveraging the SG and A on a per customer basis. As we move forward and gain efficiency from the new technology and build the customer base associated with the acquisition, we expect to leverage the SG and A on a per customer account basis over the long term.

Speaker 1

We continue to focus on driving cost efficiencies and continue to execute on cost control measures. Interest expense increased by $4,000,000 or 28.3 percent due to a rise in rates and secondarily an increase in debt. Our revolving credit facility and warehouse notes payable are floating rate debt and we would benefit from lower rate if the prevailing thoughts on interest rate cuts come to fruition. As of July 31, we have $4,700,000 in unrestricted cash and approximately $33,000,000 in additional availability under our revolving credit facilities calculated on our borrowing base of receivables and inventory. Access to capital with our revolving credit facility and a successful securitization program give us flexibility and a distinct advantage over many of our smaller competitors.

Speaker 1

Now let me turn things back to Doug.

Speaker 2

Thanks, Vicki. We know that the economy is challenging for consumers and we're undertaking many operational initiatives to improve certain aspects of our business. I'm proud of our associate value proposition and the dedication of our teams. Before we start the open Q and A, I'd like to reiterate our focus for the fiscal year. First, we want to continue to push for operational excellence on sales and collections as we leverage the technology recently installed and updated.

Speaker 2

This includes constantly looking at the return on invested capital at our stores and ensuring that we are focused on getting the best returns possible for our shareholders. 2, to improve the affordability for our consumers by reducing the average retail price during the fiscal year. There are several components to this plan, but we're well underway and we'll continue to see benefits here 3, the continued optimization of our loan origination system. We're seeing its benefits and I believe we're just scratching the surface. Our credit and underwriting teams are working to fully exploit the benefits of this system.

Speaker 2

4, to capitalize on our partnership with Cox Automotive. I believe this to be a long term partnership and we're just getting out of the gates. I'm excited about the benefits for our shareholders and collective companies here. 5, is to implement our strategic plan and focus on acquisitions. We're actively in the market looking at opportunities and believe this is still the best return for our shareholders.

Speaker 2

I'd be remiss if I didn't mention just how important people are to our success, both existing talent and new talent that will round out our leadership team. Now operator, please provide instructions to ask questions.

Speaker 4

Operator, this is Vicki. We've gotten a couple of questions in from buy side investors that I'd like to take.

Operator

Please proceed.

Speaker 4

The first one says, can you explain the headwind in SG and A that's coming from your acquisitions? Doug, I'll take this one. First of all, as we acquire these day 1, we acquire their SG and A, of course, with all of their dealership costs, their associates, but we're not acquiring their portfolio of customers. So we're starting with the cost and no portfolio to go along with it. This last one we did with TAC was a little more impactful due to the size, and we have visibility into leverage once this book is built out.

Speaker 4

The second question, is regarding the back book. It says you've mentioned the back book and LOS originations several times. Can you explain how you think about the portfolio and how it sits today? Doug, I'll let you take that one.

Speaker 3

Okay. Good morning, everybody. I think if I had to break it up, I think if you go back to the Q2 of last year, we noted the back book. I don't think we used the words back book, but we spoke in detail about the losses that we were seeing from some of the pools originated in fiscal years 2021, 2022 and 2023 and the effects on those and the severity that they had on the portfolio and then the overall current environment, which was driving a frequency of loss at that time. And so, we still see that, but to a lesser effect.

Speaker 3

Back then, those loans represented greater than 50% of the portfolio. Today, as we sit, they're less than 33% of the portfolio. And so as time goes on, they represent a smaller and smaller portion of the book. And so that's a really positive story. And at the time in the Q2 of last year, our LOS only accounted for about 10% of the portfolio.

Speaker 3

Today, that's about 40% of the portfolio. So I'd like to sort of like look at those two chunks of businesses, call it the 73% of the book. The remaining portion of the book is really fiscal year 2024 originations. And so those have a really interesting story because they're a combination of originations out of our legacy system and a combination of LOS originations towards the end of the year. What was interesting about fiscal year 2024 is we had started tightening our underwriting standards at that time on our legacy system.

Speaker 3

And so the original projections for those, if you go back 4 quarters ago, they had cash on cash returns projected at 59%, the subsequent quarter produced projections at 61.3%, then 62.9% and the most recent projection is now at 64.4%. So we continue to see favorability in that remainder of the 27% of the portfolio. So I'd like to sort of think about fiscal year 2024 and fiscal year 2025 as sort of being really positive and a return to the norm. And the fiscal year 2021 through 2023, which accounts for just a third as sort of the back book and much lesser extent. And as we move forward here into the next quarter, we project those will account for an even smaller portion and LOS will account for greater than half of the portfolio.

Speaker 3

And we see those showing up both in the cash on cash returns and the favorability that we get in the provision adjustment. I guess I'll turn it back over to the operator to see if there's any more live questions.

Operator

Thank you. We do have a question from John Hecht with Jefferies. Your line is open.

Speaker 5

Hey guys, thanks very much. Good to meet you Doug and Vicki, good to chat. So appreciate you guys taking my questions and all the details on the call. I have a couple of questions. Number 1 is, you guys cited affordability as a key factor in the business now.

Speaker 5

And I think we've heard that elsewhere in the market too. And you guys have implemented a lot of strategies to reduce the cost of car acquisition and refurbishment and so forth. I'm wondering how much can that help affordability, just in things you can execute? And then the second question that would be related to that is, what do you guys expect with used car prices and how might that impact the affordability issue?

Speaker 3

Yes. Great question. Good to be with you, Joan. So if I think about the affordability, we sort of started sketching out our fiscal year 2025 business plan and affordability being a key component sort of last year December, January and the actions that we would take to sort of accelerate that. One of those things is the Cox partnership on how we could repurchase some of the vehicles that are entering the marketplace, have Cox do those repairs and then, produce units on our front lines that are going to help drive down the overall average in price.

Speaker 3

The affordability why we sort of believe in that thesis that that's a bigger component and the biggest driver is that also we see that in the applicant side of the business. So when we look at credit applicants, we've seen some softness in both the applicant income and so we want to address that we're trying to target getting where we have our loan origination system set and the PTI thresholds match to vehicles that would fit the consumers that are applying to us. And it's a moving target. And we do believe that they'll continue to be softest in the back half of the year in terms of pricing. August is sort of a little bit of a stalling and I think that's a combination of a couple of different things from the CDK outage and having dealers sort of pull back and get back in the market that it's creating a little bit of a blip on the radar.

Speaker 3

But we do believe that prices will continue to fall at a normalized rate for the balance of the year, John.

Speaker 5

Great. That's very helpful. Thank you. And then on credit, Vicki, I think you mentioned that you guys can identify a 30 basis point improvement tied to the LOS system. How much of the portfolio is that touching?

Speaker 5

Is there more to go on that perspective of executing better credit?

Speaker 4

Yes. There's certainly more room there. So as of the end of July, 40% of our portfolio had been originated on LOS. And all of our dealerships, except for 9 of our acquisition lots, are being originated. Their deals are being originated on our new system.

Speaker 4

So that's going to continue to have positive impacts and grow as we move forward each month.

Speaker 3

Yes. I'd add Vicki one other thing. That 30 basis point benefit, the result of that being the LOS, it's a combination of different factors, right, both qualitative and quantitative in that CECL analysis that are driving that. And the LOS had a more positive effect than that, but the net effect was the 30 basis points. And so absent other factors, the increase would have been larger, but it's not how it works.

Speaker 3

We have to sort of look at all the factors there, but I hope that helps add some color to

Speaker 5

that as well. For sure. Thank you very much. And my final question is just sort of on the competitive market. I mean, we've heard that a lot of the kind of smaller channels or smaller networks have been having tough times getting financing.

Speaker 5

So I'm wondering if that's impacting kind of the competitive environment at all. And similarly, is there more acquisition opportunities because of some of the stress in the market?

Speaker 4

Yes, we continue to see that stress out there with some of the smaller competitors, where they're just holding less inventory or financing less because of their ability to access credit. So that's certainly playing a role in this market. And yes, we have visibility to several acquisition opportunities. We always want to ensure that we're able to integrate them and digest them at the appropriate method and not disrupt their business and that they're going to fit in well culturally with us and be accretive on day 1. But we do have visibility into several.

Speaker 4

Fitting into our footprint is important as well so that we can ensure that we can service them and take care of them. But we continue to analyze those.

Speaker 5

Wonderful, guys. Thank you so much.

Operator

Thank you. Our next question comes from Vincent Caintic with BTIG. Your line is open.

Speaker 6

Hi, good morning. Thanks for taking my questions. First question is kind of a maybe broad industry question, but on the affordability point, is there a price or sort of like how much does used car prices have to come down in order to get the demand to show up. We've talked about affordability for well. So I'm just trying to get a sense for what's maybe the limiting factor or how much prices have to come down for the demand to really ramp back up again.

Speaker 6

And then the visibility on your sales volume, so we have been seeing quarterly improvements in the year over year trajectory, but just wondering if you have that visibility into when we can expect growth again? Thank you.

Speaker 3

Vicki, I'll take that one. Okay. Good morning, Vincent. How are you doing? So in terms of visibility into sales, there's like there's a ton there.

Speaker 3

We look at website traffic as a leading indicator. And so we feel really confident about that. We have probably 5 or 6 months in a row now where website traffic is in excess of 25% growth year over year. And so that's certainly a leading indicator that expresses demand for the service in our offering. And we've seen credit applications sort of dovetail into that, but not the same level of strength.

Speaker 3

And those continue to bobble around a little bit. We see stronger online applications and then weaker applications at the lot level. In the aggregate, the total application volume might be 5% or 8% off year over year. From the sales side, we continue to convert at a better rate on those applications. And so we're really pleased with that, but we'd like to see conversion stronger.

Speaker 3

And when we look at website activity and the analytics around that, a lot of this is you can see the customer searching for vehicles and clicking through vehicles and we might not just have the right vehicles, to serve them. And so that sort of ties into our thesis on affordability. For us, given where we see application volumes, if we could take out $500 to $800 out of the procurement cost of the vehicle, that would put us in a really good spot and increase our addressable market. And so that's sort of what we're really focused on and thinking how quickly can we get that done in the balance of the calendar year. That is sort of like really where the teams are pushing hard and focused on.

Speaker 3

We started to see some of that price benefit show up here in the quarter when you look at just price by itself. Keep in mind our average retail selling price are a combination of both our ancillary products and the sales price of the vehicle. So we were able to take $100 out. And from a procurement standpoint, we should be able to see more benefits here in the upcoming quarters as well. Aside from that, when I guess it's sort of Vincent, if I'm new and I'm looking at this, the sales volume piece is a really tough question to answer in terms of like what does normal look like and how do we get back there.

Speaker 3

I don't think we've spoken as much on it, but like we've talked about performance managing locations. And to us, that's the restriction of capital when we see losses trending up. And we get really sensitive around that because we want to get the best return on invested capital. And so we have if I look back at fiscal year 2024, we had a 9% or 10% disconnect on sales from a year over year standpoint, Vicki, if I'm remembering correctly. A third of that was due to us performance managing locations and restricting capital.

Speaker 3

So call that that's probably somewhere just north of 2,000 units just from us performance managing locations. And so when you're looking at this sort of year over year comparison, it's both a combination of what we see in the marketplace and actions we're taking internally to restrict capital to our highest performing stores. And I think that's the best thing for our shareholders and for us. And then of course, if you layer in the fact that we've been more selective on the underwriting side, we've talked about that extensively and that's got to be a piece of it, right? There's certainly more customers we can take.

Speaker 3

But given the backdrop and the context of higher loan delinquency rates and default rates in the industry, we're trying to make sure that we take care of the customers that we do have and that is sort of front and center. And I think there's some positive tailwinds, right? We made an upgrade to our CRM during the quarter, which should also aid in conversion. We're working on sales price, which should help overall sales volume. And then I touched on the addition of our Head of Underwriting last quarter.

Speaker 3

And so the underwriting team is working on ways we can grow sales volume, which look like risk based pricing, right? And so that would be another functionality of the LOS tool that we really haven't spoken about, but we expect to deploy that during the calendar year. And that would allow us to do a lot of things. It would allow us to go deeper and price loans differently if we needed to go deeper down the funnel or to go up funnel to keep more of our repeat customers who might be defecting and looking at other competitors. And so we're excited about the levers that we have in the business now.

Speaker 4

Doug, I would just add, these should pay dividends as we move forward, particularly as we are a little more cautious on our underwriting. And then we're still taking charge offs on this back book due to the pricing from the prior 2 years. But as we move forward, this will really be a benefit in terms of net charge offs, especially if we can build back retail units as well. Great.

Speaker 6

That's super helpful, Dito. Thank you for that. So that $500,000,000 to $800,000,000 cost per vehicle, if you can take that out, that puts you in a good spot. And then, actually, if you could talk a little bit more about that performance managing location. So, restricting capital to that underperforming stores, that would have been 2,000 units by your math.

Speaker 6

If you can talk about what you're doing there to get those underperforming stores to be better or otherwise using that capital allocating that capital better that would be helpful to understand. Thank you.

Speaker 3

Yes, yes, sure. Vince, it's that part is not that complicated. We sort of restrict the amount of inventory and get really selective on the underwriting standpoint on what we're allowing them to put on the road because we're seeing default rates at those stores that are unacceptable. And so we were trying to figure out is that a function of the environment or what's going on in the town or is that a lack of operational execution. And so once they sort of get added to the list, we become hyper focused on what that looks like, which has an impact on sales, right?

Speaker 3

And so that's that portion of it. When we see a turnaround in that way, we will sort of take off the restriction in capital and then start to feather in underwriting standards that are a little bit looser. For the ones that we don't see turning around, then we'll wind down locations. And so we have a couple of those that are in that state. If you look just over the last year, we closed 3 locations and that's got to be sort of a more active piece of our repertoire on how we manage the business going forward as far as I'm concerned.

Speaker 3

We need to be making sure we're looking out at that and more closely at that, especially that all the tailwinds of the pandemic are gone. You really have to sort of stay very close and attuned to that. So that's a piece of

Speaker 2

our business on the operational side for sure.

Speaker 6

Okay, great. And then, two final questions and these are both just numbers questions. But if you could so in terms of your loss expectations between the fiscal 2022 and 2023 vintages, so the back book versus what you're underwriting to now in the 2024 and 2025 vintages, if you could maybe help us bifurcate like what your expectations are for what you're underwriting to losses there? And then the second last question is the if you're able to separate out the SG and A expense by your normal operating expense versus the technology investments and then the new store acquisitions, if you could maybe see what the normalized expenses would have been, that would be helpful to understand the SG and A. Thank you.

Speaker 4

Sure. Maybe I'll start with the question you had on the back book as we're calling it. If you look at our cash on cash returns table, I would point to the difference in our projected cash on cash returns there for the book of 23% going from 49% now to 64% in 24% and 72% in 25%. And then as we mentioned, 33% or so of the portfolio relates to that back book and that they're now 22 months aged. So we're getting more than halfway through those contracts and they become a smaller and smaller portion of the business.

Speaker 4

And so certainly, as we move forward, that becomes a smaller piece of those net charge offs each quarter.

Speaker 3

Yes. On the SG and A piece, that is so if you look in just absolute dollars here, Vincent, we were fairly flat during the quarter. It might have been a $200 difference in SG and A cost. And it might not look that impressive. But if you consider any other year, a 5 year running average would normally have us up 10 plus percent in SG and A.

Speaker 3

So the fact that we're relatively flat, I'd call that a win. That's largely driven by some of the actions that we took last December in terms of cost cutting, which we anticipated to drive $4,000,000 or $5,000,000 worth of benefit on an annualized basis. And so we're seeing that materialize now more meaningfully. And so as an example, I think just on the payroll and payroll related costs, Vicki, for the quarter, we were down over $2,000,000 in the quarter just by that metric by itself. The technology piece that you mentioned, so all this technology now that is now stood up, that does have an impact and it shows up in SG and A.

Speaker 3

And so for us, I think that's probably $1,000,000 quarterly in terms of new expense that we're realizing, but that's been offset by some of the payroll cuts that we've taken in the past. I think there's more that we can do. We are hyper focused on the management of SG and A and the acquisitions don't sort of help that story early because when you're just adding all the cost of new employees and you're buying multiunit and multi rooftop operations, you get all of their costs today, with none of the benefit of, the accounts, that they would have. And so this more recent acquisition should be able to take SG and A on a per account basis down fairly significantly, but we have to let their book build out, right? And so there's a lot going on there, sort of in the complexion of the SG and A.

Speaker 3

I appreciate your question. It's a thoughtful one, and I'm glad you asked.

Speaker 6

That is those are all super helpful. Thanks very much.

Speaker 3

You got it, Pam.

Operator

Thank you. This concludes the question and answer session. I would now like to turn it back to Doug Campbell, President and CEO for closing remarks.

Speaker 3

Yes. We remain focused on our strategic priorities and improving our operational and financial performance with all the technology and innovation updates that we've made, including streamlining our cost structure and delivering affordability to our customers and looking forward to more acquisitions. Our management team is really committed to implementing these initiatives and to deliver additional value for our shareholders. And I want to thank you guys for joining the call today and your interest in Americas Carver. Thank you.

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