America's Car-Mart, Inc.

Good morning, everyone. Thank you for holding. And welcome to America's Car Mart's first quarter fiscal 2022 conference call. The topic of this call will be the earnings and operating results for the company's first quarter fiscal year 2022. 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 dialing numbers 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 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, 2021, 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 Vicky Judy, chief financial officer. And now, I'd like to turn the call over to the company's chief executive officer, Jeff Williams.

Good morning, and thank you for joining us, and thank you for your interest in America's car market. We're very excited to be celebrating 40 years in business. supporting our associates, our customers, and making our communities better. We will carry on these great traditions and continue to improve as our industry changes, and the next 40 years will be even better. We will stay close to the consumer and focus on customer experience and provide unmatched support after the sale by keeping our customers on the road, giving them peace of mind by being part of the CarMart family. to deliver legendary service as we move this great company forward. We're making good progress with our various initiatives, which are foundational and focused on supporting our shift from a 40-year-old collections company to a sales company that's very good at collections. Our goal is to continue to gain market share and support an ever-increasing customer base by allowing our field associates led by our talented general managers, to have more time to focus on growing and improving their businesses. We have the balance sheet to support their growth. This sales-focused shift starts and ends with our ability to efficiently and effectively source good, affordable vehicles at increasing quantities. We're making good progress with our procurement and inventory management effort. We're still in the early innings and we will continue to improve in this critically important area. We ended the quarter with 604 customers per dealership. That's an increase of 21, or about 3.6%, for the first quarter. We have significant opportunity and room to continue to serve more customers, and as we stated, we believe most of our dealerships can support 1,000 or more customers in the future we continue to centralize some key inventory procurement and management aspects and some other non-core support functions. I'll now turn it over to Vicki to go over the numbers. Vicki?

Well, good morning, everyone. Our total revenue for the quarter increased 49.2% up to $280 million. That resulted from a 25% increase in retail units sold, a 20.4% increase in the average retail sales price, and our interest income increased by 33.7%. Same-store revenues were up 46.7%, with revenues from stores in the over 10 years of age up 48%. Stores in the 5- to 10-year category were up 56%, and revenues for stores in the less than 5 years of age category were up to approximately $26 million. Our productivity improved to an average of 33.6 units sold per store per month compared to 27.4 over the prior year quarter and to 29 units per store per month for the quarter ended 7-31-19 pre-pandemic. We continue to invest in inventory to accommodate the higher sales volumes and to provide customers a quality mix of vehicles. Our retail inventory was up due to higher quantities about 50% of the increase combined with higher pricing compared to the same time in the prior year. At quarter end, 16 or 11% of our dealerships were from 0 to 5 years old, 38 or 25% were from 5 to 10 years old, and the remaining 97 were 10 years old or older. Our 10-year plus lots produced 35.2 units sold per month per lot for the quarter, compared to 31.2 for 731-19 pre-pandemic. Our lots in the five to 10 year category produced 31.3 and 26.5 for the quarter ended 731-19. Our lots less than five years of age had productivity of 29.5 units per month per lot for the quarter. Our down payment percentage was 6.9% compared to 7.6% for the prior year quarter and collections as a percentage of average finance receivables was at 11.5% compared to 13% for the prior year quarter. Our collections remained strong with the reduction in line with the expected change due to the average term increases. The prior year also included the impact of the pandemic related stimulus payments payments which contributed to a higher collection percentage. The average originating contract term for the quarter was 38.8 months compared to 32.4 for the prior year quarter and up from 37.1 months sequentially. The average selling price was up 20.4% or $2,600 with a 6.4 month increase in the term compared to the prior year first quarter. Our term increases are necessary to be competitive and to ensure affordability for our customers as the retail sales price increases. The quality of the vehicle in terms of age and mileage continues to improve as well. And as always, we will continue to be mindful of balancing the term length with affordability, but we believe we're putting a better customer in a higher quality vehicle for the most successful outcome. combining that with our commitment to keep customers on the road with excellent service after the sale. Our weighted average contract term for the entire portfolio, including modifications, was 38.7 months compared to 33.9 for the prior year quarter. The weighted average age of the portfolio decreased slightly from approximately nine months to 8.2 months. Interest income increased $8.5 million, or 33.7%, compared to the prior year quarter, primarily due to the $217.1 million increase in average finance receivables, a 34.4% 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. Total gross profit per retail unit increased $596 to $6,175, a 10.7% increase compared to the prior year first quarter. The gross profit percentage was 38.1% compared to 41.7% for the prior year quarter and also down from the sequential quarter at 40.2%. The reduction in gross profit percentage resulted primarily from the lower margin on the retail unit, partially offset by slightly lower repair costs. And increasing average selling prices result in lower gross margin percentages, but higher gross margin dollars per unit as our gross margins are lower at a higher selling price. And increasing average selling price will continue to put pressure on our gross profit percentage. The mix of the type of vehicles sold was comparable to the sequential quarter with increases in car and SUV sales and pickup trucks decreasing due to the high price and tight supply of trucks. SG&A for the quarter was up $10 million compared to the prior year quarter and up $2.7 million sequentially, but down as a percentage of sales to 15.7% compared to 17.7% for the prior year quarter, and up from 14.5% sequentially. SG&A as a percentage of total revenues, less cost of sales, and provision for credit losses is an important metric for our integrated sales and finance business as a large part of our efforts are focused on keeping our customers on the road. This metric was 52.8% compared to 50.5% for the prior year quarter. The prior year first quarter reflected significantly reduced expenses and credit losses due to the impact of COVID-19. We are now serving over 91,000 customers, an increase of more than 9,400 since this time last year, with over 2,100 associates. The SG&A increases have primarily been investments in our associates with increased headcount, increased wages and benefits, and increased commissions related to the higher net income. We're also continuing our investments in our infrastructure with our ERP and CRM projects, facility updates, as well as expanding our marketing and advertising to support the transition to a sales company and our goal of increasing market share. All of this while continuing our commitment and investments in recruiting, training and retention, our inventory procurement and management, customer experience, and our digital efforts. For the current quarter, net charge-off as a percentage of average finance receivables was 4.3%, down from 4.8% in the prior year first quarter, and down from 5.4% for the quarter ended 7-31-19 pre-pandemic. Both our frequency of losses and severity of losses on a relative basis were improved compared to the prior year quarter. Recovery rates of repossessed units also contributed to the decrease in net charge-offs. Recovery rates for the quarter were approximately 28.7% compared to 24.5% in the prior year quarter. Our accounts 30 plus past due were at 3.3% compared to 2.6% in the prior year first quarter and 3.8% at 7-31-19 pre-pandemic. Although our portfolio continues to perform well and our focus is to support and serve our customers at the highest levels, there's still much uncertainty as the enhanced unemployment and stimulus payments end and the Delta variant continues to impact businesses and our customers' lives. The effective income tax rate was 21.4% for the first quarter of fiscal 22 compared to 23.4% for the prior year quarter. Income tax expense included an income tax benefit of $644,000 and $91,000 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 stock option exercises. At quarter end, our total debt was approximately $272 million. We had $2.7 million in cash and approximately $53 million in additional availability under our revolving credit facilities. Our current debt net of cash to finance receivables ratio is 30.2% compared to 25.4% at this time last year. A large part of this increase relates to the increase in our inventory investment compared to this time last year which was historically low due to the pandemic, an additional 40.8 million, and also due to our repurchases of our common stock. During this last quarter, we added 80.9 million in receivables, increased inventory by 14.8 million, repurchased 11.6 million of our common stock, and funded 1.7 million in capital expenditures. a total of $109 million, with only a $46.1 million increase in debt net of cash. We are well positioned to serve more customers and grow our market share. Thank you, and now I'll turn it back to Jeff.