America's Car-Mart, Inc.

Good morning, everyone. Thank you for holding, and welcome to America's Car-Mart second quarter fiscal 2020 conference call. The topic of this call will be the earning and operating results for the company's second quarter for fiscal 2020. Before we begin, I would like to remind everyone that this call is being recorded and will be available for replay for the next 30 days. The dial-in number and access information are included in last night's press release. which can be found on America's Car-Mart's website at www.carmart.com. As you all know, some of management's comments today may include forward-looking statements which inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The company cannot guarantee the accuracy of any forecast or estimate, nor does it undertake any obligation to update such forward-looking statements. For more information regarding forward-looking information, please see Part 1 of the company's annual report on Form 10-K for the fiscal year ended April 30, 2019, and its current and quarterly reports furnished to or filed with the Securities Exchange Commission on Forms 8-K and 10-Q. Participating on the call this morning are Jeff Williams, the company's president and chief executive officer, and Vickie Judy, chief financial officer. And now I'd like to turn the call over to the company's chief executive officer, Jeff Williams.

Okay. Well, thank you for joining us, and thank you for your interest in America's Car-Mart. We are pleased to report another good, solid quarter. The results were expected and provide further validation that the hard work of our associates focusing on the basics and taking care of customers gives our business model real, sustainable power. The market we serve is large and fragmented, and consumer demand for great service and peace of mind for local transportation needs is very high, and we have an obligation to grow our customer count at a rate that's in line with our ability to serve at the highest operational levels. The customer experience starts and ends with the vehicle, and we pledge to do everything we can to keep our customers on the road with quality vehicles and great customer service after the sale. We will continue to educate consumers about the financial benefits of our offering in the market with our lower interest rates, shorter terms, and our focus on putting valued customers in an equity position, along with the peace of mind of knowing that that we have a real sense of urgency from top to bottom to keep customers on the road. Our customers' overall quality of life is better when they're part of the Car-Mart family. I'll now turn it over to Vickie to go over some numbers. Vickie?

Good morning. As Jeff mentioned, we had a solid quarter with record revenues of $190 million. This resulted from a 14.6% increase in sales and an 8.7% increase in interest income. Same store revenues were up 12.2%. We had a great selection of quality vehicles, and our associates did a great job of helping customers get into a vehicle to fit their needs. The investment that we've made in inventory, an additional $8.8 million since last October, is contributing to higher sales volumes by attracting more potential customers, including our repeat customers. We saw solid increases across all ages of dealerships. Revenues from stores in the over 10 years of age category was up 13%, stores in the 5 to 10 year category was up 12%, and revenues for stores in the less than 5 years of age category was about 43% to $21 million. Retail units sold increased by 8.7% and the average retail sales price increased by 5.1% to $11,589 compared to $11,030 last year. At quarter end, 20 or 14% of our dealerships were from 0 to 5 years old, 39 or 27% were from 5 to 10 years old, and the remaining 86 dealerships were 10 years old or older. Our overall productivity was 31.6 units per lot per month, up 6.4% from 29.7. Our 10-year plus lots produced 34.2 units sold per month per lot for the quarter compared to 31.9 for the prior year quarter. Lots in the 5-10 year category produced 29.4 compared to 27.7 for the prior year. And the lots less than 5 years of age had productivity of 25.2 compared to 25.1 for the second quarter of last year. Our down payment percentage was up slightly to 6% compared to 5.8 for the prior year quarter. Collections as a percentage of average finance receivables was up 30 basis points to 13.3%. We did see some slight increases in term primarily due to the increasing average selling price. The average originating contract term was 30.4 months compared to 29.2 for the prior year quarter and up from 29.9 months sequentially. But again, the average selling price was up $559 with a 1.2-month increase in term. Our weighted average contract term for the entire portfolio, including modifications, was 32.3 months compared to 32.1 for the prior year October. The weighted average age of the portfolio was basically flat at approximately nine months. Interest income increased $1.8 million, or 8.7%, compared to the prior year quarter, primarily due to the $44.2 million increase in average finance receivables, an 8.3% increase. The weighted average interest rate for all finance receivables at the end of the quarter was approximately 16.4%, flat from the prior year quarter. The gross profit percentage for the second quarter was 40.5% compared to 41.7% for the prior year quarter, but basically flat compared to the prior two sequential quarters. This is primarily a result of the higher average selling price as our gross margin percentages are lower at a higher selling price. While we did sell a few more SUVs compared to the prior year, most of the increase relates to selling an overall higher cost vehicle as a result of our focus on quality inventory and the overall strength of the used car values in our market. Our gross profit margin dollars per unit sold increased by $116 or 2.4% to $4935 compared to $4819 per unit in the prior year. SG&A for the quarter was up $2.1 million, or 16.9% of sales compared to 17.9% for the prior year quarter, and at 57.4% of total revenues, less cost of sales, and the provision for credit losses compared to 60.5% for the prior year quarter. This 310 basis point improvement is important as a large part of our efforts have been focused on keeping good customers and driving down credit losses. So this measurement is important for our integrated sales and finance business. We believe the investments that we are making in our associates, systems, and infrastructure are essential to continuing operational improvements. The increased SG&A spend was mostly related to salaries and benefits, including stock-based compensation, as we are making long-term investments focused on recruiting and developing great associates and an infrastructure to support a growing customer base. We added over 4,500 customers since this time last year and 1,700 this quarter. We continue to stay focused on efficiencies and cost controls while continuing to invest for the long term. For the current quarter, our net charge-off as a percentage of average finance receivables was 6.1%, down from 6.6% in the prior year second quarter. We continued to see both improvement in both the frequency and severity of losses compared to the prior year as a result of the higher quality vehicle, improved deal structures, and the consistent focus on our operational non-negotiables related to collections practices. We will stay focused on these while ensuring that we provide great customer service after the sale to keep customers in their car and on the road. The improved collections of 30 basis points better contributed to the decreased severity of the losses. Recovery rates for the quarter were slightly lower than the first quarter of fiscal 20, but approximately flat compared to the same quarter last year. The effective income tax rate was 22.7% for the second quarter compared to 20.1% for the prior year second quarter. Income tax expense does include an income tax benefit of $140,000 and $543,000 related to share-based compensation for the current quarter and the prior year quarter respectively. It's about a $0.06 per share change. We expect our base effective tax rate to be approximately 24% going forward prior to any excess tax benefits from stock option exercises. At quarter end, our total debt was approximately $177 million. We had over $63 million in additional availability under our credit facilities. Our current debt-to-equity ratio is 63.6%, and our debt-to-finance receivables is 30.1%. We did repurchase 112,091 shares during the quarter for approximately $10 million at an average cost of $89 per share. Since 2010, we've repurchased approximately 54% of our company for $239 million at an average price of approximately $38 per share. We continue to have strong cash flows. For the six months, we have added $43.8 million in finance receivables repurchased $14.7 million of common stocks, funded $1.7 million in CapEx, and increased inventory by $10.6 million. This is a total of $70.8 million with only a $24.1 million increase in debt. Thank you, and I'll turn it back to Jeff.