America's Car-Mart, Inc.

Good morning, everyone. Thank you for holding, and welcome to America's Car-Mart's third quarter fiscal 2020 conference call. The topic of this call will be the earnings and operating results for the company's third 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.car-mart.com. As you all know, some of our 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. In its current and quarterly reports, Furnace 2 or filed with the Securities Exchange Commission on Forms 8-K and 10-Q. Participating on this 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 this morning. It is good to see us pick up market share and serve more customers with our continuing efforts to leverage our existing footprint with the many talented, smart, and hardworking associates that we have at all levels in our company. We will continue to invest in our business and especially in our people as we move forward to provide outstanding advancement opportunities for our hardworking associates. Our general managers and their staffs are really upping our game in the field by focusing on the customer experience, starting with a vehicle, and then by providing outstanding service after the sale to keep our customers on the road, a peace of mind that only Car-Mart can give. Our vision is to be America's best auto sales and finance company in the eyes of our associates and customers while improving the communities we serve. There is tremendous demand for our offering, and we have an obligation to serve more customers at the highest levels because we believe that their lives are better when they're part of our Car-Mart family. I'll now turn it over to Vickie to go over some numbers. Vickie?

Good morning. We were pleased to see a revenue increase of 15.9% up to $187 million. This resulted from a 16.8% increase in sales of 11% increased volumes and 5% average sales price increase. We also had a 10.5% increase in interest income. We're very happy to see same-store revenues up 15.1%. Revenues from stores in the over-10-years-of-age category was up 14%. Stores in the 5- to 10-year category was up 19%. and Revenues for Stores in the less than five years of age category was up about 47% to about 17 million. At quarter end, 18 or 12% of our dealerships were from zero to five years old, 41 or 28% were from five to 10 years old and the remaining 86 were 10 years old or older. Our overall productivity was 30.6 units per lot per month, up almost 10% from 27.9 compared to the prior year quarter. Our 10-year plus lots produced 33.1 units per month per lot for the quarter compared to 30.4 for the prior year quarter. Lots in the 5- to 10-year category produced 28.6 compared to 26.9, and the lots less than 5 years of age had productivity of 23.4 compared to 20.7 for the third quarter of last year. Our down payment percentage was basically flat compared to the prior year quarter and collections as a percentage of average finance receivables was flat at 13.2% but up on a relative basis due to the increase in term. Our term increase was primarily due to the increasing average selling price of the car. The average originating contract term for the quarter was 30.8 months compared to 29.4 for the prior year quarter and up from 30.4 months sequentially. The average selling price was up $604 with that 1.4-month increase in the term. Our weighted average contract term for the entire portfolio, including modifications, was 32.5 months compared to 32 months for the prior year. And the weighted average age of the portfolio is flat at nine months. Interest income increased $2.2 million or 10.5% compared to the prior year, primarily due to $55.9 million increase in finance receivables at a 10.4% 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. Gross profit per retail unit sold increased by $84 to $4,938, a 1.7% increase compared to the prior year quarter. The gross profit percentage was 40.3% compared to 41.5% for the prior year quarter and down just slightly from the sequential quarter. Again, the average selling price increased $604 over the prior year quarter, and gross margin percentages are lower at higher selling prices. The majority of the selling price increase relates to the overall strength of the used car values in our market and a continuing effort to buy a high-quality vehicle. We did see a slight increase in the number of SUVs sold over the prior year quarter. We have increased our quality and our selection of vehicles to meet customers' needs during the upcoming tax refund season with an additional $6 million investment in inventory, most of which relates to increased quantities. With these increased investments in inventory, both volume and quality, it's essential that we stay very efficient in our operational processes. SG&A for the quarter was up $3.8 million, 18.6% of sales compared to 18.9% for the prior year quarter. and 61.9% of total revenues plus cost of sales and provision for credit losses compared to 60.5% for the prior year quarter. Most of the increase is due to payroll costs for additional associate accounts as well as continued investments in pay, benefits and training. The current quarter did have approximately $357,000 of additional stock compensation expense compared to the prior year quarter. These investments are being made to ensure that we can service a growing customer base at the highest level and earn their repeat business. We believe the investments that we're making in our associates, our systems, and the infrastructure are essential to continuing operational improvements and being prepared to take care of our customers. We added over 5,100 customers since this time last year and over 1,300 this quarter. will always continue to stay focused on efficiencies and cost control while continuing to invest for the long term. For the current quarter, net charge-offs as a percentage of average finance receivables was 5.9%, down from 6.2% in the prior year third quarter. We continue to see improvement in both the frequency and the severity of losses compared to the prior year as a result of a higher quality vehicle, improved deal structures, and our focus on the operational non-negotiables related to collections. Recovery rates for the quarter were slightly lower than the third quarter of 19 and approximately flat compared to the sequential quarter. Our effective income tax rate was 19% for the third quarter compared to 23.7% for the prior year quarter. The income tax expense did include an income tax benefit of $922,000 and $41,000 related to share-based compensation for the current quarter and the prior year quarter, respectively, or about 13 cents per diluted share. 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 $184 million, and we had over $56 million in additional availability under our revolving credit facilities. Our debt to equity ratio is 63.2% and our debt to finance receivables ratio is 30.3%. This was compared to 31.4% at this time last year. We did repurchase 12,384 shares of our company during the quarter for $1.1 million at an average of $91 per share. Since 2010, we've repurchased approximately 54% of the company for $240 million at an average price of $38 per share. We continue to have very strong cash flows. For the first nine months, we've added $64.2 million in finance receivables, repurchased $15.8 million of common stock, funded $3.2 million in net capital expenditures, and increased inventory by $16.5 million, a total of $99.7 million with only a $31.3 million increase in debt. Thank you, and I'll turn it back to Jeff now.