America's Car-Mart, Inc.

Good morning, everyone. Thank you for holding and welcome to America's Car-Mart second quarter fiscal 2021 conference call. The topic of this call will be the earnings and operating results for the company's second quarter for fiscal 2021. Before we begin, I would like to remind everyone that this call is being recorded and it 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, 2020. And its current and quarterly reports furnished to or filed with the Securities Exchange Commissions on Forms 8K, and 10Q. 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, good morning, and thank you for joining us. As we've been in our press release, Our disciplined, focused approach is getting us through the many challenges of 2020. Our business is moving forward at an accelerating pace, improving the resiliency and the value of our model when you have 2,000 dedicated associates all pulling in the same direction. We're making significant investments in the key areas of the business and laying the groundwork for our future growth. The supply-demand imbalance in the used vehicle market, especially at the lower price points, is real and has resulted in some volume challenges but has also led to meaningful increases in revenue. Our procurement initiatives are targeted to give us some relief and to be able to better control our own destiny on the supply side. The market we serve is large and fragmented. Consumer shopping preferences and expectations are changing. and the rate of change is accelerating and we're committed to reinventing and reinvesting in the business in order to adapt and prepare us for the long term. Our business continues to both generate significant cash flow and increase borrowing capacity and at the same time maintaining a very conservative balance sheet which will enable us to continue to solidify our place in the world and prepare us to serve a much larger customer base. Again, we're making significant investments in the areas of customer experience, inventory procurement, and recruiting and training. Improvements in these key areas will help us drive increased traffic and productivity. Technology and systems upgrades will also be invested in to support these initiatives and provide a solid foundation for future growth. We continue to look. and the ability to make key customer decisions locally is extremely important to our success. We're aggressively addressing changes in consumer buying preferences and building out an efficient, seamless, digital and customer-friendly sales process that will compare favorably with alternatives. As our infrastructure strengthens, we will aggressively market our lower total cost of ownership advantage and will more heavily promote the real but intangible benefit that customers realize when they're part of the Car-Mart family. We give customers peace of mind by keeping them on the road. We take the stress out of one area of our customers' lives, and we believe strongly that we have an obligation to serve significantly more customers over time. I'll now turn it over to Vickie to go over some numbers. Vickie?

Thank you, Jeff. Good morning, everyone. We had another record quarter in terms of revenues and net income. Our total revenue increased 17.4% up to $223 million. The increased revenues resulted primarily from an increase in sales, due to a 15.3% increase in the average sales price and a 1.9% increase in retail units sold. Interest income also increased by 18.2%, and same-store revenues were up 12.8%. Revenues from the stores in our over 10 years of age were up 13%. Stores in the 5- to 10-year category were up 16%. and revenues for stores less than five years of age were up to about 21 million. Although we did have improving sales volumes during the quarter, volumes continue to be impacted by the top supply of inventory, particularly at the lower price points. At quarter end, 17 or 11% of our dealerships were from zero to five years old. 42 or 28% were from five to 10 years old. and the remaining 91 were 10 years of age or older. Our overall productivity was 31.2 units per lot per month compared to 31.6 for the prior year quarter. The 10-year plus lots produced 33 units per month per lot compared to 33.9 for the prior year quarter. Lots in the 5 to 10-year age category produced 28.8 compared to 29.2 and lots less than five years of age had productivity of 27 compared to 23.3 for the second quarter of last year. Our down payment percentage improved with up to 6.4% compared to 6% for the prior year quarter. Collections as a percentage of average finance receivables were at 12.9% compared to 13.3% for the prior year quarter. This was primarily due to the extension in the average contract term and partially offset by improved collections on our delinquent accounts. The average originating contract term was 33.8 months compared to 30.4 months for the prior year quarter and up also from 32.4 months sequentially. The average selling price was up $1,776 with only a 3.4-month increase and the term compared to the prior year's second quarter. Our average monthly payment is approximately $432. Our weighted average contract term for the entire portfolio, including modifications, was 34.7 months compared to 32.3 months for the prior year. And the weighted average age of the portfolio was basically flat at approximately nine months. Interest income increased $4.1 million, or 18.2%, compared to the prior year quarter, primarily due to the $92.8 million increase in average finance receivables, a 16% 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 $770 up to $57.05. This was 15.6% compared to the prior year quarter. The gross profit percentage was 40.7% compared to 40.5% for the prior year quarter, but down from the sequential quarter at 41.7%. The improvement in gross profit resulted from improved wholesale margins, which was due to the strong demand and the low supply of the lower priced units. It's partially offset by the lower margin on the retail units. An increasing average selling price results in a lower gross margin percentage but higher gross margin dollars per unit. Our gross margin percentages are lower at a higher selling price. The mix of the type of vehicle sold was fairly consistent. SUV sales increased approximately 3% over the prior year quarter. Our inventory volumes are back up to pre-pandemic levels to support higher sales volumes as we move toward tax time. SG&A for the quarter was up $4.2 million compared to the prior year quarter. but down as a percentage of sales to 16.5% compared to 16.9% for the prior year quarter. SG&A as a percentage of total revenues, less cost of sales, and the provision for credit losses was 51.8% compared to 57.4% for the prior year quarter. This metric is very important for us as an integrated auto sales and finance business A large part of our efforts in SG&A spend are focused on keeping good customers on the road and driving down credit losses. We're making good progress on our initiatives of revamped procurement efforts with preferred vendors, purchases from rental car companies, and reconditioning efforts, and our customer service efforts in the digital area and approved service contracts, along with the continued investments in recruiting and training of our associates. all of these with the goal of great customer service and increasing the number of customers that we can serve at each dealership. For the current quarter, net charge-offs as a percentage of average finance receivables was 4.7%, down from 6.1% in the prior year second quarter. We saw improvements in delinquent accounts, and our accounts 30-plus past due was at 2.5% compared to 3.5% in the prior year quarter. At the end of the fourth quarter, we did increase our allowance for credit losses to 26.5% related to the uncertainty of COVID and the macroeconomic environment. Although our portfolio is solid and our credit loss results are positive, there continues to be much uncertainty caused by COVID-19 and its potential impact on our customers, our collections, repossession, and the overall economic environment as we move forward. The effective income tax rate was 23.6% for the second quarter compared to 22.7% for the prior year quarter. Income tax expense included an income tax benefit of $240,000 and $140,000 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 $214 million. We had $19.5 million in cash and over $27 million in additional availability under our revolving credit facilities. Our current debt, net of cash, to finance receivables ratio is 28% compared to 29.7% at this time last year. During the quarter, we added $49.4 million in finance receivables. We funded $2.2 million in net capital expenditures. We increased inventory by $11.2 million, or a total of $62.8 million. with only a $30.3 million increase in debt net of cash. Now I'll turn it back to Jeff.