America's Car-Mart, Inc.

Good morning, everyone. Thank you for holding, and welcome to America's Car-Mart's fourth quarter fiscal 2020 conference call. The topic of this call will be the earnings and operating results for the company's fourth 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 online on America's Car Mart's website at www.car-mart.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 that 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 this morning, and thank you for your interest in America's Car-Mart. With the pandemic hitting us in mid-March, we quickly set our priorities and went to work. Priority number one was, is, and always will be the health and safety of our associates, our customers, and our communities. We are focused on trying to go over and above federal, state, and local guidelines, which were literally changing by the hour for several weeks. Even though we most certainly consider what we do to be essential, it took several weeks to adjust to the various operating restrictions related to minimizing the spread of the coronavirus. As we determined that we could provide a safe and healthy working environment, our next priority was protecting our balance sheet while trying to get clarity on the recipients, the magnitude, and the timing of any stimulus funds, and then predict consumer behavior when those funds actually reach pocketbooks. We are very confident in our business model and in our future. but we really focused on getting through this without damaging our balance sheet so that we could really be in a good spot when things returned to normal. With significant disruptions in the supply chain and projected decreases in consumer demand, we focused on the opportunity to reset our inventory with the potential to purchase better cars for the same or less money and then pass that value on to our customers. Our vehicle supply chain remains somewhat stressed and consumer demand for our offering has been strong, so we will continue to strengthen our procurement processes as we move forward. We are currently light in some spots with our inventory, but expect good progress with the initiatives that we started prior to the pandemic. We are actually starting this new fiscal year with about the same inventory investment that we had at the beginning of fiscal year 20. For almost 40 years now, we've been working with credit challenge customers by putting them in good, mechanically sound vehicles and then working with them through life's challenges after the sale. Our captive lending structure combined with the character lending nature of our business allows us the opportunity to form deep, long-lasting personal relationships with our customers. We give our customers peace of mind and as related to their local transportation needs by keeping them on the road. We take the stress out of one area of their life, and for that, they place great value on what we offer the market. It is a big responsibility on our shoulders to hold up our end of that bargain, but that is our purpose, our vision, and that is what we've dedicated our lives to here at America's Car-Mart. We have successfully navigated through many challenges over the years, and the pandemic has given us one more opportunity to prove how valuable we are in difficult times. We have always worked with one customer at a time because each situation is different and that will always be our approach. The pandemic has presented an opportunity to us to really walk the walk and we're very proud of how our team has responded. Now I will turn it over to Vickie to go over the numbers. Vickie?

Well, good morning, everyone. Thank you, Jeff. We ended the quarter with a revenue increase of 10.6% up to $196 million. These were record revenues despite half of the quarter being impacted from the COVID-19 pandemic. We actually had a really great start to the quarter and a successful tax time prior to the start of the pandemic. The increased revenues resulted from a 10.1% increase in sales, Volumes were up 1.7% combined with a 9.8% average selling price increase and a 14.9% increase in interest income. Same store revenues were up 8.6%. Revenues from stores in the over 10 years of age category was up 7%. Stores in the 5 to 10 year category was up 10%. and revenues for stores in the less than five years of age category was up about 49% to 16 million. At quarter end, 17 or 12% of our dealerships were from zero to five years old, 43 or 29% were from five to 10 years old, with the remaining 87 being 10 years old or older. Our overall productivity was 30.2 units per lot per month, compared to 30.3 for the prior year quarter. Our 10-year plus lots produced 32.7 units sold per lot per month compared to 32.8 for the prior year quarter. Lots in the five to 10-year category produced 28.1 compared to 28.3, and lots less than five years of age had productivity of 23.1 compared to 21.8 for the fourth quarter of last year. Our down payment percentage was 7.8% compared to 8.2%, and collections as a percentage of average finance receivables was at 15% compared to 16% for the prior year comparable quarter. The extension in term, primarily due to the increasing average selling price, accounted for approximately 40% of the decline in collections, with the remaining primarily attributable to the increased delinquencies and modifications as a result of COVID-19. The average originating term was 31.8 months compared to 29.8 for the prior year quarter and also up from 30.8 months sequentially. The average selling price was up $1,103 with a corresponding two-month increase in the term. Our weighted average contract term for the entire portfolio including modifications was at 33.3 months compared to 32.1 for the prior year. The weighted average age of the portfolio was basically flat at nine months. Interest income increased 3.1 million or 14.9% compared to the prior year quarter, primarily due to the 73.6 million increase in average finance receivables at a 13.6% 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 $377 to $52.32 or 7.8% compared to the prior year fourth quarter. The gross profit percentage was 40.5% compared to 40.7% for the prior year quarter and up slightly from the sequential quarter at 40.3%. The increased average selling price results in lower gross margin percentages but higher gross margin dollars, as our gross margin percentages are lower at a higher selling price. The majority of the vehicles sold during the quarter were purchased prior to the beginning of the pandemic. However, with lower vehicle purchase prices in the market since the pandemic, We feel we will be able to purchase a slightly newer vehicle with fewer miles for approximately the same purchase price, which we hope will eventually result in more of a leveling off of the average selling price. We did see a slight increase in the number of SUVs sold in this quarter over the prior year quarter as well. While we did hold off on inventory purchases for a period of time to preserve cash flow and until we had some clarity on restrictions and sales volumes during the pandemic. We do expect to have some good opportunities moving forward to purchase quality vehicles at a better value. SG&A for the quarter was up $2.3 million compared to the prior year quarter at 17.7% of sales compared to 18%. The increased spend over the prior year quarter is primarily due to payroll costs for additional associate count, as well as investments in pay, benefits, and training. As a reaction to COVID-19, we did significantly reduce expenses, including part-time and hourly payroll, as well as other non-associate related expenses. We were expecting even better leveraging for the quarter prior to the disruption related to the pandemic. The health and safety of our associates and customers was priority. However, we also focused on maintaining workforce engagement with no disruption to associate benefits so that we can adjust quickly as business returns to normal. For the current quarter, net charge-offs as a percentage of average finance receivables was 5.6%, down from 6.4% in the prior year fourth quarter. For the safety and concern of our customers and our associates, we did suspend personal visits and repossession efforts for a period of time during the pandemic. We're working diligently to get in contact with customers and help them through this process if possible. We've started back our personal visits and certain repossession activities recently, and we've also begun testing additional outreach with our customers during these changing times with some interactive texting and emails. Again, all in an effort to work through issues and keep customers in their vehicles. COVID-19 has impacted many of our customers and resulted in increased past due amounts with 30 plus past due at 6.2% compared to 2.9% in the prior year fourth quarter. As a result, we did increase our allowance for credit losses from 24.5% to 26.5% which amounted to an $11.7 million pre-tax charge to the provision in the fourth quarter. Our company has been built on helping customers through difficult times and our associates are demonstrating their dedication to this mission. The effective tax rate was 15% for the fourth quarter. The fiscal 20 compared to 20.5% for the prior year quarter. Income tax expense included an income tax benefit of $160,000 and $434,000 related to share-based compensation for the current quarter and the prior year quarter, respectively. We expect our base effective tax rate to be approximately 23.5% going forward prior to any excess tax benefits from stock option exercises. We continue to have strong cash flows and a solid balance sheet. At quarter end, our total debt was approximately $216 million. We had $60 million in cash and over $23 million in additional availability under our revolving credit facilities. Our current debt net of cash to finance receivables ratio is 25.1% compared to 27.8% at this time last year. For the year, we added $77.9 million in finance receivables. We repurchased $16 million of our common stock. We funded $5.5 million in net capital expenditures for a total spend of $99.4 million with only a $4.8 million increase in debt and out of cash. Thank you. Now I'll turn it back to Jeff.