America's Car-Mart, Inc.

Good morning, everyone. Thank you for holding, and welcome to America's Car Mart's third quarter fiscal 2021 conference call. The topic of this call will be the earnings and operating results of the company's third quarter for fiscal 2021. 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 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 risk and uncertainties that could cause actual results to differ materially from management's present view. The statements are made pursuant of the safe harbor provisions of the Private Security 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 Security 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 Vicki 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 and good morning. We appreciate you joining us this morning and for your interest in America's car mart. We are pleased with our results and the progress we're seeing with our various operational initiatives. We have a lot of work to do, but we're optimistic that the improvements and the investments we're making will solidify our unique place in the market. We give our customers peace of mind by keeping them on the road. We try to eliminate the stress of car ownership, which can be one of the more stressful areas of life. We have an obligation to serve more customers, as our customers' lives and the communities we serve are better because we're there. We currently serve close to 86,000 customers. We're about 570 customers per dealership, and we're building a platform to increase that number significantly over time. We believe that a large majority of our dealerships can serve 1,000 or more customers at some point in the future. Our balance sheet and our historical focus on cash flows has put us in a great position to continue to deploy capital and grow market share in the areas we already serve, as well as looking to new markets through new lot openings and acquisition opportunities, like the Taylor acquisition, which is going very well. Our business model is strong and getting stronger. Our people are difference makers, and the amount of capital required to operate effectively in our market continues to increase. giving us a distinct competitive advantage. We are transitioning from a collections-based company to more of a sales company that can collect. Our bricks and mortar structure, along with an outstanding digital presence, will put us ahead of the pack and solidify our place. Better cars and better support infrastructure give us confidence to move forward more aggressively. Our improvements in the inventory management and procurement area of the business, which is preferred vendors, reconditioning, logistics, and overall inventory and replenishment flow, are progressing, and our IT investments will most certainly help us in this area, specifically the Microsoft Dynamics 365 project that we mentioned in our press release. We have tremendous opportunities in the procurement area, And we're very excited about the team we have in place to maximize our efforts here and to continue to provide our valuable customers with quality, affordable vehicles. We must be excellent with our inventory management as its make or break to the overall customer experience. Once again, above all else, our customers demand a mechanically sound car that is affordable, and they need us to help keep them on the road. We're making good progress in our efforts to streamline our sales process and seamlessly support our customers physically and or digitally in whatever manner they want to be served. We understand that the car buying experience is not high on anyone's list of things they enjoy, and we're devoting significant efforts to continue to improve our online digital experience, including online credit approval and enhanced home delivery and curbside options. We're investing significant resources in our corporate customer experience team as we continue to centralize certain functions that can be better, more consistently, more efficiently, and effectively provided centrally, leaving key customer face-to-face engagement touchpoints to the field to allow our field associates to focus on growing their businesses. Our recruiting, training, and retention efforts are extremely important And we continue to see very good progress and enthusiastic engagement as we support our associates and they take advantage of individual growth opportunities with our growing company. With that, I'll now turn it over to Vicki to go over some numbers. Vicki?

Good morning, everyone. Our total revenue increased 22.2% up to $228 million. We were happy to see a 5.6% increase in retail units sold and the improvement in productivity by dealership. The average retail selling price per unit also increased up to $13,688. Interest income increased by 20.5%, and same-store revenues were up 16.9%. Revenues from stores in the over 10 years of age category were up 15%, stores in the five to 10 year category were 25%, and revenues for stores in the less than five years of age category were up to about 20 million. The supply of units at the lower price points continued to be tight, but as Jeff mentioned, we continue to invest in and improve our procurement processes, and we feel confident with our inventory as we move into tax time. At quarter end, 16 or 11% of our dealerships were from 0 to 5 years old, 42 or 28% were from 5 to 10 years old, and the remaining 93 were 10 years old or older. Our overall productivity was 31.2 units per lot per month compared to 30.6 for the prior year quarter. Our 10 year plus lots produced 32 units per month per lot for the quarter compared to 32.7 for the prior year. Lots in the five to 10 year category produced 30.2 compared to 28.3 for the prior year quarter. Lots less than five years of age had productivity of 27.4 compared to 20.9 for the third quarter of last year. Our down payment percentage was 5.5% compared to 5.4% for the prior year quarter, and collections as a percentage of average finance receivables was at 12.1% compared to 13.2% for the prior year quarter. However, absent the increase in the average contract term, collection percentages would have improved over the prior year quarter. The average originating contract term was 35 months compared to 30.8 for the prior year quarter and up from 33.8 months sequentially. The average selling price was up $1,938 with a 4.2 month increase in the term compared to the prior year third quarter. Our average monthly payment is approximately $440. Our weighted average contract term for the entire portfolio including modifications with 35.7 months compared to 32.5 months for the prior year quarter. The weighted average age of the portfolio was basically flat at nine months. Interest income increased 4.8 million, or 20.5%, compared to the prior year quarter, primarily due to the $116.3 million increase in average finance receivables at a 19.5% increase. The weighted average interest rate for all finance receivables at the end of the quarter was approximately 16.5% relatively flat from the prior year quarter. Gross profit per retail unit increased $836 to $5,774 and that's up 16.9% compared to the prior year third quarter. The gross profit percentage was 40.6% compared to 40.3% for the prior year quarter, and down just slightly from the sequential quarter, it was at 40.7%. The improvements in gross margin over the prior year resulted from improved wholesale margins, again, due to the strong demand and the low supply of low-priced units and lower repair costs. However, that was partially offset by the lower margin on the retail units. As you recall, increasing average selling prices result in lower gross profit margins, but higher gross profit dollars as our gross margin percentages are lower at a higher selling price. The mix of the type of vehicle sold was fairly consistent, with SUV sales increasing approximately 3% over the prior year quarter. Pickup sales decreased due to the high price and the tight supply of trucks. SG&A for the quarter was up $3.1 million compared to the prior year quarter, but down as a percentage of sales to 16.7% compared to 18.6% for the prior year quarter. SG&A as a percentage of total revenues, less cost of sales, and provision for credit losses was 54.1% compared to 61.9% for the prior year quarter. Again, this metric is important for our integrated sales and finance business as a large part of our efforts are focused on keeping good customers in their cars and driving down credit losses. Our investments continue to be primarily payroll focused as we build our customer experience team and invest in procurement combined with increased commissions as a result of the higher net income and increased stock compensation. For the current quarter, net charge-offs as a percentage of average finance receivables was 4.9 percent, down from 5.9 percent in the prior year third quarter. We saw improvements in delinquent accounts, and our accounts 30 days past due was at 2.8 percent compared to 3.6 percent in the prior year third quarter. The CARES Act enhanced unemployment benefits and stimulus payments possibly still contributed to some of this improvement along with our efforts at working with our customers to keep them in their car and on the road. We have continued to provision at 26.5%. Although our portfolio continued to perform well in the current quarter, there still remains much uncertainty caused by COVID-19 and its potential impact on our customers, collections, repossessions, and the overall economic environment as we move forward. The effective income tax rate was 22.8% for the third quarter fiscal 21 compared to 19% for the prior year quarter. Income tax expense included an income tax benefit of 341,000 and 922,000 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 24% going forward prior to any excess tax benefits from the stock option exercises. We were pleased to increase our credit facility by 85 million during the quarter and also added a new lender to give us more headroom as we grow our portfolio and customer count. At quarter end, our total debt was approximately 210 million. and we had $4 million in cash and approximately $115 million in additional availability under our revolving credit facilities. Our current debt net of cash to finance receivables ratio is 27.7 percent, and that's compared to 30 percent at this time last year just prior to the pandemic. During the quarter, we added $51.7 million in finance receivables, funded $2 million in net capital expenditures, increased inventory by 1.1 million, and repurchased 3.7 million of our common stock, a total of 58.5 million with only a 12.3 million increase in debt net of cash. As a point of reference, in the last 12 months, most of which were during the pandemic, we added 137 million in receivables, increased inventory by 14.5 million, repurchased 10 million of our common stock, and funded $9.3 million in capital expenditures, a total of $170.8 million, with only a $24.1 million increase in debt net of cash. We are well positioned to serve more customers and grow market share. Now I'll turn it back to Jeff.