CARMAX INC - Quarter Report: 2022 May (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended May 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-31420

CARMAX, INC.

(Exact name of registrant as specified in its charter)


Virginia		54-1821055
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

12800 Tuckahoe Creek Parkway		23238
Richmond,	Virginia
(Address of Principal Executive Offices)		(Zip Code)

(804) 747-0422

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	KMX	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class						Outstanding as of June 23, 2022
Common Stock, par value $0.50						159,165,992

Page 1

CARMAX, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


			Page No.
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements:

		Consolidated Statements of Earnings (Unaudited) –
		Three Months Ended May 31, 2022 and 2021	3

		Consolidated Statements of Comprehensive Income (Unaudited) –
		Three Months Ended May 31, 2022 and 2021	4

		Consolidated Balance Sheets (Unaudited) –
		May 31, 2022 and February 28, 2022	5

		Consolidated Statements of Cash Flows (Unaudited) –
		Three Months Ended May 31, 2022 and 2021	6

		Consolidated Statements of Shareholders’ Equity (Unaudited) –
		Three Months Ended May 31, 2022 and 2021	7

		Notes to Consolidated Financial Statements (Unaudited)	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and
		Results of Operations	33

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49

	Item 4.	Controls and Procedures	49

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	50

	Item 1A.	Risk Factors	50

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

	Item 6.	Exhibits	51

SIGNATURES			52

Page 2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARMAX, INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

(Unaudited)


	Three Months Ended May 31
(In thousands except per share data)	2022		%(1)	2021		%(1)
SALES AND OPERATING REVENUES:
Used vehicle sales	$	7,014,490	75.3	$	6,157,344	80.0
Wholesale vehicle sales	2,116,517		22.7	1,374,357		17.9
Other sales and revenues	180,614		1.9	165,898		2.2
NET SALES AND OPERATING REVENUES	9,311,621		100.0	7,697,599		100.0
COST OF SALES:
Used vehicle cost of sales	6,451,010		69.3	5,560,337		72.2
Wholesale vehicle cost of sales	1,924,850		20.7	1,188,513		15.4
Other cost of sales	60,370		0.6	24,240		0.3
TOTAL COST OF SALES	8,436,230		90.6	6,773,090		88.0
GROSS PROFIT	875,391		9.4	924,509		12.0
CARMAX AUTO FINANCE INCOME	204,473		2.2	241,731		3.1
Selling, general and administrative expenses	656,740		7.1	554,069		7.2
Depreciation and amortization	55,648		0.6	49,890		0.6
Interest expense	28,775		0.3	20,534		0.3
Other expense (income)	2,099		—	(25,577)		(0.3)
Earnings before income taxes	336,602		3.6	567,324		7.4
Income tax provision	84,337		0.9	130,568		1.7
NET EARNINGS	$	252,265	2.7	$	436,756	5.7
WEIGHTED AVERAGE COMMON SHARES:
Basic	160,298			163,151
Diluted	161,798			166,295
NET EARNINGS PER SHARE:
Basic	$	1.57		$	2.68
Diluted	$	1.56		$	2.63

(1) Percents are calculated as a percentage of net sales and operating revenues and may not total due to rounding.

See accompanying notes to consolidated financial statements.

Page 3

CARMAX, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended May 31
(In thousands)	2022		2021
NET EARNINGS	$	252,265	$	436,756
Other comprehensive income, net of taxes:
Net change in retirement benefit plan unrecognized actuarial losses	481		659
Net change in cash flow hedge unrecognized gains	51,833		2,278
Other comprehensive income, net of taxes	52,314		2,937
TOTAL COMPREHENSIVE INCOME	$	304,579	$	439,693

See accompanying notes to consolidated financial statements.

Page 4

CARMAX, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)


	As of May 31		As of February 28
(In thousands except share data)	2022		2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	95,313	$	102,716
Restricted cash from collections on auto loans receivable	531,344		548,099
Accounts receivable, net	610,587		560,984
Inventory	4,691,085		5,124,569
Other current assets	189,638		212,922
TOTAL CURRENT ASSETS	6,117,967		6,549,290
Auto loans receivable, net of allowance for loan losses of $458,214 and $433,030 as of May 31, 2022 and February 28, 2022, respectively	15,672,605		15,289,701
Property and equipment, net of accumulated depreciation of $1,493,660 and $1,437,548 as of May 31, 2022 and February 28, 2022, respectively	3,258,614		3,209,068
Deferred income taxes	91,305		120,931
Operating lease assets	533,355		537,357
Goodwill	141,258		141,258
Other assets	523,590		490,659
TOTAL ASSETS	$	26,338,694	$	26,338,264

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,066,922	$	937,717
Accrued expenses and other current liabilities	489,619		533,271
Accrued income taxes	18,365		—
Current portion of operating lease liabilities	44,384		44,197

Current portion of long-term debt	111,517		11,203
Current portion of non-recourse notes payable	520,944		521,069
TOTAL CURRENT LIABILITIES	2,251,751		2,047,457
Long-term debt, excluding current portion	2,569,751		3,255,304
Non-recourse notes payable, excluding current portion	15,218,229		14,919,715
Operating lease liabilities, excluding current portion	519,818		523,269
Other liabilities	378,508		357,080
TOTAL LIABILITIES	20,938,057		21,102,825

Commitments and contingent liabilities
SHAREHOLDERS’ EQUITY:
Common stock, $0.50 par value; 350,000,000 shares authorized; 159,613,860 and 161,053,983 shares issued and outstanding as of May 31, 2022 and February 28, 2022, respectively	79,807		80,527
Capital in excess of par value	1,678,172		1,677,268
Accumulated other comprehensive income (loss)	5,892		(46,422)
Retained earnings	3,636,766		3,524,066
TOTAL SHAREHOLDERS’ EQUITY	5,400,637		5,235,439
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	26,338,694	$	26,338,264

See accompanying notes to consolidated financial statements.

Page 5

CARMAX, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended May 31
(In thousands)	2022		2021
OPERATING ACTIVITIES:
Net earnings	$	252,265	$	436,756
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization	70,473		62,356
Share-based compensation expense	22,443		41,074
Provision for loan losses	57,840		(24,375)
Provision for cancellation reserves	31,719		34,128
Deferred income tax provision	11,561		24,751
Other	5,342		(21,037)
Net (increase) decrease in:
Accounts receivable, net	(49,603)		(174,149)
Inventory	433,484		(91,690)
Other current assets	73,315		(9,873)
Auto loans receivable, net	(440,744)		(644,850)
Other assets	(15,154)		(2,853)
Net increase (decrease) in:
Accounts payable, accrued expenses and other
current liabilities and accrued income taxes	105,445		315,784
Other liabilities	(27,434)		(57,905)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	530,952		(111,883)
INVESTING ACTIVITIES:
Capital expenditures	(94,808)		(59,145)

Proceeds from sale of business	—		617
Purchases of investments	(4,380)		(4,701)
Sales and returns of investments	150		86

NET CASH USED IN INVESTING ACTIVITIES	(99,038)		(63,143)
FINANCING ACTIVITIES:

Proceeds from issuances of long-term debt	1,043,100		388,600
Payments on long-term debt	(1,629,024)		(391,235)
Cash paid for debt issuance costs	(3,940)		(3,910)
Payments on finance lease obligations	(2,925)		(2,789)
Issuances of non-recourse notes payable	3,569,605		3,610,819
Payments on non-recourse notes payable	(3,272,242)		(3,014,131)
Repurchase and retirement of common stock	(162,974)		(133,838)
Equity issuances	3,443		21,589
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(454,957)		475,105
(Decrease) increase in cash, cash equivalents, and restricted cash	(23,043)		300,079
Cash, cash equivalents, and restricted cash at beginning of year	803,618		771,947
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD	$	780,575	$	1,072,026

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	95,313	$	377,954
Restricted cash from collections on auto loans receivable	531,344		549,578
Restricted cash included in other assets	153,918		144,494
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	780,575	$	1,072,026

See accompanying notes to consolidated financial statements.

Page 6

CARMAX, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

(Unaudited)


	Three Months Ended May 31, 2022
								Accumulated
	Common			Capital in				Other
	Shares	Common		Excess of		Retained		Comprehensive
(In thousands)	Outstanding	Stock		Par Value		Earnings		Income (Loss)		Total
Balance as of February 28, 2022	161,054	$	80,527	$	1,677,268	$	3,524,066	$	(46,422)	$	5,235,439
Net earnings	—	—		—		252,265		—		252,265
Other comprehensive income	—	—		—		—		52,314		52,314
Share-based compensation expense	—	—		21,594		—		—		21,594

Repurchases of common stock	(1,644)	(822)		(17,207)		(139,565)		—		(157,594)
Exercise of common stock options	49	24		3,418		—		—		3,442
Stock incentive plans, net shares issued	155	78		(6,901)		—		—		(6,823)

Balance as of May 31, 2022	159,614	$	79,807	$	1,678,172	$	3,636,766	$	5,892	$	5,400,637

CARMAX, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

(Unaudited)


	Three Months Ended May 31, 2021
								Accumulated
	Common			Capital in				Other
	Shares	Common		Excess of		Retained		Comprehensive
(In thousands)	Outstanding	Stock		Par Value		Earnings		Loss		Total
Balance as of February 28, 2021	163,172	$	81,586	$	1,513,821	$	2,887,897	$	(118,691)	$	4,364,613
Net earnings	—	—		—		436,756		—		436,756
Other comprehensive income	—	—		—		—		2,937		2,937
Share-based compensation expense	—	—		20,102		—		—		20,102
Repurchases of common stock	(998)	(499)		(9,348)		(114,695)		—		(124,542)
Exercise of common stock options	375	187		21,403		—		—		21,590
Stock incentive plans, net shares issued	254	127		(18,102)		—		—		(17,975)
Balance as of May 31, 2021	162,803	$	81,401	$	1,527,876	$	3,209,958	$	(115,754)	$	4,703,481

See accompanying notes to consolidated financial statements.

Page 7

CARMAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

1.Background

Business. CarMax, Inc. (“we,” “our,” “us,” “CarMax” and “the company”), including its wholly owned subsidiaries, is the nation’s largest retailer of used vehicles. We operate in two reportable segments: CarMax Sales Operations and CarMax Auto Finance (“CAF”). Our CarMax Sales Operations segment consists of all aspects of our auto merchandising and service operations, excluding financing provided by CAF. Our CAF segment consists solely of our own finance operation that provides financing to customers buying retail vehicles from CarMax. On June 1, 2021, we completed the acquisition of Edmunds Holding Company (“Edmunds”), which does not meet the quantitative thresholds to be considered a reportable segment. See Note 17 for additional information on our reportable segments and Note 2 for additional information regarding our acquisition of Edmunds.

We deliver an unrivaled customer experience by offering a broad selection of quality used vehicles and related products and services at competitive, no-haggle prices using a customer-friendly sales process. Our omni-channel platform, which gives us the largest addressable market in the used car industry, empowers our retail customers to buy a car on their terms – online, in-store or an integrated combination of both. Customers can choose to complete the car-buying experience in-person at one of our stores; or buy the car online and receive delivery through express pickup, available nationwide, or home delivery, available to most customers. We offer customers a range of related products and services, including the appraisal and purchase of vehicles directly from consumers; the financing of retail vehicle purchases through CAF and third-party finance providers; the sale of extended protection plan (“EPP”) products, which include extended service plans (“ESPs”) and guaranteed asset protection (“GAP”); and vehicle repair service. Vehicles purchased through the appraisal process that do not meet our retail standards are sold to licensed dealers through on-site or virtual wholesale auctions.

Basis of Presentation and Use of Estimates. The accompanying interim unaudited consolidated financial statements include the accounts of CarMax and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such interim consolidated financial statements reflect all normal recurring adjustments considered necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year.

The accounting policies followed in the presentation of our interim financial results are consistent with those included in the company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2022 (the “2022 Annual Report”), with the exception of those related to recent accounting pronouncements adopted in the current fiscal year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in our 2022 Annual Report.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. In particular, the novel coronavirus (“COVID-19”) pandemic and the resulting adverse impacts to global economic conditions, as well as our operations, may impact future estimates including, but not limited to, our allowance for loan losses, inventory valuations, fair value measurements, downward adjustments to investments in equity securities, asset impairment charges, the effectiveness of the company’s hedging instruments, deferred tax valuation allowances, cancellation reserves, actuarial losses on our retirement benefit plans and discount rate assumptions. Certain prior year amounts have been reclassified to conform to the current year’s presentation. Amounts and percentages may not total due to rounding.

Page 8

Recent Accounting Pronouncements.

Adopted in the Current Period

In August 2020, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement (ASU 2020-06) related to the measurement and disclosure requirements for convertible instruments and contracts in an entity's own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity's own equity. We adopted this pronouncement for our fiscal year beginning March 1, 2022, and it did not have a material effect on our consolidated financial statements.

In July 2021, the FASB issued an accounting pronouncement (ASU 2021-05) related to accounting for sales-type leases with variable lease payments. This pronouncement is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. We adopted this pronouncement for our fiscal year beginning March 1, 2022, and it did not have a material effect on our consolidated financial statements.

In November 2021, the FASB issued an accounting pronouncement (ASU 2021-10) related to government assistance disclosures. The amendments in this update increase the transparency surrounding government assistance by requiring disclosure of 1) the types of assistance received, 2) an entity’s accounting for the assistance, and 3) the effect of the assistance on the entity’s financial statements. We adopted this pronouncement for our fiscal year beginning March 1, 2022, and it did not have a material effect on our consolidated financial statements.

2. Acquisition of Edmunds

On June 1, 2021, we completed the acquisition of Edmunds Holding Company, one of the most well established and trusted online guides for automotive information and a recognized leader in digital car shopping innovations. With this acquisition, CarMax has enhanced its digital capabilities and further strengthened its role and reach across the used auto ecosystem while adding exceptional technology and creative talent. Edmunds continues to operate independently and remains focused on delivering confidence to consumers and excellent value to its dealer and Original Equipment Manufacturer (“OEM”) clients. Additionally, this acquisition allows both businesses to accelerate their respective capabilities to deliver an enhanced digital experience to their customers by leveraging Edmunds’ compelling content and technology, CarMax’s unparalleled national scale and infrastructure, and the combined talent of both businesses.

The acquisition was accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, and, accordingly, Edmunds’ results of operations have been consolidated in our financial statements since the date of acquisition. We recorded a preliminary allocation of the purchase price to assets acquired and liabilities assumed based on their estimated fair values as of June 1, 2021. The transaction costs associated with the acquisition were approximately $8.0 million and were expensed as incurred within selling, general and administrative expenses.

The following table summarizes the total purchase consideration:


(In thousands)
Total cash consideration for outstanding shares	$	251,047
Fair value of common stock (1)	90,571
Fair value of preexisting relationship	60,200
Total	$	401,818

(1) Represents the issuance of 776,097 shares of CarMax common stock to Edmunds equity holders, the fair value of which was based on the market value of CarMax common stock as of market close on the acquisition date (June 1, 2021).

In January 2020, we acquired a minority stake in Edmunds for $50 million. The noncontrolling equity investment in Edmunds was remeasured at a fair value of $60.2 million prior to the acquisition of the remaining ownership stake on June 1, 2021, which resulted in the recognition of a gain of $8.7 million. The gain was included in other income in the consolidated statements of earnings for the second quarter of fiscal 2022.

Page 9

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition:


(In thousands)	Fair Value
Cash	$	9,484
Accounts receivable, net	33,719
Other current assets	2,397
Property and equipment, net	20,741
Goodwill (1)	141,258
Intangible assets	218,000
Operating lease assets	97,250
Other assets	191
Total assets acquired	523,040

Accounts payable	5,063
Accrued expenses and other current liabilities	11,277
Current portion of operating lease liabilities	12,795
Deferred income taxes (1)	3,823
Operating lease liabilities, excluding current portion	88,264
Total liabilities assumed	121,222
Net assets acquired	$	401,818

(1) During the third quarter of fiscal 2022, we obtained new information about facts and circumstances that existed as of the acquisition date, which resulted in a change in the fair value of assets and liabilities recognized. The adjustments were primarily related to research and development tax credits, which resulted in a decrease in goodwill and a decrease in deferred income taxes of $8.4 million.

The excess of purchase consideration over the fair value of net identifiable assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to expected synergies and the assembled workforce of the acquired business and is not deductible for tax purposes. The fair values assigned to the net identifiable assets and liabilities assumed are based on management’s estimates and assumptions.

Identifiable intangible assets were recognized at their estimated acquisition date fair values. The fair value of identifiable intangible assets was determined by using certain estimates and assumptions that are not observable in the market. The fair values of the trade name asset and the internally developed software asset were determined using the relief-from-royalty method, and the fair value of the customer relationships asset was determined using the excess earnings method. These income-based approaches included significant assumptions such as the amount and timing of projected cash flows, growth rates, customer attrition rates, discount rates, and the assessment of the asset’s life cycle. The estimated fair value and estimated remaining useful lives of identifiable intangible assets are as follows:


(In thousands)	Useful Life (Years)	Fair Value
Trade name	Indefinite	$	31,900
Internally developed software	7	52,900
Customer relationships	17	133,200
Identifiable intangible assets		$	218,000

The operating results of Edmunds have been included in our consolidated financial statements since the date of the acquisition. Net sales and operating revenues and net earnings attributable to Edmunds were not material for the reporting periods presented. Our pro forma results as if the acquisition had taken place on the first day of fiscal 2021 would not be materially different from the amounts reflected in the accompanying consolidated financial statements, and therefore are not presented.

Page 10

3. Revenue

We recognize revenue when control of the good or service has been transferred to the customer, generally either at the time of sale or upon delivery to a customer. Our contracts have a fixed contract price and revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. We collect sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale. These taxes are accounted for on a net basis and are not included in net sales and operating revenues or cost of sales. We generally expense sales commissions when incurred because the amortization period would have been less than one year. These costs are recorded within selling, general and administrative expenses. We do not have any significant payment terms as payment is received at or shortly after the point of sale.

Disaggregation of Revenue


	Three Months Ended May 31
(In millions)	2022		2021
Used vehicle sales	$	7,014.5	$	6,157.3
Wholesale vehicle sales	2,116.5		1,374.4
Other sales and revenues:
Extended protection plan revenues	116.5		134.2
Third-party finance income/(fees), net	3.4		(4.6)
Advertising & subscription revenues (1)	34.4		—
Service revenues	21.9		22.2
Other	4.4		14.1
Total other sales and revenues	180.6		165.9
Total net sales and operating revenues	$	9,311.6	$	7,697.6

(1) Excludes intersegment sales and operating revenues that have been eliminated in consolidation. See Note 17 for further details.

Used Vehicle Sales. Revenue from the sale of used vehicles is recognized upon transfer of control of the vehicle to the customer. As part of our customer service strategy, we guarantee the retail vehicles we sell with a 30-day/1,500 mile, money-back guarantee. We record a reserve for estimated returns based on historical experience and trends. The reserve for estimated returns is presented gross on the consolidated balance sheets, with a return asset recorded in other current assets and a refund liability recorded in accrued expenses and other current liabilities. We also guarantee the used vehicles we sell with a 90-day/4,000-mile limited warranty. These warranties are deemed assurance-type warranties and are accounted for as warranty obligations. See Note 16 for additional information on this warranty and its related obligation.

Wholesale Vehicle Sales. Wholesale vehicles are sold at our auctions, and revenue from the sale of these vehicles is recognized upon transfer of control of the vehicle to the customer. Dealers also pay a fee to us based on the sale price of the vehicles they purchase. This fee is recognized as revenue at the time of sale. While we provide condition disclosures on each wholesale vehicle sold, the vehicles are subject to a limited right of return. We record a reserve for estimated returns based on historical experience and trends. The reserve for estimated returns is presented gross on the consolidated balance sheets, with a return asset recorded in other current assets and a refund liability recorded in accrued expenses and other current liabilities.

EPP Revenues. We also sell ESP and GAP products on behalf of unrelated third parties, who are primarily responsible for fulfilling the contract, to customers who purchase a retail vehicle. The ESPs we currently offer on all used vehicles provide coverage up to 60 months (subject to mileage limitations), while GAP covers the customer for the term of their finance contract. We recognize revenue, on a net basis, at the time of sale. We also record a reserve, or refund liability, for estimated contract cancellations. The reserve for cancellations is evaluated for each product and is based on forecasted forward cancellation curves utilizing historical experience, recent trends and credit mix of the customer base. Our risk related to contract cancellations is limited to the revenue that we receive. Cancellations fluctuate depending on the volume of EPP sales, customer financing default or prepayment rates, and shifts in customer behavior, including those related to changes in the coverage or term of the product. The current portion of estimated cancellation reserves is recognized as a component of accrued expenses and other current liabilities with the remaining amount recognized in other liabilities. See Note 8 for additional information on cancellation reserves.

We are contractually entitled to receive profit-sharing revenues based on the performance of the ESPs administered by third parties. These revenues are a form of variable consideration included in EPP revenues to the extent that it is probable that it

Page 11

will not result in a significant revenue reversal. An estimate of the amount to which we expect to be entitled, subject to various constraints, is recognized upon satisfying the performance obligation of selling the ESP. These constraints include factors that are outside of the company’s influence or control and the length of time until settlement. We apply the expected value method, utilizing historical claims and cancellation data from CarMax customers, as well as external data and other qualitative assumptions. This estimate is reassessed each reporting period with changes reflected in other sales and revenues on our consolidated statements of earnings and other assets on our consolidated balance sheets. As of May 31, 2022 and February 28, 2022, no current or long-term contract asset was recognized related to cumulative profit-sharing payments to which we expect to be entitled.

Third-Party Finance Income/(Fees). Customers applying for financing who are not approved or are conditionally approved by CAF are generally evaluated by other third-party finance providers. These providers generally either pay us or are paid a fixed, pre-negotiated fee per contract. We recognize these fees at the time of sale.

Advertising and Subscription Revenues. Advertising and subscription revenues consist of revenues earned by our Edmunds business. Advertising revenues are derived from advertising contracts with automotive manufacturers based on fixed fees per impression and fees for certain activities completed by customers on the manufacturers' websites. These fees are recognized in the period the impressions are delivered or certain activities occurred. Subscription revenues are derived from packages sold to automotive dealers that include car leads, inventory listings and enhanced placement in Edmunds' dealer locator and are recognized over the period that the services are made available to the dealers. Subscription revenues also include a digital marketing subscription service, which allows dealers to gain exposure on third party partner websites. Revenues for this service are recognized on a net basis.

Service Revenues. Service revenue consists of labor and parts income related to vehicle repair service, including repairs of vehicles covered under an ESP we sell or warranty program. Service revenue is recognized at the time the work is completed.

Other Revenues. Other revenues consist primarily of new vehicle sales and sales of accessories. Revenue in this category is recognized upon transfer of control to the customer.

4. CarMax Auto Finance

CAF provides financing to qualified retail customers purchasing vehicles from CarMax. CAF provides us the opportunity to capture additional profits, cash flows and sales while managing our reliance on third-party finance sources. Management regularly analyzes CAF’s operating results by assessing profitability, the performance of the auto loans receivable, including trends in credit losses and delinquencies, and CAF direct expenses. This information is used to assess CAF’s performance and make operating decisions, including resource allocation.

We typically use securitizations or other funding arrangements to fund loans originated by CAF. CAF income primarily reflects the interest and fee income generated by the auto loans receivable less the interest expense associated with the debt issued to fund these receivables, a provision for estimated loan losses and direct CAF expenses.

CAF income does not include any allocation of indirect costs. Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions. Examples of indirect costs not allocated to CAF include retail store expenses and corporate expenses. In addition, except for auto loans receivable, which are disclosed in Note 5, CAF assets are not separately reported nor do we allocate assets to CAF because such allocation would not be useful to management in making operating decisions.

Page 12

Components of CAF Income


	Three Months Ended May 31
(In millions)	2022		% (1)	2021		% (1)
Interest margin:
Interest and fee income	$	346.7	8.8	$	310.3	8.8
Interest expense	(48.8)		(1.2)	(65.8)		(1.9)
Total interest margin	297.9		7.5	244.5		6.9
Provision for loan losses	(57.8)		(1.5)	24.4		0.7

Total interest margin after provision for loan losses	240.1		6.1	268.9		7.6



Direct expenses:
Payroll and fringe benefit expense	(14.7)		(0.4)	(12.6)		(0.4)
Depreciation and amortization	(3.8)		(0.1)	(0.2)		—
Other direct expenses	(17.1)		(0.4)	(14.4)		(0.4)
Total direct expenses	(35.6)		(0.9)	(27.2)		(0.8)
CarMax Auto Finance income	$	204.5	5.2	$	241.7	6.8

Total average managed receivables	$	15,817.0		$	14,148.7

(1) Annualized percentage of total average managed receivables.

5. Auto Loans Receivable

Auto loans receivable include amounts due from customers related to retail vehicle sales financed through CAF and are presented net of an allowance for estimated loan losses. These auto loans represent a large group of smaller-balance homogeneous loans, which we consider to be part of one class of financing receivable and one portfolio segment for purposes of determining our allowance for loan losses. We generally use warehouse facilities to fund auto loans receivable originated by CAF until we elect to fund them through an asset-backed term funding transaction, such as a term securitization or alternative funding arrangement. We recognize transfers of auto loans receivable into the warehouse facilities and asset-backed term funding transactions (together, “non-recourse funding vehicles”) as secured borrowings, which result in recording the auto loans receivable and the related non-recourse notes payable on our consolidated balance sheets. The majority of the auto loans receivable serve as collateral for the related non-recourse notes payable of $15.76 billion as of May 31, 2022, and $15.47 billion as of February 28, 2022. See Note 10 for additional information on securitizations and non-recourse notes payable.

Interest income and expenses related to auto loans are included in CAF income. Interest income on auto loans receivable is recognized when earned based on contractual loan terms. All loans continue to accrue interest until repayment or charge-off. When a charge-off occurs, accrued interest is written off by reversing interest income. Direct costs associated with loan originations are not considered material, and thus, are expensed as incurred. See Note 4 for additional information on CAF income.

Page 13

Auto Loans Receivable, Net


	As of May 31		As of February 28
(In millions)	2022		2022
Asset-backed term funding	$	11,613.3	$	11,653.8
Warehouse facilities	3,629.9		3,291.9
Overcollateralization (1)	565.1		489.1
Other managed receivables (2)	243.7		217.5
Total ending managed receivables	16,052.0		15,652.3
Accrued interest and fees	78.1		67.3
Other	0.7		3.1
Less: allowance for loan losses	(458.2)		(433.0)
Auto loans receivable, net	$	15,672.6	$	15,289.7

(1) Represents receivables restricted as excess collateral for the non-recourse funding vehicles.

(2) Other managed receivables includes receivables not funded through the non-recourse funding vehicles.

Credit Quality. When customers apply for financing, CAF’s proprietary scoring models utilize the customers’ credit history and certain application information to evaluate and rank their risk. We obtain credit histories and other credit data that includes information such as number, age, type of and payment history for prior or existing credit accounts. The application information that is used includes income, collateral value and down payment. The scoring models yield credit grades that represent the relative likelihood of repayment. Customers with the highest probability of repayment are A-grade customers. Customers assigned a lower grade are determined to have a lower probability of repayment. For loans that are approved, the credit grade influences the terms of the agreement, such as the required loan-to-value ratio and interest rate. After origination, credit grades are generally not updated.

CAF uses a combination of the initial credit grades and historical performance to monitor the credit quality of the auto loans receivable on an ongoing basis. We validate the accuracy of the scoring models periodically. Loan performance is reviewed on a recurring basis to identify whether the assigned grades adequately reflect the customers’ likelihood of repayment.

Page 14

Ending Managed Receivables by Major Credit Grade


	As of May 31, 2022
	Fiscal Year of Origination (1)
(In millions)	2023		2022		2021		2020		2019		Prior to 2019		Total		% (2)
Core managed receivables (3):
A	$	1,192.3	$	3,447.1	$	1,584.2	$	1,088.7	$	463.0	$	158.3	$	7,933.6	49.4
B	869.9		2,495.0		1,139.0		743.6		393.8		183.0		5,824.3		36.3
C and other	240.7		823.7		440.2		255.9		131.0		75.5		1,967.0		12.3
Total core managed receivables	2,302.9		6,765.8		3,163.4		2,088.2		987.8		416.8		15,724.9		98.0
Other managed receivables (4):
C and other	81.2		161.6		21.3		30.6		21.1		11.3		327.1		2.0
Total ending managed receivables	$	2,384.1	$	6,927.4	$	3,184.7	$	2,118.8	$	1,008.9	$	428.1	$	16,052.0	100.0


	As of February 28, 2022
	Fiscal Year of Origination (1)
(In millions)	2022		2021		2020		2019		2018		Prior to 2018		Total		% (2)
Core managed receivables (3):
A	$	3,885.5	$	1,788.3	$	1,266.1	$	574.1	$	203.4	$	32.3	$	7,749.7	49.5
B	2,795.2		1,288.5		857.7		473.1		205.2		50.4		5,670.1		36.2
C and other	919.1		496.2		294.8		156.7		73.8		29.6		1,970.2		12.6
Total core managed receivables	7,599.8		3,573.0		2,418.6		1,203.9		482.4		112.3		15,390.0		98.3
Other managed receivables (4):
C and other	165.2		23.9		34.7		23.8		10.0		4.7		262.3		1.7
Total ending managed receivables	$	7,765.0	$	3,596.9	$	2,453.3	$	1,227.7	$	492.4	$	117.0	$	15,652.3	100.0

(1) Classified based on credit grade assigned when customers were initially approved for financing.

(2) Percent of total ending managed receivables.

(3) Represents CAF's Tier 1 originations.

(4) Represents CAF's Tier 2 and Tier 3 originations.

Allowance for Loan Losses. The allowance for loan losses at May 31, 2022 represents the net credit losses expected over the remaining contractual life of our managed receivables. The allowance for loan losses is determined using a net loss timing curve, primarily based on the composition of the portfolio of managed receivables and historical gross loss and recovery trends. Due to the fact that losses for receivables with less than 18 months of performance history can be volatile, our net loss estimate weights both historical losses by credit grade at origination and actual loss data on the receivables to-date, along with forward loss curves, in estimating future performance. Once the receivables have 18 months of performance history, the net loss estimate reflects actual loss experience of those receivables to date, along with forward loss curves, to predict future performance. The forward loss curves are constructed using historical performance data and show the average timing of losses over the course of a receivable’s life. The net loss estimate is calculated by applying the loss rates developed using the methods described above to the amortized cost basis of the managed receivables.

The output of the net loss timing curve is adjusted to take into account reasonable and supportable forecasts about the future. Specifically, the change in U.S. unemployment rates and the National Automobile Dealers Association used vehicle price index are used to predict changes in gross loss and recovery rate, respectively. An economic adjustment factor, based upon a single macroeconomic scenario, is developed to capture the relationship between changes in these forecasts and changes in gross loss and recovery rates. This factor is applied to the output of the net loss timing curve for the reasonable and supportable forecast period of two years. After the end of this two-year period, we revert to historical experience on a straight-line basis over a period of 12 months. We periodically consider whether the use of alternative metrics would result in improved model performance and revise the models when appropriate. We also consider whether qualitative adjustments are necessary for factors that are not reflected in the quantitative methods but impact the measurement of estimated credit losses. Such

Page 15

adjustments include the uncertainty of the impacts of recent economic trends on customer behavior. The change in the allowance for loan losses is recognized through an adjustment to the provision for loan losses.

Allowance for Loan Losses


	Three Months Ended May 31, 2022
(In millions)	Core		Other		Total		% (1)
Balance as of beginning of period	$	377.5	$	55.5	$	433.0	2.77
Charge-offs	(61.4)		(6.8)		(68.2)
Recoveries	33.1		2.5		35.6
Provision for loan losses	41.2		16.6		57.8
Balance as of end of period	$	390.4	$	67.8	$	458.2	2.85


	Three Months Ended May 31, 2021
(In millions)	Core		Other		Total		% (1)
Balance as of beginning of period	$	379.4	$	31.7	$	411.1	2.97
Charge-offs	(38.7)		(3.1)		(41.8)
Recoveries	32.2		2.4		34.6
Provision for loan losses	(24.8)		0.4		(24.4)
Balance as of end of period	$	348.1	$	31.4	$	379.5	2.62

(1) Percent of total ending managed receivables.

(2) Net of costs incurred to recover vehicle.

The allowance for loan losses increased $25.2 million from the prior quarter, primarily reflecting growth in receivables. During the quarter, the previously disclosed expansion of our Tier 2 and Tier 3 originations within CAF's portfolio resulted in a 5 basis point increase in the allowance as a percent of total ending managed receivables from the prior quarter. Loss performance was relatively consistent with the prior quarter. As a result, we determined that the quantitative loss rates should be kept consistent with the end of fiscal 2022. The allowance for loan losses as of May 31, 2022 reflects the historical loss performance experienced prior to the pandemic as well as increases for our Tier 3 expansion and growing Tier 2 portfolio.

Past Due Receivables. An account is considered delinquent when the related customer fails to make a substantial portion of a scheduled payment on or before the due date. In general, accounts are charged-off on the last business day of the month during which the earliest of the following occurs: the receivable is 120 days or more delinquent as of the last business day of the month, the related vehicle is repossessed and liquidated, or the receivable is otherwise deemed uncollectible. For purposes of determining impairment, auto loans are evaluated collectively, as they represent a large group of smaller-balance homogeneous loans, and therefore, are not individually evaluated for impairment.

Page 16

Past Due Receivables


	As of May 31, 2022
	Core Receivables								Other Receivables		Total
(In millions)	A		B		C & Other		Total		C & Other		$		% (1)
Current	$	7,901.3	$	5,549.2	$	1,692.5	$	15,143.0	$	256.7	$	15,399.7	95.94
Delinquent loans:
31-60 days past due	21.6		175.6		162.8		360.0		40.9		400.9		2.50
61-90 days past due	8.1		79.5		91.4		179.0		23.9		202.9		1.26
Greater than 90 days past due	2.6		20.0		20.3		42.9		5.6		48.5		0.30
Total past due	32.3		275.1		274.5		581.9		70.4		652.3		4.06
Total ending managed receivables	$	7,933.6	$	5,824.3	$	1,967.0	$	15,724.9	$	327.1	$	16,052.0	100.00


	As of February 28, 2022
	Core Receivables								Other Receivables		Total
(In millions)	A		B		C & Other		Total		C & Other		$		% (1)
Current	$	7,711.9	$	5,401.3	$	1,702.7	$	14,815.9	$	206.4	$	15,022.3	95.98
Delinquent loans:
31-60 days past due	25.4		173.3		160.4		359.1		33.0		392.1		2.50
61-90 days past due	9.2		75.6		85.2		170.0		19.1		189.1		1.21
Greater than 90 days past due	3.2		19.9		21.9		45.0		3.8		48.8		0.31
Total past due	37.8		268.8		267.5		574.1		55.9		630.0		4.02
Total ending managed receivables	$	7,749.7	$	5,670.1	$	1,970.2	$	15,390.0	$	262.3	$	15,652.3	100.00

(1) Percent of total ending managed receivables.

6. Derivative Instruments and Hedging Activities

We use derivatives to manage certain risks arising from both our business operations and economic conditions, particularly with regard to issuances of debt. Primary exposures include LIBOR and other rates used as benchmarks in our securitizations and other debt financing. We enter into derivative instruments to manage exposures related to the future known receipt or payment of uncertain cash amounts, the values of which are impacted by interest rates, and generally designate these derivative instruments as cash flow hedges for accounting purposes. In certain cases, we may choose not to designate a derivative instrument as a cash flow hedge for accounting purposes due to uncertainty around the probability that future hedged transactions will occur. Our derivative instruments are used to manage (i) differences in the amount of our known or expected cash receipts and our known or expected cash payments principally related to the funding of our auto loans receivable, and (ii) exposure to variable interest rates associated with our term loans.

For the derivatives associated with our non-recourse funding vehicles that are designated as cash flow hedges, the changes in fair value are initially recorded in accumulated other comprehensive income (loss) (“AOCI”). For the majority of these derivatives, the amounts are subsequently reclassified into CAF income in the period that the hedged forecasted transaction affects earnings, which occurs as interest expense is recognized on those future issuances of debt. During the next 12 months, we estimate that an additional $26.2 million will be reclassified from AOCI as an increase to CAF income. Changes in fair value related to derivatives that have not been designated as cash flow hedges for accounting purposes are recognized in the income statement in the period in which the change occurs. For the three months ended May 31, 2022, we recognized income of $9.2 million in CAF income representing these changes in fair value.

As of May 31, 2022 and February 28, 2022, we had interest rate swaps outstanding with a combined notional amount of $4.11 billion and $3.64 billion, respectively, that were designated as cash flow hedges of interest rate risk. As of May 31, 2022 and February 28, 2022, we had interest rate swaps with a combined notional amount of $995.5 million and $578.3 million, respectively, outstanding that were not designated as cash flow hedges for accounting purposes.

See Note 7 for discussion of fair values of financial instruments and Note 13 for the effect on comprehensive income.

Page 17

7. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market or, if none exists, the most advantageous market, for the specific asset or liability at the measurement date (referred to as the “exit price”). The fair value should be based on assumptions that market participants would use, including a consideration of nonperformance risk.

We assess the inputs used to measure fair value using the three-tier hierarchy. The hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market.

Level 1 Inputs include unadjusted quoted prices in active markets for identical assets or liabilities that we can access at the measurement date.

Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets in active markets, quoted prices from identical or similar assets in inactive markets and observable inputs such as interest rates and yield curves.

Level 3 Inputs that are significant to the measurement that are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk).

Our fair value processes include controls that are designed to ensure that fair values are appropriate. Such controls include model validation, review of key model inputs, analysis of period-over-period fluctuations and reviews by senior management.

Valuation Methodologies

Money Market Securities. Money market securities are cash equivalents, which are included in cash and cash equivalents, restricted cash from collections on auto loans receivable and other assets. They consist of highly liquid investments with original maturities of three months or less and are classified as Level 1.

Mutual Fund Investments. Mutual fund investments consist of publicly traded mutual funds that primarily include diversified equity investments in large-, mid- and small-cap domestic and international companies or investment grade debt securities. The investments, which are included in other assets, are held in a rabbi trust established to fund informally our executive deferred compensation plan and are classified as Level 1.

Derivative Instruments. The fair values of our derivative instruments are included in either other current assets, other assets, accounts payable or other liabilities. Our derivatives are not exchange-traded and are over-the-counter customized derivative instruments. All of our derivative exposures are with highly rated bank counterparties.

We measure derivative fair values assuming that the unit of account is an individual derivative instrument and that derivatives are sold or transferred on a stand-alone basis. We estimate the fair value of our derivatives using quotes determined by the derivative counterparties and third-party valuation services. Quotes from third-party valuation services and quotes received from bank counterparties project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates and the contractual terms of the derivative instruments. The models do not require significant judgment and model inputs can typically be observed in a liquid market; however, because the models include inputs other than quoted prices in active markets, all derivatives are classified as Level 2.

Our derivative fair value measurements consider assumptions about counterparty and our own nonperformance risk. We monitor counterparty and our own nonperformance risk and, in the event that we determine that a party is unlikely to perform under terms of the contract, we would adjust the derivative fair value to reflect the nonperformance risk.

Page 18

Items Measured at Fair Value on a Recurring Basis


	As of May 31, 2022
(In thousands)	Level 1			Level 2			Total
Assets:
Money market securities	$	687,599		$	—		$	687,599
Mutual fund investments	24,593			—			24,593

Derivative instruments designated as hedges	—			70,215			70,215
Derivative instruments not designated as hedges	—			18,546			18,546
Total assets at fair value	$	712,192		$	88,761		$	800,953

Percent of total assets at fair value	88.9		%	11.1		%	100.0		%
Percent of total assets	2.7		%	0.3		%	3.0		%

Liabilities:
Derivative instruments designated as hedges	$	—		$	(1,518)		$	(1,518)


Total liabilities at fair value	$	—		$	(1,518)		$	(1,518)

Percent of total liabilities	—		%	—		%	—		%


	As of February 28, 2022
(In thousands)	Level 1			Level 2			Total
Assets:
Money market securities	$	701,865		$	—		$	701,865
Mutual fund investments	24,022			—			24,022
Derivative instruments designated as hedges	—			39,452			39,452
Derivative instruments not designated as hedges	—			9,339			9,339
Total assets at fair value	$	725,887		$	48,791		$	774,678

Percent of total assets at fair value	93.7		%	6.3		%	100.0		%
Percent of total assets	2.8		%	0.2		%	2.9		%

Liabilities:
Derivative instruments designated as hedges	$	—		$	(1,379)		$	(1,379)
Total liabilities at fair value	$	—		$	(1,379)		$	(1,379)

Percent of total liabilities	—		%	—		%	—		%

Fair Value of Financial Instruments

The carrying value of our cash and cash equivalents, accounts receivable, other restricted cash deposits and accounts payable approximates fair value due to the short-term nature and/or variable rates associated with these financial instruments. Auto loans receivable are presented net of an allowance for estimated loan losses, which we believe approximates fair value. We believe that the carrying value of our revolving credit facility and term loans approximates fair value due to the variable rates associated with these obligations. The fair value of our senior unsecured notes, which are not carried at fair value on our consolidated balance sheets, was determined using Level 2 inputs based on quoted market prices. The carrying value and fair value of the senior unsecured notes as of May 31, 2022 and February 28, 2022, respectively, are as follows:


(In thousands)	As of May 31, 2022		As of February 28, 2022
Carrying value	$	500,000	$	500,000
Fair value	$	491,085	$	517,396

Page 19

8. Cancellation Reserves

We recognize revenue for EPP products, on a net basis, at the time of sale. We also record a reserve, or refund liability, for estimated contract cancellations. Cancellations of these services may result from early termination by the customer, or default or prepayment on the finance contract. The reserve for cancellations is evaluated for each product and is based on forecasted forward cancellation curves utilizing historical experience, recent trends and credit mix of the customer base.

Cancellation Reserves


	Three Months Ended May 31
(In millions)	2022		2021
Balance as of beginning of period	$	144.7	$	124.5
Cancellations	(27.7)		(20.2)
Provision for future cancellations	31.7		34.1
Balance as of end of period	$	148.7	$	138.4

The current portion of estimated cancellation reserves is recognized as a component of accrued expenses and other current liabilities with the remaining amount recognized in other liabilities. As of May 31, 2022 and February 28, 2022, the current portion of cancellation reserves was $81.0 million and $78.7 million, respectively.

9. Income Taxes

We had $25.4 million of gross unrecognized tax benefits as of May 31, 2022, and $24.8 million as of February 28, 2022. There were no significant changes to the gross unrecognized tax benefits as reported for the fiscal year ended February 28, 2022.

10. Debt


(In thousands)		As of May 31		As of February 28
Debt Description (1)	Maturity Date	2022		2022
Revolving credit facility (2)	June 2024	$	660,500	$	1,243,500
Term loan (2)	June 2024	300,000		300,000
Term loan (2)	October 2026	699,388		699,352
3.86% Senior notes	April 2023	100,000		100,000
4.17% Senior notes	April 2026	200,000		200,000
4.27% Senior notes	April 2028	200,000		200,000
Financing obligations	Various dates through February 2059	522,414		524,766
Non-recourse notes payable	Various dates through October 2028	15,764,161		15,466,799
Total debt		18,446,463		18,734,417
Less: current portion		(632,461)		(532,272)
Less: unamortized debt issuance costs		(26,022)		(27,126)
Long-term debt, net		$	17,787,980	$	18,175,019

(1) Interest is payable monthly, with the exception of our senior notes, which are payable semi-annually.

(2) Borrowings accrue interest at variable rates based on the Eurodollar rate (LIBOR), or the successor benchmark rate, the federal funds rate, or the prime rate, depending on the type of borrowing.

Revolving Credit Facility. Borrowings under our $2.00 billion unsecured revolving credit facility (the “credit facility”) are available for working capital and general corporate purposes. We pay a commitment fee on the unused portions of the available funds. Borrowings under the credit facility are either due “on demand” or at maturity depending on the type of borrowing. Borrowings with “on demand” repayment terms are presented as short-term debt, while amounts due at maturity are presented as long-term debt. As of May 31, 2022, the unused capacity of $1.34 billion was fully available to us.

Term Loans. Borrowings under our $300 million and $700 million term loans are available for working capital and general corporate purposes. The interest rate on our term loans was 1.70% as of May 31, 2022, and the loans were classified as long-term debt as no repayments are scheduled to be made within the next 12 months.

Page 20

Senior Notes. Borrowings under our unsecured senior notes totaling $500 million are available for working capital and general corporate purposes. The 3.86% senior note matures in April 2023 and is therefore classified as current. The remaining notes were classified as long-term debt as no repayments are scheduled to be made within the next 12 months.

Financing Obligations. Financing obligations relate to stores subject to sale-leaseback transactions that do not qualify for sale accounting. The financing obligations were structured at varying interest rates and generally have initial lease terms ranging from 15 to 20 years with payments made monthly. We have not entered into any new sale-leaseback transactions since fiscal 2009. In the event the agreements are modified or extended beyond their original term, the related obligation is adjusted based on the present value of the revised future payments, with a corresponding change to the assets subject to these transactions. Upon modification, the amortization of the obligation is reset, resulting in more of the payments being applied to interest expense in the initial years following the modification.

Non-Recourse Notes Payable. The non-recourse notes payable relate to auto loans receivable funded through non-recourse funding vehicles. The timing of principal payments on the non-recourse notes payable is based on the timing of principal collections and defaults on the related auto loans receivable. The current portion of non-recourse notes payable represents principal payments that are due to be distributed in the following period.

Notes payable related to our asset-backed term funding transactions accrue interest predominantly at fixed rates and have scheduled maturities through October 2028, but may mature earlier, depending upon the repayment rate of the underlying auto loans receivable.

Information on our funding vehicles of non-recourse notes payable as of May 31, 2022 are as follows:


(In billions)	Capacity
Warehouse facilities:
August 2022 expiration	$	2.30
December 2022 expiration	0.25
February 2023 expiration	2.85
Combined warehouse facility limit	$	5.40
Unused capacity	$	1.77

Non-recourse notes payable outstanding:
Warehouse facilities	$	3.63
Asset-backed term funding transactions	12.13
Non-recourse notes payable	$	15.76

We generally enter into warehouse facility agreements for one-year terms and typically renew the agreements annually. The return requirements of warehouse facility investors could fluctuate significantly depending on market conditions. At renewal, the cost, structure and capacity of the facilities could change. These changes could have a significant impact on our funding costs.

See Note 5 for additional information on the related auto loans receivable.

Capitalized Interest. We capitalize interest in connection with the construction of certain facilities. For the three months ended May 31, 2022 and 2021, we capitalized interest of $0.8 million and $1.9 million, respectively.

Financial Covenants. The credit facility, term loans and senior note agreements contain representations and warranties, conditions and covenants. We must also meet financial covenants in conjunction with certain financing obligations. The agreements governing our non-recourse funding vehicles contain representations and warranties, financial covenants and performance triggers. As of May 31, 2022, we were in compliance with all financial covenants and our non-recourse funding vehicles were in compliance with the related performance triggers.

Page 21

11. Stock and Stock-Based Incentive Plans

(A) Share Repurchase Program

In April 2022, our board of directors (“board”) increased our share repurchase authorization by $2.0 billion. As of May 31, 2022, a total of $4.0 billion of board authorizations for repurchases of our common stock was outstanding, with no expiration date, of which $2.6 billion remained available for repurchase.

Common Stock Repurchases


	Three Months Ended
	May 31
	2022		2021
Number of shares repurchased (in thousands)	1,644.4		997.6
Average cost per share	$	95.83	$	124.83
Available for repurchase, as of end of period (in millions)	$	2,616.9	$	1,211.5

(B)Stock Incentive Plans

We maintain long-term incentive plans for management, certain employees and the nonemployee members of our board. The plans allow for the granting of equity-based compensation awards, including nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, stock- and cash-settled restricted stock units, stock grants or a combination of awards. To date, we have not awarded any incentive stock options.

The majority of associates who receive share-based compensation awards primarily receive cash-settled restricted stock units. Senior management and other key associates receive awards of nonqualified stock options, stock-settled restricted stock units and/or restricted stock awards. Nonemployee directors generally receive stock-settled deferred stock units. Excluding stock grants and stock-settled deferred stock units, all share-based compensation awards, including any associated dividend rights, are subject to forfeiture.

Nonqualified Stock Options. Nonqualified stock options are awards that allow the recipient to purchase shares of our common stock at a fixed price. Stock options are granted at an exercise price equal to the fair market value of our common stock on the grant date. The stock options generally vest annually in equal amounts over four years. These options expire seven years after the date of the grant.

Cash-Settled Restricted Stock Units. Also referred to as restricted stock units, or RSUs, these are awards that entitle the holder to a cash payment equal to the fair market value of a share of our common stock for each unit granted. For grants prior to fiscal 2021, conversion generally occurs at the end of a three-year vesting period. For RSUs granted during or after fiscal 2021, conversion generally occurs annually or in equal amounts over three years. However, the cash payment per RSU will not be greater than 200% or less than 75% of the fair market value of a share of our common stock on the grant date. The initial grant date fair values are based on the volume-weighted average prices or closing prices of our common stock on the grant dates. RSUs are liability-classified awards and do not have voting rights.

Stock-Settled Market Stock Units. Also referred to as market stock units, or MSUs, these are restricted stock unit awards with market conditions granted to eligible key associates that are converted into between zero and two shares of common stock for each unit granted. Conversion generally occurs at the end of a three-year vesting period. The conversion ratio is calculated by dividing the average closing price of our stock during the final 40 trading days of the three-year vesting period by our stock price on the grant date, with the resulting quotient capped at two. This quotient is then multiplied by the number of MSUs granted to yield the number of shares awarded. The grant date fair values are determined using a Monte-Carlo simulation and are based on the expected market price of our common stock on the vesting date and the expected number of converted common shares. MSUs do not have voting rights.

Other Share-Based Incentives

Stock-Settled Performance Stock Units. Also referred to as performance stock units, or PSUs, these are restricted stock unit awards with performance conditions granted to eligible key associates that are converted into between zero and two shares of common stock for each unit granted. Conversion generally occurs at the end of a three-year vesting period. For the fiscal 2020, fiscal 2022 and fiscal 2023 grants, the conversion ratio is based on the company reaching certain performance target levels set by the board of directors at the beginning of each one-year period, with the resulting quotients subject to meeting a minimum

Page 22

25% threshold and capped at 200%. These quotients are then multiplied by the number of PSUs granted to yield the number of shares awarded.

For the first-year and third-year periods of the fiscal 2020 awards and the first-year of the fiscal 2022 awards, these targets were based on annual pretax diluted earnings per share excluding any unrealized gains or losses on equity investments in private companies; the board certified performance adjustment factors of 117%, 200% and 200%, respectively. For the second-year period of the fiscal 2020 awards, the performance goals included quantitative and qualitative metrics including covenant compliance, market share and COVID-19 recovery; the board certified a performance adjustment factor of 100%.

For the second-year period of the fiscal 2022 awards and the first-year period of the fiscal 2023 awards, the performance targets are based on annual pretax diluted earnings per share excluding any unrealized gains or losses on equity investments in private companies and market share. For the third-year period of the fiscal 2022 awards and the second- and third-year periods of the fiscal 2023 awards, the remaining awarded 48,658 PSUs do not qualify as grants under ASC 718 as mutual understanding of the target performance levels have not been set. The grant date fair values are based on the volume-weighted average prices or closing prices of our common stock on the grant dates. PSUs do not have voting rights. No PSUs were awarded in fiscal 2021. As of May 31, 2022, 43,364 granted units were outstanding at a weighted average grant date fair value per share of $109.02.

Stock-Settled Deferred Stock Units. Also referred to as deferred stock units, or DSUs, these are restricted stock unit awards granted to non-employee members of our board of directors that are converted into one share of common stock for each unit granted. Conversion occurs at the end of the one-year vesting period unless the director has exercised the option to defer conversion until separation of service to the company. The grant date fair values are based on the volume-weighted average prices or closing prices of our common stock on the grant dates. DSUs have no voting rights. As of May 31, 2022, 69,288 units were outstanding at a weighted average grant date fair value of $92.82.

Restricted Stock Awards. Restricted stock awards, or RSAs, are awards of our common stock that are subject to specified restrictions that generally lapse after a one- to three-year period from the date of the grant. The grant date fair values are based on the volume-weighted average prices or closing prices of our common stock on the grant dates. Participants holding restricted stock are entitled to vote on matters submitted to holders of our common stock for a vote. As of May 31, 2022, there were 24,171 shares outstanding at a grant date value of $119.96.

(C)Share-Based Compensation

Composition of Share-Based Compensation Expense


	Three Months Ended
	May 31
(In thousands)	2022		2021
Cost of sales	$	240	$	1,729
CarMax Auto Finance income	708		1,708
Selling, general and administrative expenses	22,236		38,420
Share-based compensation expense, before income taxes	$	23,184	$	41,857

Page 23

Composition of Share-Based Compensation Expense – By Grant Type


	Three Months Ended
	May 31
(In thousands)	2022		2021
Nonqualified stock options	$	11,212	$	11,821
Cash-settled restricted stock units (RSUs)	849		20,972
Stock-settled market stock units (MSUs)	5,347		4,845
Other share-based incentives:
Stock-settled performance stock units (PSUs)	4,691		3,394
Restricted stock (RSAs)	344		42

Employee stock purchase plan	741		783
Total other share-based incentives	$	5,776	$	4,219
Share-based compensation expense, before income taxes	$	23,184	$	41,857

Unrecognized Share-Based Compensation Expense – By Grant Type


	As of May 31, 2022
			Weighted Average
	Unrecognized		Remaining
	Compensation		Recognition Life
(Costs in millions)	Costs		(Years)
Nonqualified stock options	$	76.8	2.4
Stock-settled market stock units	24.5		1.8
Other share-based incentives:
Stock-settled performance stock units	4.4		2.3

Restricted stock	1.4		1.0
Total other share-based incentives	5.8		2.0
Total	$	107.1	2.2

We recognize compensation expense for stock options, MSUs, PSUs, DSUs and RSAs on a straight-line basis (net of estimated forfeitures) over the requisite service period, which is generally the vesting period of the award. The PSU expense is adjusted for any change in management’s assessment of the performance target level that is probable of being achieved. The variable expense associated with RSUs is recognized over their vesting period (net of estimated forfeitures) and is calculated based on the volume-weighted average price or closing price of our common stock on the last trading day of each reporting period.

The total costs for matching contributions for our employee stock purchase plan are included in share-based compensation expense. There were no capitalized share-based compensation costs as of or for the three months ended May 31, 2022 or 2021.

Page 24

Stock Option Activity


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
(Shares and intrinsic value in thousands)	Shares	Price		Life (Years)	Value
Outstanding as of February 28, 2022	5,796	$	79.66
Options granted	1,264	$	91.14
Options exercised	(49)	$	70.25
Options forfeited or expired	(39)	$	95.00
Outstanding as of May 31, 2022	6,972	$	81.72	4.5	$	155,771

Exercisable as of May 31, 2022	4,134	$	72.55	3.5	$	120,988

Stock Option Information


	Three Months Ended May 31
	2022		2021
Options granted	1,263,797		917,455
Weighted average grant date fair value per share	$	33.32	$	42.33
Cash received from options exercised (in millions)	$	3.4	$	21.6
Intrinsic value of options exercised (in millions)	$	1.2	$	28.0
Realized tax benefits (in millions)	$	0.3	$	6.9

For stock options, the fair value of each award is estimated as of the date of grant using a binomial valuation model. In computing the value of the option, the binomial model considers characteristics of fair-value option pricing that are not available for consideration under a closed-form valuation model (for example, the Black-Scholes model), such as the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life and the probability of termination or retirement of the option holder. For this reason, we believe that the binomial model provides a fair value that is more representative of actual experience and future expected experience than the value calculated using a closed-form model. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the recipients of share-based awards.

Assumptions Used to Estimate Option Values


	Three Months Ended May 31
	2022					2021
Dividend yield				0.0	%				0.0	%
Expected volatility factor (1)	38.7	%	-	45.4	%	31.8	%	-	37.0	%
Weighted average expected volatility				39.4	%				36.2	%
Risk-free interest rate (2)	0.4	%	-	3.0	%	—	%	-	1.3	%
Expected term (in years) (3)				4.6					4.6

(1)Measured using historical daily price changes of our stock for a period corresponding to the term of the options and the implied volatility derived from the market prices of traded options on our stock.

(2)Based on the U.S. Treasury yield curve at the time of grant.

(3)Represents the estimated number of years that options will be outstanding prior to exercise.

Page 25

Cash-Settled Restricted Stock Unit Activity


		Weighted
		Average
	Number of	Grant Date
(Units in thousands)	Units	Fair Value
Outstanding as of February 28, 2022	1,163	$	93.37
Stock units granted	660	$	91.14
Stock units vested and converted	(734)	$	85.33
Stock units cancelled	(23)	$	98.56
Outstanding as of May 31, 2022	1,066	$	97.42

Cash-Settled Restricted Stock Unit Information


	Three Months Ended May 31
	2022		2021
Stock units granted	660,085		361,115
Initial weighted average grant date fair value per share	$	91.14	$	136.94
Payments (before payroll tax withholdings) upon vesting (in millions)	$	65.2	$	89.8
Realized tax benefits (in millions)	$	15.9	$	24.6

Expected Cash Settlement Range Upon Restricted Stock Unit Vesting


	As of May 31, 2022
(In thousands)	Minimum (1)		Maximum (1)
Fiscal 2024	$	31,010	$	82,692
Fiscal 2025	23,209		61,890
Fiscal 2026	12,724		33,930
Total expected cash settlements	$	66,943	$	178,512

(1)Net of estimated forfeitures.

Stock-Settled Market Stock Unit Activity


		Weighted
		Average
	Number of	Grant Date
(Units in thousands)	Units	Fair Value
Outstanding as of February 28, 2022	393	$	112.17
Stock units granted	132	$	126.59
Stock units vested and converted	(119)	$	98.43
Stock units cancelled	(5)	$	124.75
Outstanding as of May 31, 2022	401	$	120.80

Stock-Settled Market Stock Unit Information


	Three Months Ended May 31
	2022		2021
Stock units granted	131,701		80,910
Weighted average grant date fair value per share	$	126.59	$	178.31
Realized tax benefits (in millions)	$	3.0	$	10.9

Page 26

12. Net Earnings Per Share

Basic net earnings per share is computed by dividing net earnings available for basic common shares by the weighted average number of shares of common stock outstanding. Diluted net earnings per share is computed by dividing net earnings available for diluted common shares by the sum of weighted average number of shares of common stock outstanding and dilutive potential common stock. Diluted net earnings per share is calculated using the “if-converted” treasury stock method.

Basic and Dilutive Net Earnings Per Share Reconciliations


	Three Months Ended
	May 31
(In thousands except per share data)	2022		2021
Net earnings	$	252,265	$	436,756

Weighted average common shares outstanding	160,298		163,151
Dilutive potential common shares:
Stock options	1,178		2,529
Stock-settled stock units and awards	322		615
Weighted average common shares and dilutive potential common shares	161,798		166,295

Basic net earnings per share	$	1.57	$	2.68
Diluted net earnings per share	$	1.56	$	2.63

Certain options to purchase shares of common stock were outstanding and not included in the calculation of diluted net earnings per share because their inclusion would have been antidilutive. On a weighted average basis, for the three months ended May 31, 2022 and 2021, options to purchase 1,344,783 shares and 289,140 shares of common stock, respectively, were not included.

13. Accumulated Other Comprehensive Income (Loss)

Changes in Accumulated Other Comprehensive Income (Loss) By Component


					Total
	Net		Net		Accumulated
	Unrecognized		Unrecognized		Other
	Actuarial		Hedge		Comprehensive
(In thousands, net of income taxes)	Losses		Gains		Income (Loss)
Balance as of February 28, 2022	$	(73,001)	$	26,579	$	(46,422)
Other comprehensive income before reclassifications	—		52,055		52,055
Amounts reclassified from accumulated other comprehensive income (loss)	481		(222)		259
Other comprehensive income	481		51,833		52,314
Balance as of May 31, 2022	$	(72,520)	$	78,412	$	5,892

Page 27

Changes In and Reclassifications Out of Accumulated Other Comprehensive Income (Loss)


	Three Months Ended May 31
(In thousands)	2022		2021
Retirement Benefit Plans:
Actuarial loss amortization reclassifications recognized in net pension expense:
Cost of sales	$	265	$	357
CarMax Auto Finance income	16		22
Selling, general and administrative expenses	355		489
Total amortization reclassifications recognized in net pension expense	636		868
Tax expense	(155)		(209)
Amortization reclassifications recognized in net pension expense, net of tax	481		659
Net change in retirement benefit plan unrecognized actuarial losses, net of tax	481		659

Cash Flow Hedges (Note 6):
Changes in fair value	70,042		(2,006)
Tax (expense) benefit	(17,987)		528
Changes in fair value, net of tax	52,055		(1,478)
Reclassifications to CarMax Auto Finance income	(299)		5,098
Tax benefit (expense)	77		(1,342)
Reclassification of hedge gains (losses), net of tax	(222)		3,756
Net change in cash flow hedge unrecognized gains, net of tax	51,833		2,278
Total other comprehensive income, net of tax	$	52,314	$	2,937

Changes in the funded status of our retirement plans and changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in accumulated other comprehensive income (loss). The cumulative balances are net of deferred taxes of $3.9 million as of May 31, 2022 and $14.2 million as of February 28, 2022.

14. Leases

Our leases primarily consist of operating and finance leases related to retail stores, office space, land and equipment. We also have stores subject to sale-leaseback transactions that do not qualify for sale accounting and are accounted for as financing obligations. For more information on these financing obligations see Note 10.

The initial term for real property leases is typically 5 to 20 years. For equipment leases, the initial term generally ranges from 3 to 8 years. Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 20 years or more. We include options to renew (or terminate) in our lease term, and as part of our right-of-use (“ROU”) assets and lease liabilities, when it is reasonably certain that we will exercise that option.

ROU assets and the related lease liabilities are initially measured at the present value of future lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. We include variable lease payments in the initial measurement of ROU assets and lease liabilities only to the extent they depend on an index or rate. Changes in such indices or rates are accounted for in the period the change occurs, and do not result in the remeasurement of the ROU asset or liability. We are also responsible for payment of certain real estate taxes, insurance and other expenses on our leases. These amounts are generally considered to be variable and are not included in the measurement of the ROU asset and lease liability. We generally account for non-lease components, such as maintenance, separately from lease components. For certain equipment leases, we apply a portfolio approach to account for the lease assets and liabilities.

Our lease agreements do not contain any material residual value guarantees or material restricted covenants. Leases with a term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

Page 28

The components of lease expense were as follows:


	Three Months Ended May 31
(In thousands)	2022		2021
Operating lease cost (1)	$	23,020	$	14,352
Finance lease cost:
Depreciation of lease assets	3,494		3,142
Interest on lease liabilities	4,930		4,107
Total finance lease cost	8,424		7,249
Total lease cost	$	31,444	$	21,601

(1) Includes short-term leases and variable lease costs, which are immaterial.

Supplemental balance sheet information related to leases was as follows:


		As of May 31		As of February 28
(In thousands)	Classification	2022		2022
Assets:
Operating lease assets	Operating lease assets	$	533,355	$	537,357
Finance lease assets	Property and equipment, net (1)	141,463		127,183
Total lease assets		$	674,818	$	664,540
Liabilities:
Current:
Operating leases	Current portion of operating lease liabilities	$	44,384	$	44,197
Finance leases	Accrued expenses and other current liabilities	12,327		10,290
Long-term:
Operating leases	Operating lease liabilities, excluding current portion	519,818		523,269
Finance leases	Other liabilities	158,988		145,179
Total lease liabilities		$	735,517	$	722,935

(1) Finance lease assets are recorded net of accumulated depreciation of $34.2 million as of May 31, 2022 and $30.7 million as of February 28, 2022.

Lease term and discount rate information related to leases was as follows:


	As of May 31		As of February 28
Lease Term and Discount Rate	2022		2022
Weighted Average Remaining Lease Term (in years)
Operating leases	17.11		17.31
Finance leases	11.58		12.42

Weighted Average Discount Rate
Operating leases	4.80	%	4.80	%
Finance leases	14.56	%	14.35	%

Page 29

Supplemental cash flow information related to leases was as follows:


	Three Months Ended May 31
(In thousands)	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	22,282	$	13,911
Operating cash flows from finance leases	$	3,935	$	2,699
Financing cash flows from finance leases	$	2,925	$	2,788

Lease assets obtained in exchange for lease obligations:
Operating leases	$	7,871	$	30,078
Finance leases	$	17,776	$	10,107

Maturities of lease liabilities were as follows:


	As of May 31, 2022
(In thousands)	Operating Leases (1)		Finance Leases (1)
Fiscal 2023, remaining	$	53,792	$	22,854
Fiscal 2024	71,516		36,850
Fiscal 2025	71,070		33,815
Fiscal 2026	65,566		34,875
Fiscal 2027	58,694		30,639
Thereafter	572,583		195,344
Total lease payments	893,221		354,377
Less: interest	(329,019)		(183,062)
Present value of lease liabilities	$	564,202	$	171,315

(1) Lease payments exclude $28.8 million of legally binding minimum lease payments for leases signed but not yet commenced.

15. Supplemental Cash Flow Information

Supplemental disclosures of cash flow information:


	Three Months Ended May 31
(In thousands)	2022		2021
Non-cash investing and financing activities:
(Decrease) increase in accrued capital expenditures	$	(2,457)	$	2,568

See Note 14 for supplemental cash flow information related to leases.

16. Contingent Liabilities

Litigation. CarMax entities are defendants in three proceedings asserting wage and hour claims with respect to non-exempt CarMax employees in California. The asserted claims include failure to provide meal periods and rest breaks; pay statutory or contractual wages; reimburse for work-related expenses; and Private Attorneys General Act (“PAGA”) claims. On July 9, 2021, Daniel Bendure v. CarMax Auto Superstores California, LLC et al., a putative class action, was filed in the Superior Court of California, County of San Bernardino. The Bendure lawsuit seeks civil penalties for violation of the Labor Code, attorneys’ fees, costs, restitution of unpaid wages, interest, injunctive and equitable relief, general damages, and special damages. Bendure subsequently decided not to proceed with an individual or putative class claim, but rather filed and served a PAGA-only complaint in the Superior Court of California for the County of San Bernardino on December 7, 2021, based on the same allegations pled in the original complaint. CarMax filed a motion to compel arbitration. The Court has stayed all discovery until after it rules on CarMax’s motion to compel arbitration. On August 12, 2021, Jordon Miller v. CarMax Auto Superstores California, LLC et al., a putative class action, was filed in the Superior Court of California, County of Riverside. The Miller lawsuit also seeks civil penalties for violation of the Labor Code, attorneys’ fees, costs, restitution of unpaid wages, interest, injunctive and equitable relief, general damages, and special damages. On August 3, 2021, Charles Walker filed a

Page 30

notice with the California Labor Workforce Development Agency, which is a prerequisite to filing a PAGA action in court. Walker filed his lawsuit on March 29, 2022.

On June 15, 2022, the United States Supreme Court issued its decision in Viking Cruise v. Moriana, holding that an individual who signs an arbitration agreement cannot circumvent that agreement by filing a related PAGA claim in court. In light of this decision, CarMax intends to move to compel arbitration of the individual PAGA claims noted above and will seek to dismiss any representative PAGA claims.

We are unable to make a reasonable estimate of the amount or range of loss that could result from an unfavorable outcome in these matters.

We are involved in various other legal proceedings in the normal course of business. Based upon our evaluation of information currently available, we believe that the ultimate resolution of any such proceedings will not have a material adverse effect, either individually or in the aggregate, on our financial condition, results of operations or cash flows.

Other Matters. In accordance with the terms of real estate lease agreements, we generally agree to indemnify the lessor from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities and repairs to leased property upon termination of the lease. Additionally, in accordance with the terms of agreements entered into for the sale of properties, we generally agree to indemnify the buyer from certain liabilities and costs arising subsequent to the date of the sale, including environmental liabilities and liabilities resulting from the breach of representations or warranties made in accordance with the agreements. We do not have any known material environmental commitments, contingencies or other indemnification issues arising from these arrangements.

As part of our customer service strategy, we guarantee the used vehicles we retail with a 90-day/4,000 mile limited warranty. A vehicle in need of repair within this period will be repaired free of charge. As a result, each vehicle sold has an implied liability associated with it. Accordingly, based on historical trends, we record a provision for estimated future repairs during the guarantee period for each vehicle sold. The liability for this guarantee was $26.6 million as of May 31, 2022, and $18.5 million as of February 28, 2022, and is included in accrued expenses and other current liabilities.

17. Segment Information

We operate in two reportable segments: CarMax Sales Operations and CAF. Our CarMax Sales Operations segment consists of all aspects of our auto merchandising and service operations, excluding financing provided by CAF. Our CAF segment consists solely of our own finance operation that provides financing to customers buying retail vehicles from CarMax.

We also have a non-reportable operating segment related to our recently acquired Edmunds business, which is reflected as “Other” in the segment tables below. Revenue generated by Edmunds primarily represents advertising and subscription revenues as discussed in Note 3. Edmunds also generates intersegment revenue as a result of transactions between Edmunds and CarMax Sales Operations, which represent arm’s length transactions at prevailing market prices. Such amounts are eliminated in consolidation.

The performance of our CarMax Sales Operations segment is reviewed by our chief operating decision maker at the gross profit level, the components of which are presented in the tables below. Required segment information related to our CAF segment is presented in Note 4. Additionally, asset information by segment is not utilized for purposes of assessing performance or allocating resources and, as a result, such information has not been presented.

Page 31

Segment Information


	Three Months Ended May 31, 2022
(In thousands)	CarMax Sales Operations		Other		Eliminations		Total
Sales and operating revenues	$	9,277,236	$	34,385	$	—	$	9,311,621
Intersegment sales and operating revenues	—		7,742		(7,742)		—
Total sales and operating revenues	$	9,277,236	$	42,127	$	(7,742)	$	9,311,621
Depreciation and amortization (1)	$	312	$	3,074	$	—	$	3,386
Gross profit	$	849,290	$	27,727	$	(1,626)	$	875,391
Reconciliation to Consolidated Earnings Before Taxes:
CAF Income							204,473
Selling, general and administrative expenses							(656,740)
Depreciation and amortization (2)							(55,648)
Interest expense							(28,775)
Other (expense) income							(2,099)
Earnings before income taxes							$	336,602

(1) Represents only the portion of depreciation and amortization recorded within Cost of sales, and thus included in the calculation of Gross profit.

(2) Exclusive of depreciation and amortization recorded within Cost of sales.

Page 32

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes and the MD&A included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2022 (“fiscal 2022”), as well as our consolidated financial statements and the accompanying notes included in Item 1 of this Form 10-Q. Note references are to the notes to consolidated financial statements included in Item 1. All references to net earnings per share are to diluted net earnings per share. Certain prior year amounts have been reclassified to conform to the current year’s presentation. Amounts and percentages may not total due to rounding.

OVERVIEW

CarMax is the nation’s largest retailer of used vehicles. We operate in two reportable segments: CarMax Sales Operations and CarMax Auto Finance (“CAF”). Our CarMax Sales Operations segment consists of all aspects of our auto merchandising and service operations, excluding financing provided by CAF. Our CAF segment consists solely of our own finance operation that provides financing to customers buying retail vehicles from CarMax. Our consolidated financial statements include the financial results related to our Edmunds Holding Company (“Edmunds”) business, which does not meet the definition of a reportable segment. For purposes of our MD&A discussion, amounts related to that business are discussed in combination with our CarMax Sales Operations segment. Separate discussion of these amounts is not considered meaningful for the purpose of gaining an understanding of our business, as the significant drivers of these operations in total are consistent with those of our CarMax Sales Operations segment. Where appropriate, specific amounts related to non-reportable segments have been disclosed for informational purposes.

CarMax Sales Operations

Our sales operations segment consists of retail sales of used vehicles and related products and services, such as wholesale vehicle sales; the sale of extended protection plan (“EPP”) products, which include extended service plans (“ESPs”) and guaranteed asset protection (“GAP”); and vehicle repair service. We offer competitive, no-haggle prices; a broad selection of CarMax Quality Certified used vehicles; value-added EPP products; and superior customer service. Our omni-channel platform, which gives us the largest addressable market in the used car industry, empowers our retail customers to buy a car on their terms – online, in-store or an integrated combination of both. Customers can choose to complete the car-buying experience in-person at one of our stores; or buy the car online and receive delivery through express pickup, available nationwide, or home delivery, available to most customers.

Our customers finance the majority of the retail vehicles purchased from us, and availability of on-the-spot financing is a critical component of the sales process. We provide financing to qualified retail customers through CAF and our arrangements with industry-leading third-party finance providers. All of the finance offers, whether by CAF or our third-party providers, are backed by a 3-day payoff option.

As of May 31, 2022, we operated 231 used car stores in 108 U.S. television markets. As of that date, wholesale auctions previously held at many of our used car stores were being conducted virtually.

CarMax Auto Finance

In addition to third-party finance providers, we provide vehicle financing through CAF, which offers financing solely to customers buying retail vehicles from CarMax. CAF allows us to manage our reliance on third-party finance providers and to leverage knowledge of our business to provide qualifying customers a competitive financing option. As a result, we believe CAF enables us to capture additional profits, cash flows and sales. CAF income primarily reflects the interest and fee income generated by the auto loans receivable less the interest expense associated with the debt issued to fund these receivables, a provision for estimated loan losses and direct expenses. CAF income does not include any allocation of indirect costs. After the effect of 3-day payoffs and vehicle returns, CAF financed 39.3% of our retail used vehicle unit sales in the first three months of fiscal 2023. As of May 31, 2022, CAF serviced approximately 1.1 million customer accounts in its $16.05 billion portfolio of managed receivables.

Management regularly analyzes CAF’s operating results by assessing the competitiveness of our consumer offer, profitability, the performance of the auto loans receivable, including trends in credit losses and delinquencies, and CAF direct expenses.

Page 33

Revenues and Profitability

The sources of revenue and gross profit from the CarMax Sales Operations segment and other non-reportable segments for the first three months of fiscal 2023 are as follows:


			Net Sales and Operating Revenues			Gross Profit

A high-level summary of our financial results for the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022 is as follows (1):


(Dollars in millions except per share or per unit data)	Three Months Ended May 31, 2022			Change from Three Months Ended May 31, 2021
Income statement information
Net sales and operating revenues	$	9,311.6		21.0	%
Gross profit	$	875.4		(5.3)	%
CAF income	$	204.5		(15.4)	%
Selling, general and administrative expenses	$	656.7		18.5	%
Net earnings	$	252.3		(42.2)	%
Unit sales information
Used unit sales	240,950			(11.0)	%
Change in used unit sales in comparable stores	(12.7)		%	N/A
Wholesale unit sales	186,307			2.7	%
Per unit information
Used gross profit per unit	$	2,339		6.1	%
Wholesale gross profit per unit	$	1,029		0.4	%
SG&A as a % of gross profit	75.0		%	15.1	%
Per share information
Net earnings per diluted share	$	1.56		(40.7)	%
Online sales metrics
Online retail sales (2)	11		%	3	%
Omni sales (3)	54		%	(2)	%
Revenue from online transactions (4)	31		%	7	%

(1) Where applicable, amounts are net of intercompany eliminations.

(2) An online retail sale is defined as a sale where the customer completes all four of the following activities remotely: reserving the vehicle; financing the vehicle, if needed; trading-in or opting out of a trade-in; and creating an online sales order.

Page 34

(3) An omni sale is defined as a sale where customers complete at least one of the four activities listed above online.

(4) Where applicable, amounts are net of intercompany eliminations. Revenue from online transactions is defined as revenue from retail sales that qualify as an online retail sale, as well as any related EPP and third-party finance contribution, wholesale sales where the winning bid was taken from an online bid and all revenue earned by Edmunds.

Refer to “Results of Operations” for further details on our revenues and profitability.

Liquidity

Our primary ongoing sources of liquidity include funds provided by operations, proceeds from non-recourse funding vehicles, and borrowings under our revolving credit facility or through other financing sources. In addition to funding our operations, this liquidity was used to fund the repurchase of common stock under our share repurchase program, our store growth and the Edmunds acquisition, which was completed during the second quarter of fiscal 2022.

Our current capital allocation strategy is to focus on our core business, including investing in digital capabilities and the strategic expansion of our store footprint, pursue new growth opportunities through investments, partnerships and acquisitions and return excess capital to shareholders. Given our continued strong business results, the strength of the credit markets and our solid balance sheet, we believe we have the appropriate liquidity, access to capital and financial strength to support our operations and continue investing in our strategic initiatives for the foreseeable future.

Strategic Update and Future Outlook

Our omni-channel experience provides a common platform across all of CarMax that leverages our scale, nationwide footprint and infrastructure and empowers our customers to buy a vehicle on their terms. We recognize that there has been an accelerated shift in consumer buying behavior. Customers are seeking personalization, convenience and safety in how they shop for and buy a vehicle more than ever. Our omni-channel platform empowers customers to buy a car on their own terms, whether completely from home, in-store or through an integrated combination of online and in-store experiences. Our diversified business model, combined with our omni-channel experience, is a unique advantage in the used car industry that firmly positions us to continue growing our market share while creating shareholder value over the long-term.

We continue to focus our efforts on optimizing and enhancing the customer experience. During the first quarter of fiscal 2023, we enabled online self-progression for all of our retail customers. All customers are now eligible to complete an online retail sale independently if they choose. In the first quarter of fiscal 2023, online retail sales accounted for 11% of retail unit sales, consistent with the previous quarter and up from 8% in the prior year quarter. Omni sales represented approximately 54% of retail sales, down slightly from 55% in the previous quarter and 56% in the prior year quarter. Online, omni and in-person sales can vary from quarter to quarter depending on consumer preferences and how they choose to interact with us. While we expect our online and omni sales to grow over time, our goal is to provide the best experience whether in-store, online or a combination of the two.

Revenue from online transactions was $2.9 billion, or approximately 31% of net revenues in the first quarter of fiscal 2023, consistent with the previous quarter and up from 24% in the prior year quarter.

We purchased approximately 362,000 vehicles from consumers and dealers during the first quarter of fiscal 2023, up 6% from the prior year quarter. This includes approximately 17,000 vehicles through MaxOffer, our digital appraisal product for dealers. We leverage the Edmunds sales team to open new markets and sign up new dealers for MaxOffer. For the first quarter of fiscal 2023, our self-sufficiency rate remained above 70%. The success of our online instant appraisal offer continues to strengthen our leadership position as the largest used vehicle buyer from consumers.

Nearly two-thirds of our finance customers start their financing process online. With our financing offer product in our online checkout process, eligible customers can apply and accept finance offers without needing the assistance of an associate to submit a credit application over the phone or in store. In addition, our finance based shopping capability, available to most customers, enables our customers to see personalized finance terms from multiple lenders across the full inventory of vehicles on our website. During the first quarter of fiscal 2023, we further enhanced this experience by testing additional capabilities, including enabling real-time decisioning as well as the ability for a customer to pre-qualify for financing with no impact to their credit score. These enhancements are currently available to approximately 25% of our online customers, and we anticipate scaling nationwide during the rest of the year.

Our investments in the near term will focus on our customer experience, vehicle acquisition and marketing. Our plans to grow vehicle acquisition include attracting new customers and pursuing partnerships as we expand our appraisal offerings to dealers. As we continue enhancing our online experience and offerings, we believe it is important to educate customers about our omni-channel platform and to differentiate and elevate our brand. For fiscal 2023, we expect our marketing spend per unit to be at least as much as fiscal 2022. We believe we are well positioned to continue gaining market share through our marketing

Page 35

strategies, which are focused on driving customer growth through building awareness and affinity for the brand and acquiring in-market shoppers and sellers.

In order to execute our long-term strategy, we plan to continue investing in various strategic initiatives to increase innovation, specifically with regards to customer-facing and customer-enabling technologies, as well as marketing. We are also focused on ensuring we are efficient in our spend, targeting specific areas where we expect to achieve more efficiencies and leverage, such as our CECs and stores. Our use of data is a core component of these initiatives and continues to be a strategic asset for us as we leverage data to enhance the customer experience and increase operational efficiencies.

For fiscal 2023, we would expect to require an increase beyond the 5% to 8% range of gross profit growth to lever SG&A as a percentage of gross profit. This is primarily driven by the timing of strategic investments and growth-related costs, as well as heightened inflationary pressures. While we expect to remain in investment mode over the next few years, we expect our leverage point to be lower after fiscal 2023.

We expect our diversified model, the scale of our operations, our investments and omni-channel strategy to provide a solid foundation for further growth. As a result, we have set the following long-term targets, which were disclosed in our Annual Report on Form 10-K for fiscal 2022:

•Sell between 2 million and 2.4 million vehicles through our combined retail and wholesale channels by fiscal 2026.

•Generate between $33 billion and $45 billion in revenue by fiscal 2026.

•Grow our nationwide share of the age 0- to 10 used vehicle market to more than 5% by the end of calendar 2025.

These ranges include our assessment of macroeconomic factors that could result in ongoing volatility in consumer demand.

In calendar 2021, we estimate we sold approximately 4.0% of the age 0- to 10-year old vehicles sold on a nationwide basis, an increase from 3.5% in calendar 2020. We estimate we sold approximately 4.9% of the age 0- to 10-year old vehicles sold in the current comparable store markets in which we operate in calendar 2021, an increase from 4.3% in 2020. Based on external data, we gained market share from January through April, the latest period for which title data is available. We believe we are well positioned to deliver profitable market share gains in any environment. Our strategy to increase our market share includes focusing on:

•Delivering a customer-driven, omni-channel buying and selling experience that is a unique and powerful integration of our in-store and online capabilities.

•Opening stores in new markets and expanding our presence in existing markets.

•Hiring, developing and retaining an engaged and skilled workforce.

•Improving efficiency in our stores and CECs and our logistics operations to reduce waste.

•Leveraging data and advanced analytics to continuously improve the customer experience as well as our processes and systems.

•Utilizing advertising to drive customer growth, educate customers about our omni-channel platform and to differentiate and elevate our brand.

As of May 31, 2022, we had used car stores located in 108 U.S. television markets, which covered approximately 86% of the U.S. population. The format and operating models utilized in our stores are continuously evaluated and may change or evolve over time based upon market and consumer expectations. During the first three months of fiscal 2023, we opened one store, and during the remainder of the fiscal year we plan to open nine stores.

While we execute both our short- and long-term strategy, there are trends and factors that could impact our strategic approach or our results in the short and medium term. For additional information about risks and uncertainties facing our company, see “Risk Factors,” included in Part I. Item 1A of the Annual Report on Form 10-K for the fiscal year ended February 28, 2022.

CRITICAL ACCOUNTING ESTIMATES

For information on critical accounting policies, see "Critical Accounting Estimates" in the MD&A included in Item 7 of the Annual Report on Form 10-K for the fiscal year ended February 28, 2022.

Page 36

RESULTS OF OPERATIONS – CARMAX SALES OPERATIONS AND OTHER NON-REPORTABLE SEGMENTS

NET SALES AND OPERATING REVENUES


	Three Months Ended May 31
(In millions)	2022		2021		Change
Used vehicle sales	$	7,014.5	$	6,157.3	13.9	%
Wholesale vehicle sales	2,116.5		1,374.4		54.0	%
Other sales and revenues:
Extended protection plan revenues	116.5		134.2		(13.2)	%
Third-party finance income/(fees), net	3.4		(4.6)		173.9	%
Advertising & subscription revenues (1)	34.4		—		100.0	%
Other	26.3		36.3		(27.3)	%
Total other sales and revenues	180.6		165.9		8.9	%
Total net sales and operating revenues	$	9,311.6	$	7,697.6	21.0	%

(1) Excludes intersegment sales and operating revenues that have been eliminated in consolidation. See Note 17 for further details.

UNIT SALES


	Three Months Ended May 31
	2022	2021	Change
Used vehicles	240,950	270,799	(11.0)	%
Wholesale vehicles	186,307	181,389	2.7	%

AVERAGE SELLING PRICES


	Three Months Ended May 31
	2022		2021		Change
Used vehicles	$	28,844	$	22,533	28.0	%
Wholesale vehicles	$	10,996	$	7,266	51.3	%

COMPARABLE STORE USED VEHICLE SALES CHANGES


	Three Months Ended May 31 (1)
	2022		2021
Used vehicle units	(12.7)	%	99.1	%
Used vehicle revenues	11.6	%	120.6	%

(1) Stores are added to the comparable store base beginning in their fourteenth full month of operation. We do not remove renovated stores from our comparable store base. Comparable store calculations include results for a set of stores that were included in our comparable store base in both the current and corresponding prior year periods.

VEHICLE SALES CHANGES


	Three Months Ended May 31
	2022		2021
Used vehicle units	(11.0)	%	100.6	%
Used vehicle revenues	13.9	%	121.0	%

Wholesale vehicle units	2.7	%	186.6	%
Wholesale vehicle revenues	54.0	%	300.9	%

Page 37

USED VEHICLE FINANCING PENETRATION BY CHANNEL (BEFORE THE IMPACT OF 3-DAY PAYOFFS)


	Three Months Ended May 31 (1)
	2022		2021
CAF (2)	43.3	%	46.7	%
Tier 2 (3)	25.2	%	22.8	%
Tier 3 (4)	7.1	%	10.0	%
Other (5)	24.4	%	20.5	%
Total	100.0	%	100.0	%

(1) Calculated as used vehicle units financed for respective channel as a percentage of total used units sold.

(2) Includes CAF’s Tier 2 and Tier 3 loan originations, which represent approximately 1% of total used units sold.

(3) Third-party finance providers who generally pay us a fee or to whom no fee is paid.

(4) Third-party finance providers to whom we pay a fee.

(5) Represents customers arranging their own financing and customers that do not require financing.

CHANGE IN USED CAR STORE BASE


	Three Months Ended May 31
	2022	2021
Used car stores, beginning of period	230	220
Store openings	1	2
Used car stores, end of period	231	222

During the first three months of fiscal 2023, we opened one store, representing our entry into the New York metro market (Edison, NJ).

Used Vehicle Sales. The 13.9% increase in used vehicle revenues in the first quarter of fiscal 2023 was primarily driven by a 28.0% increase in average retail selling price, partially offset by an 11.0% decrease in used unit sales. The decrease in used units included a 12.7% decrease in comparable store used unit sales. Online retail sales, as defined previously, accounted for 11% of used unit sales for the first quarter of fiscal 2023, compared with 8% for the first quarter of fiscal 2022.

During the first quarter of fiscal 2023, we believe a number of macroeconomic factors impacted our used unit sales performance, including the lapping of stimulus benefits paid in the prior year period, widespread inflationary pressures, including challenges to vehicle affordability, and declining consumer confidence. Comparable store used unit sales improved sequentially during the quarter from a double-digit decline in March to a low single-digit decline in May.

The increase in average retail selling price in the first quarter of fiscal 2023 reflected higher vehicle acquisition costs resulting from strong wholesale industry valuations.

Wholesale Vehicle Sales. Vehicles sold at our wholesale auctions are, on average, approximately 10 years old with more than 100,000 miles and are primarily comprised of vehicles purchased through our appraisal process that do not meet our retail standards. Our wholesale auction prices usually reflect trends in the general wholesale market for the types of vehicles we sell, although they can also be affected by changes in vehicle mix or the average age, mileage or condition of the vehicles being sold. During fiscal 2021, our wholesale auctions were moved to an online format in response to COVID-19 and continue to operate completely online.

The 54.0% increase in wholesale vehicle revenues in the first quarter of fiscal 2023 was primarily due to a 51.3% increase in average selling price as well as a 2.7% increase in unit sales. Wholesale volume was impacted by an unfavorable calendar shift in the quarter compared to the prior year quarter as well as our decision to shift units from wholesale to retail to meet consumer demand for lower priced vehicles. We estimate that without these two factors, our wholesale unit growth would have been above 10%. The increase in average selling price in the first quarter of fiscal 2023 was primarily due to increased acquisition costs resulting from continued strong industry valuations.

Other Sales and Revenues. Other sales and revenues include revenue from the sale of ESPs and GAP (collectively reported in EPP revenues, net of a reserve for estimated contract cancellations), net third-party finance income/(fees), advertising and subscription revenues earned by our Edmunds business, and other revenues, which are predominantly comprised of service

Page 38

department sales. The fees we pay to the Tier 3 providers are reflected as an offset to finance fee revenues received from the Tier 2 providers. The mix of our retail vehicles financed by CAF, Tier 2 and Tier 3 providers, or customers that arrange their own financing, may vary from quarter to quarter depending on several factors, including the credit quality of applicants, changes in providers’ credit decisioning and external market conditions. Changes in originations by one tier of credit providers may also affect the originations made by providers in other tiers.

Other sales and revenues increased 8.9% in the first quarter of fiscal 2023, reflecting the addition of Edmunds' revenue and an improvement in net third-party finance income, partially offset by a decrease in EPP revenue and a decline in new vehicle sales. Net third-party finance income improved as a result of lower Tier 3 originations. The decline in new car sales was driven by the divestiture of our remaining new car franchise in fiscal 2022. EPP revenues decreased 13.2%, reflecting the decline in our retail unit volume.

Seasonality. Historically, our business has been seasonal. Our stores typically experience their strongest traffic and sales in the spring and summer, with an increase in traffic and sales in February and March, coinciding with federal income tax refund season. Sales are typically slowest in the fall.

GROSS PROFIT


	Three Months Ended May 31 (1)
(In millions)	2022		2021		Change
Used vehicle gross profit	$	563.5	$	597.0	(5.6)	%
Wholesale vehicle gross profit	191.7		185.8		3.1	%
Other gross profit	120.2		141.7		(15.1)	%
Total	$	875.4	$	924.5	(5.3)	%

(1) Amounts are net of intercompany eliminations.

GROSS PROFIT PER UNIT


	Three Months Ended May 31 (1)
	2022			2021
	$ per unit(2)		%(3)	$ per unit(2)		%(3)
Used vehicle gross profit	$	2,339	8.0	$	2,205	9.7
Wholesale vehicle gross profit	$	1,029	9.1	$	1,025	13.5
Other gross profit	$	499	66.6	$	523	85.4

(1) Amounts are net of intercompany eliminations. Those eliminations had the effect of increasing used vehicle gross profit per unit and wholesale vehicle gross profit per unit and decreasing other gross profit per unit by immaterial amounts.

(2) Calculated as category gross profit divided by its respective units sold, except the other category, which is divided by total used units sold.

(3) Calculated as a percentage of its respective sales or revenue.

Used Vehicle Gross Profit. We target a dollar range of gross profit per used unit sold. The gross profit dollar target for an individual vehicle is based on a variety of factors, including its probability of sale and its mileage relative to its age; however, it is not primarily based on the vehicle’s selling price. Our ability to quickly adjust appraisal offers to be consistent with the broader market trade-in trends and the pace of our inventory turns reduce our exposure to the inherent continual fluctuation in used vehicle values and contribute to our ability to manage gross profit dollars per unit. Gross profit per used unit is consistent across our omni-channel platform.

We systematically adjust individual vehicle prices based on proprietary pricing algorithms in order to appropriately balance sales trends, inventory turns and gross profit achievement. Other factors that may influence gross profit include the wholesale and retail vehicle pricing environments, vehicle reconditioning and logistics costs, and the percentage of vehicles sourced directly from consumers through our appraisal process. Vehicles purchased directly from consumers generally have a lower cost per unit compared with vehicles purchased at auction or through other channels, which may generate more gross profit per unit. In any given period, our gross profit may also be impacted by the age mix of vehicles sold, as older vehicles are generally more profitable. We monitor macroeconomic factors and pricing elasticity and adjust our pricing accordingly to optimize unit sales and profitability while also maintaining a competitively priced inventory.

Page 39

Used vehicle gross profit decreased 5.6% in the first quarter of fiscal 2023, driven by the 11.0% decrease in total used unit sales, partially offset by the $134 increase in used vehicle gross profit per unit. We continue to focus on striking the right balance between covering cost increases, maintaining margin and passing along efficiencies to consumers to support vehicle affordability.

Wholesale Vehicle Gross Profit. Our wholesale gross profit per unit reflects the demand for older, higher mileage vehicles, which are the mainstay of our auctions, as well as strong dealer attendance and resulting high dealer-to-car ratios at our auctions. The frequency of our auctions, which are generally held weekly or bi-weekly, minimizes the depreciation risk on these vehicles. Our ability to adjust appraisal offers in response to the wholesale pricing environment is a key factor that influences wholesale gross profit.

Wholesale vehicle gross profit increased 3.1% in the first quarter of fiscal 2023, primarily driven by the 2.7% increase in wholesale unit sales.

Other Gross Profit. Other gross profit includes profits related to EPP revenues, net third-party finance income/(fees), advertising and subscription profits earned by our Edmunds business, and other revenues. Other revenues are predominantly comprised of service department operations, including used vehicle reconditioning. We have no cost of sales related to EPP revenues or net third-party finance income/(fees), as these represent revenues paid to us by certain third-party providers. Third-party finance income is reported net of the fees we pay to third-party Tier 3 finance providers. Accordingly, changes in the relative mix of the components of other gross profit can affect the composition and amount of other gross profit.

Other gross profit decreased 15.1% in the first quarter of fiscal 2023, primarily driven by a decline in service department margins as well as a decrease in EPP revenues, as discussed above, partially offset by the addition of Edmunds' gross profit of $20.0 million and improvement in net third-party finance income, as discussed above. The $30.9 million decline in service department profits was driven by deleverage resulting from the decline in retail unit sales as well as inflationary pressure.

Page 40

SG&A Expenses

COMPONENTS OF SG&A EXPENSES AS A PERCENTAGE OF TOTAL SG&A EXPENSES

Three Months Ended May 31, 2022

COMPONENTS OF SG&A EXPENSES COMPARED WITH PRIOR PERIOD (1)


	Three Months Ended May 31
(In millions except per unit data)	2022			2021			Change
Compensation and benefits:
Compensation and benefits, excluding share-based compensation expense	$	345.3		$	284.2		21.5	%
Share-based compensation expense	22.2			38.4			(42.1)	%
Total compensation and benefits (2)	$	367.5		$	322.6		13.9	%
Occupancy costs	65.8			50.6			30.2	%
Advertising expense	88.9			72.5			22.7	%
Other overhead costs (3)	134.5			108.4			24.0	%
Total SG&A expenses	$	656.7		$	554.1		18.5	%
SG&A as % of gross profit	75.0		%	59.9		%	15.1	%

(1) Amounts are net of intercompany eliminations.

(2) Excludes compensation and benefits related to reconditioning and vehicle repair service, which are included in cost of sales. See Note 11 for details of share-based compensation expense by grant type.

(3) Includes IT expenses, non-CAF bad debt, insurance, preopening and relocation costs, charitable contributions, travel and other administrative expenses.

SG&A expenses increased 18.5% in the first quarter of fiscal 2023. Factors contributing to the net increase include the following:

•$61.1 million increase in compensation and benefits expense, excluding share-based compensation expense, driven by increased staffing and wage pressures as well as the inclusion of Edmunds in the current quarter.

•$26.1 million increase in other overhead costs, driven by investments to advance our technology platforms and support our strategic initiatives, as well as growth related costs.

•$16.4 million increase in advertising expense driven by our previously communicated investment in advertising spend as well as last year's lower level of spend in the first quarter given our tight inventory position and robust consumer demand.

•$16.2 million decrease in stock-based compensation expense, primarily related to cash-settled restricted stock units, as the expense associated with these units was primarily driven by the change in the company's stock price during the relevant periods.

Page 41

Interest Expense. Interest expense includes the interest related to short- and long-term debt, financing obligations and finance lease obligations. It does not include interest on the non-recourse notes payable, which is reflected within CAF income.

Interest expense increased to $28.8 million in the first quarter of fiscal 2023 compared with $20.5 million in the first quarter of fiscal 2022. The increase primarily reflected higher outstanding debt balances in the current quarter, including the $700 million term loan issued in October 2021 and a higher outstanding revolver balance, as well as higher interest rates.

Other Expense (Income). Other expense was $2.1 million in the first quarter of fiscal 2023 compared with income of $25.6 million in the first quarter of fiscal 2022. The decrease was primarily due to net gains on an equity investment recorded during fiscal 2022.

Income Taxes. The effective income tax rate was 25.1% in the first quarter of fiscal 2023 versus 23.0% in the first quarter of fiscal 2022. The increase in the effective income tax rate was primarily driven by the difference in excess tax benefit related to settlements of share-based awards.

RESULTS OF OPERATIONS – CARMAX AUTO FINANCE

CAF income primarily reflects interest and fee income generated by CAF’s portfolio of auto loans receivable less the interest expense associated with the debt issued to fund these receivables, a provision for estimated loan losses and direct CAF expenses. Total interest margin reflects the spread between interest and fees charged to consumers and our funding costs. Changes in the interest margin on new originations affect CAF income over time. Increases in interest rates, which affect CAF’s funding costs, or other competitive pressures on consumer rates, could result in compression in the interest margin on new originations. Changes in the allowance for loan losses as a percentage of ending managed receivables reflect the effect of changes in loss and delinquency experience and economic factors on our outlook for net losses expected to occur over the remaining contractual life of the loans receivable.

CAF’s managed portfolio is composed primarily of loans originated over the past several years. Trends in receivable growth and interest margins primarily reflect the cumulative effect of changes in the business over a multi-year period. Historically, we have sought to originate loans in our core portfolio, which excludes Tier 2 and Tier 3 origination, with an underlying risk profile that we believe will, in the aggregate result in cumulative net losses in the 2% to 2.5% range (excluding CECL-required recovery costs) over the life of the loans. Actual loss performance of the loans may fall outside of this range based on various factors, including intentional changes in the risk profile of originations, economic conditions (including the effects of COVID-19) and wholesale recovery rates. Current period originations reflect current trends in both our retail sales and the CAF business, including the volume of loans originated, current interest rates charged to consumers, loan terms and average credit scores. Loans originated in a given fiscal period impact CAF income over time, as we recognize income over the life of the underlying auto loan.

CAF also originates a small portion of auto loans to customers who typically would be financed by our Tier 3 finance providers, in order to better understand the performance of these loans, mitigate risk and add incremental profits. Historically, CAF targeted originating approximately 5% of the total Tier 3 loan volume. During the first quarter of fiscal 2022, we increased our Tier 3 loan volume beyond our target of 5% of total Tier 3 loan volume to 10% by the end of the first quarter of fiscal 2022. Additionally, in the second quarter of fiscal 2022, CAF began to originate loans in the Tier 2 space on a test basis. Any future adjustments in Tier 2 and Tier 3 will consider the broader lending environment along with the long-term sustainability of the change. These loans have higher loss and delinquency rates than the remainder of the CAF portfolio, as well as higher contract rates.

See Note 4 for additional information on CAF income and Note 5 for information on auto loans receivable, including credit quality.

Page 42

SELECTED CAF FINANCIAL INFORMATION


	Three Months Ended May 31
(In millions)	2022		% (1)	2021		% (1)
Interest margin:
Interest and fee income	$	346.7	8.8	$	310.3	8.8
Interest expense	(48.8)		(1.2)	(65.8)		(1.9)
Total interest margin	$	297.9	7.5	$	244.5	6.9
Provision for loan losses	$	(57.8)	(1.5)	$	24.4	0.7
CarMax Auto Finance income	$	204.5	5.2	$	241.7	6.8

(1) Annualized percentage of total average managed receivables.

CAF ORIGINATION INFORMATION (AFTER THE IMPACT OF 3-DAY PAYOFFS)


	Three Months Ended May 31
	2022			2021
Net loans originated (in millions)	$	2,446.8		$	2,483.4
Vehicle units financed	94,663			118,363
Net penetration rate (1)	39.3		%	43.7		%
Weighted average contract rate	9.0		%	9.0		%
Weighted average credit score (2)	704			695
Weighted average loan-to-value (LTV) (3)	87.6		%	90.2		%
Weighted average term (in months)	66.3			66.3

(1) Vehicle units financed as a percentage of total used units sold.

(2) The credit scores represent FICO® scores and reflect only receivables with obligors that have a FICO® score at the time of application. The FICO® score with respect to any receivable with co-obligors is calculated as the average of each obligor’s FICO® score at the time of application. FICO® scores are not a significant factor in our primary scoring model, which relies on information from credit bureaus and other application information as discussed in Note 5. FICO® is a federally registered servicemark of Fair Isaac Corporation.

(3) LTV represents the ratio of the amount financed to the total collateral value, which is measured as the vehicle selling price plus applicable taxes, title and fees.

LOAN PERFORMANCE INFORMATION


	As of and for the Three Months Ended May 31
(In millions)	2022			2021
Total ending managed receivables	$	16,052.0		$	14,465.9
Total average managed receivables	$	15,817.0		$	14,148.7
Allowance for loan losses	$	458.2		$	379.5
Allowance for loan losses as a percentage of ending managed receivables	2.85		%	2.62		%
Net credit losses on managed receivables	$	32.6		$	7.2
Annualized net credit losses as a percentage of total average managed receivables	0.83		%	0.21		%
Past due accounts as a percentage of ending managed receivables	4.06		%	2.10		%
Average recovery rate (1)	73.7		%	64.7		%

(1) The average recovery rate represents the average percentage of the outstanding principal balance we receive when a vehicle is repossessed and liquidated, generally at our wholesale auctions. While in any individual period conditions may vary, over the past 10 fiscal years, the annual recovery rate has ranged from a low of 46% to a high of 71%, and it is primarily affected by the wholesale market environment.

Page 43

•CAF Income (Decrease of $37.3 million, or 15.4% in the first quarter of fiscal 2023)

◦The decrease in CAF income for the first quarter of fiscal 2023 reflects a year-over-year swing in the provision for loan losses as discussed below.

◦The increase in the provision for loan losses was partially offset by increases in the total interest margin and average managed receivables.

•Provision for Loan Losses

◦The provision for loan losses resulted in expense of $57.8 million in the first quarter of fiscal 2023 compared with income of $24.4 million in the first quarter of fiscal 2022.

◦The current quarter provision primarily reflected the expected lifetime losses on loans originated during the quarter, while the prior year quarter provision reflected the continued reduction of the reserve that was established at the start of the COVID-19 pandemic, reflecting favorable loan loss performance.

◦The allowance for loan losses as a percentage of ending managed receivables was 2.85% as of May 31, 2022, compared with 2.62% as of May 31, 2021 and 2.77% as of February 28, 2022. The increase in the allowance percentage from February primarily reflected the effect of the previously disclosed expansion of Tier 2 and Tier 3 originations within CAF’s portfolio.

•Total Interest Margin (Increased to 7.5% in the first quarter of fiscal 2023 from 6.9% in the first quarter of fiscal 2022)

◦The increase in the total interest margin percentage was primarily the result of lower funding costs as well as a $9.2 million benefit related to swaps not designated as hedges for accounting purposes.

•Loan Origination and Performance

◦The decrease in net loan originations in the first quarter of fiscal 2023 resulted from a decrease in used unit sales and the net penetration rate, partially offset by an increase in the average amount financed.

◦CAF net penetration in the first quarter of fiscal 2023 declined from the prior year period, largely reflecting an increase in the mix of customers utilizing outside financing.

◦The weighted average contract rate for the first quarter of fiscal 2023 was consistent with the prior year at 9.0% but increased significantly from 8.2% in the prior quarter. This increase was primarily due to higher rates charged to customers in response to the current interest rate environment.

◦The increase in past due accounts as a percentage of ending managed receivables for fiscal 2023 primarily reflected a return to pre-pandemic delinquency levels as well as impacts from our new system implementation in the prior year, which are expected to normalize during the current fiscal year.

◦The recovery rate in the first quarter of fiscal 2023 was above our historical range due to market appreciation.

PLANNED FUTURE ACTIVITIES

We anticipate opening a total of ten stores in fiscal 2023. During the first quarter of fiscal 2023, we entered the New York City metro market. We anticipate opening two more stores in this market in the second quarter, as well as in the next fiscal year. We currently estimate capital expenditures will total approximately $500 million in fiscal 2023, an increase from $308.5 million in fiscal 2022. The increase in planned capital spending in fiscal 2023 largely reflects long-term growth capacity initiatives for our auction, sales and production facilities in addition to continued investments in technology. We expect approximately 30% of our capital expenditures in fiscal 2023 will be focused on investments in technology.

FINANCIAL CONDITION

Liquidity and Capital Resources

Our primary ongoing cash requirements are to fund our existing operations, store expansion and improvement, CAF and strategic growth initiatives. Since fiscal 2013, we have also elected to use cash for our share repurchase program. Our primary ongoing sources of liquidity include funds provided by operations, proceeds from non-recourse funding vehicles and borrowings under our revolving credit facility or through other financing sources.

Page 44

We currently target an adjusted debt-to-total capital ratio in a range of 35% to 45%. Our adjusted debt to capital ratio, net of cash on hand, was at the middle of our targeted range for the first quarter of fiscal 2023. In calculating this ratio, we utilize total debt excluding non-recourse notes payable, finance lease liabilities, a multiple of eight times rent expense and total shareholders’ equity. Generally, we expect to use our revolving credit facility and other financing sources, together with stock repurchases, to maintain this targeted ratio; however, in any period, we may be outside this range due to seasonal, market, strategic or other factors.

Operating Activities. During the first three months of fiscal 2023, net cash provided by operating activities totaled $531.0 million, compared with cash used in operating activities of $111.9 million in the prior year period. Our operating cash flows are significantly impacted by changes in auto loans receivable, which increased $440.7 million in the current year period compared with $644.9 million in the prior year period.

The majority of the changes in auto loans receivable are accompanied by changes in non-recourse notes payable, which are issued to fund auto loans originated by CAF. Net issuances of non-recourse notes payable were $297.4 million in the current year period compared with $596.7 million in the prior year period and are separately reflected as cash from financing activities. Due to the presentation differences between auto loans receivable and non-recourse notes payable on the consolidated statements of cash flows, fluctuations in these amounts can have a significant impact on our operating and financing cash flows without affecting our overall liquidity, working capital or cash flows.

As of May 31, 2022, total inventory was $4.69 billion, representing a decrease of $433.5 million compared with the balance as of the start of the fiscal year. The decrease was primarily due to a decrease in vehicle units as well as a decrease in the average carrying cost of inventory as a result of a decline in acquisition costs.

The change in net cash provided by (used in) operating activities for the first three months of the current fiscal year compared with the prior year period reflected the changes in inventory and auto loans receivable, as discussed above, as well as changes in accounts receivable, partially offset by changes in accounts payable as well as a decrease in net earnings when excluding non-cash expenses, which include depreciation and amortization, share-based compensation expense and the provisions for loan losses and cancellation reserves.

Investing Activities. During the first three months of fiscal 2023, net cash used in investing activities totaled $99.0 million compared with $63.1 million in fiscal 2022. Capital expenditures were $94.8 million in the current year period versus $59.1 million in the prior year period. Capital expenditures primarily included store construction costs and store remodeling expenses as well as investments in technology. We maintain a multi-year pipeline of sites to support our store growth, so portions of capital spending in one year may relate to stores that we open in subsequent fiscal years.

As of May 31, 2022, 151 of our 231 used car stores were located on owned sites and 80 were located on leased sites, including 24 land-only leases and 56 land and building leases.

Financing Activities. During the first three months of fiscal 2023, net cash used in financing activities totaled $455.0 million compared with net cash provided by financing activities of $475.1 million in the prior year period. Included in these amounts were net issuances of non-recourse notes payable of $297.4 million compared with $596.7 million in the prior year period. Non-recourse notes payable are typically used to fund changes in auto loans receivable (see “Operating Activities”).

During the first three months of fiscal 2023, cash used in financing activities was impacted by stock repurchases of $163.0 million as well as net payments on our long-term debt of $585.9 million. During the first three months of fiscal 2022, cash provided by financing activities was impacted by stock repurchases of $133.8 million as well as net payments on our long-term debt of $2.6 million.

Page 45

TOTAL DEBT AND CASH AND CASH EQUIVALENTS


(In thousands)		As of May 31		As of February 28
Debt Description (1)	Maturity Date	2022		2022
Revolving credit facility (2)	June 2024	$	660,500	$	1,243,500
Term loan (2)	June 2024	300,000		300,000
Term loan (2)	October 2026	699,388		699,352
3.86% Senior notes	April 2023	100,000		100,000
4.17% Senior notes	April 2026	200,000		200,000
4.27% Senior notes	April 2028	200,000		200,000
Financing obligations	Various dates through February 2059	522,414		524,766
Non-recourse notes payable	Various dates through October 2028	15,764,161		15,466,799
Total debt (3)		$	18,446,463	$	18,734,417
Cash and cash equivalents		$	95,313	$	102,716

(1) Interest is payable monthly, with the exception of our senior notes, which are payable semi-annually.

(2) Borrowings accrue interest at variable rates based on the Eurodollar rate (LIBOR), or successor benchmark rate, the federal funds rate, or the prime rate, depending on the type of borrowing.

(3) Total debt excludes unamortized debt issuance costs. See Note 10 for additional information.

Borrowings under our $2.00 billion unsecured revolving credit facility are available for working capital and general corporate purposes, and the unused portion is fully available to us. The credit facility, term loans and senior note agreements contain representations and warranties, conditions and covenants. If these requirements are not met, all amounts outstanding or otherwise owed could become due and payable immediately and other limitations could be placed on our ability to use any available borrowing capacity. As of May 31, 2022, we were in compliance with these financial covenants.

See Note 10 for additional information on our revolving credit facility, term loans, senior notes and financing obligations.

CAF auto loans receivable are primarily funded through our warehouse facilities and asset-backed term funding transactions. These non-recourse funding vehicles are structured to legally isolate the auto loans receivable, and we would not expect to be able to access the assets of our non-recourse funding vehicles, even in insolvency, receivership or conservatorship proceedings. Similarly, the investors in the non-recourse notes payable have no recourse to our assets beyond the related receivables, the amounts on deposit in reserve accounts and the restricted cash from collections on auto loans receivable. We do, however, continue to have the rights associated with the interest we retain in these non-recourse funding vehicles.

As of May 31, 2022, $12.13 billion and $3.63 billion of non-recourse notes payable were outstanding related to asset-backed term funding transactions and our warehouse facilities, respectively. During the first three months of fiscal 2023, we funded a total of $1.75 billion in asset-backed term funding transactions. As of May 31, 2022, we had $1.77 billion of unused capacity in our warehouse facilities.

We have periodically increased our warehouse facility limit over time, as our store base, sales and CAF loan originations have grown. See Note 10 for additional information on the warehouse facilities.

We generally repurchase the receivables funded through our warehouse facilities when we enter into an asset-backed term funding transaction. If our counterparties were to refuse to permit these repurchases it could impact our ability to execute on our funding program. Additionally, the agreements related to the warehouse facilities include various representations and warranties, covenants and performance triggers. If these requirements are not met, we could be unable to continue to fund receivables through the warehouse facilities. In addition, warehouse facility investors could charge us a higher rate of interest and could have us replaced as servicer. Further, we could be required to deposit collections on the related receivables with the warehouse facility agents on a daily basis and deliver executed lockbox agreements to the warehouse facility agents.

The timing and amount of stock repurchases are determined based on stock price, market conditions, legal requirements and other factors. Shares repurchased are deemed authorized but unissued shares of common stock. In April 2022, our board of directors increased our share repurchase authorization by $2 billion. As of May 31, 2022, a total of $4 billion of board authorizations for repurchases was outstanding, with no expiration date, of which $2.62 billion remained available for repurchase. See Note 11 for more information on share repurchase activity.

Page 46

Fair Value Measurements

We recognize money market securities, mutual fund investments, certain equity investments and derivative instruments at fair value. See Note 7 for more information on fair value measurements.

FORWARD-LOOKING STATEMENTS

We caution readers that the statements contained in this report that are not statements of historical fact, including statements about our future business plans, operations, capital structure, opportunities, or prospects, including without limitation any statements or factors regarding expected operating capacity, sales, inventory, market share, online purchases of vehicles from consumers, gross profit per used unit, revenue, margins, expenditures, liquidity, loan originations, CAF income, stock repurchases, indebtedness, earnings, market conditions or expectations with regards to the continued impact of the COVID-19 pandemic, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “positioned,” “predict,” “target,” “should,” “will” and other similar expressions, whether in the negative or affirmative. Such forward-looking statements are based upon management’s current knowledge, expectations and assumptions and involve risks and uncertainties and assumptions about future events and involve risks and uncertainties that could cause actual results to differ materially from anticipated results. We disclaim any intent or obligation to update these statements. Among the factors that could cause actual results and outcomes to differ materially from those contained in the forward-looking statements are the following:

•The effect and consequences of the Coronavirus public health crisis on matters including U.S. and local economies; our business operations and continuity; the availability of corporate and consumer financing; the health and productivity of our associates; the ability of third-party providers to continue uninterrupted service; and the regulatory environment in which we operate.

•Changes in general or regional U.S. economic conditions, including the potential impact of Russia's invasion of Ukraine.

•Changes in the availability or cost of capital and working capital financing, including changes related to the asset-backed securitization market.

•Changes in the competitive landscape and/or our failure to successfully adjust to such changes.

•Events that damage our reputation or harm the perception of the quality of our brand.

•Our inability to realize the benefits associated with our omni-channel initiatives and strategic investments.

•Our inability to recruit, develop and retain associates and maintain positive associate relations.

•The loss of key associates from our store, regional or corporate management teams or a significant increase in labor costs.

•Security breaches or other events that result in the misappropriation, loss or other unauthorized disclosure of confidential customer, associate or corporate information.

•Significant changes in prices of new and used vehicles.

•Changes in economic conditions or other factors that result in greater credit losses for CAF’s portfolio of auto loans receivable than anticipated.

•A reduction in the availability of or access to sources of inventory or a failure to expeditiously liquidate inventory.

•Changes in consumer credit availability provided by our third-party finance providers.

•Changes in the availability of extended protection plan products from third-party providers.

•Factors related to the regulatory and legislative environment in which we operate.

•Factors related to geographic and sales growth, including the inability to effectively manage our growth.

•The failure of or inability to sufficiently enhance key information systems.

•The performance of the third-party vendors we rely on for key components of our business.

•The effect of various litigation matters.

•Adverse conditions affecting one or more automotive manufacturers, and manufacturer recalls.

Page 47

•The failure or inability to realize the benefits associated with our strategic transactions.

•The inaccuracy of estimates and assumptions used in the preparation of our financial statements, or the effect of new accounting requirements or changes to U.S. generally accepted accounting principles.

•The volatility in the market price for our common stock.

•The failure or inability to adequately protect our intellectual property.

•The occurrence of severe weather events.

•Factors related to the geographic concentration of our stores.

For more details on factors that could affect expectations, see Part II, Item 1A, “Risk Factors” on Page 50 of this report, our Annual Report on Form 10-K for the fiscal year ended February 28, 2022, and our quarterly or current reports as filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”). Our filings are publicly available on our investor information home page at investors.carmax.com. Requests for information may also be made to our Investor Relations Department by email to investor_relations@carmax.com or by calling 1-804-747-0422, ext. 7865. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

Page 48

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to our market risk since February 28, 2022. For information on our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the fiscal year ended February 28, 2022.

Item 4. Controls and Procedures

Disclosure. We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that this information is accumulated and communicated to management, including the chief executive officer (“CEO”) and the chief financial officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, with the participation of the CEO and CFO, we evaluated the effectiveness of our disclosure controls and procedures. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period.

Internal Control over Financial Reporting. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended May 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Page 49

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of certain legal proceedings, see Note 16 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

In connection with information set forth in this Form 10-Q, the factors discussed under “Risk Factors” in our Form 10-K for fiscal year ended February 28, 2022, should be considered. These risks could materially and adversely affect our business, financial condition, and results of operations. There have been no material changes to the factors discussed in our Form 10‑K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On October 23, 2018, the board authorized the repurchase of up to $2 billion of our common stock with no expiration date. In April 2022, the board increased our share repurchase authorization by $2 billion. Purchases may be made in open market or privately negotiated transactions at management's discretion and the timing and amount of repurchases are determined based on stock price, market conditions, legal requirements and other factors. Shares repurchased are deemed authorized but unissued shares of common stock.

The following table provides information relating to the company's repurchase of common stock for the first quarter of fiscal 2023. The table does not include transactions related to employee equity awards or exercise of employee stock options.


					Approximate
					Dollar Value
				Total Number	of Shares that
	Total Number	Average		of Shares Purchased	May Yet Be
	of Shares	Price Paid		as Part of Publicly	Purchased Under
Period	Purchased	per Share		Announced Program	the Program
March 1 - 31, 2022	521,818	$	101.14	521,818	$	721,729,935
April 1 - 30, 2022	539,042	$	93.60	539,042	$	2,671,275,942
May 1 - 31, 2022	583,500	$	93.13	583,500	$	2,616,932,647
Total	1,644,360			1,644,360

Page 50

Item 6. Exhibits


31.1			Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a), filed herewith.

31.2			Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a), filed herewith.

32.1			Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.

32.2			Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.

101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH			XBRL Taxonomy Extension Schema Document

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF			XBRL Taxonomy Extension Definition Linkbase Document

101.LAB			XBRL Taxonomy Extension Label Linkbase Document

101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

104			Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

Page 51

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



CARMAX, INC.


By:			/s/ William D. Nash
			William D. Nash
			President and
			Chief Executive Officer


By:			/s/ Enrique N. Mayor-Mora
			Enrique N. Mayor-Mora
			Executive Vice President and
			Chief Financial Officer

June 27, 2022

Page 52