America's Car-Mart, Inc.

Everyone, thank you for holding and welcome to America's Car Mart's second quarter fiscal 2022 conference call. The topic of this call will be earnings and operating results for the company's second 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 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 Private Securities Litigation Reform Act of 1995. The company cannot guarantee 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 8K and 10Q. 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.

Okay, well, thank you for joining us this morning, and thank you for your interest in America's Car Mart. For the quarter, total revenue was up 29% to over $288 million. Unit sales volume per dealership, what we refer to as productivity, increased to 32.7 retail units sold per dealership per month, or close to 6%. This in a period with supply shortages at all time highs. We believe that productivity would have been better had the supply of used vehicles been at more normal levels. As a reminder, we are a fully integrated auto sales and finance company. We're both a retailer of used cars and we finance almost 100% of our sales. It's a powerful captive lender relationship. We buy the cars, arrange for transport and repair, merchandise the cars, sell the cars, we provide financing to the consumer, and we service the retail installment sales contracts, which include servicing our add-on products. As we look at the key variables in our industry, specific to our unique place in the market, we look at the price and availability of vehicles, the resulting retail price to the consumer, and the gross margin dollars generated, the term length, which will result in an affordable payment for our consumer and give our customers true equity in the transaction. We look at productivity levels, supporting a larger number of customers, allowing us to leverage our cost structure. And we look at overall unit loss rates, which is the ultimate customer success factor, driven by our strong consumer advocacy. All of our ongoing initiatives which are in process to address these key industry variables are allowing us to improve and scale our model without losing the benefits of the decentralized character lending nature of our business. The overriding theme and direction of all of our initiatives and investments is to improve operational efficiencies in the field by reducing the amount of non-core work at various friction points, allowing our talented field associates at the direction of our general managers to focus on improving the business and serving more customers at a higher level. We have an obligation to serve more customers as customers' lives and our communities are better with Carmar. And once again, our key initiatives and investments are focused on enhancing the customer experience and are in the areas of purchasing, procurement, and inventory management. continuing to centralize certain functions to get scale benefit without losing local sourcing opportunities and to use data to a larger extent with inventory management and inventory planning. Our new service contracts and our debt cancellation products are fantastic add-on products for our consumers and are designed to keep customers on the road with utilizing nationwide service providers and also moving the administrative functions related to these products more to the corporate level. Our technology investments are designed to attract more sales opportunities. Our website and loan origination systems increasing the funnel will result in more unit sales, which will in turn lead to more repeat business over time. Currently about 50% of our sales are to repeat customers. We'll use data more in our technology investments as we mine for customers in equity positions and use marketing to a larger extent for our existing customer base. We will centralize certain aspects of our collections efforts, remote collection specialists for phone, web chats, and texting to supplement the great work that our field associates do in the collections efforts. Recruiting, training, and retention of quality associates, our field associates with their face-to-face interactions with our customers are critical to our success as we run the play and block and tackle out in the field. Our branding, advertising, and marketing, as a collections company, we didn't have to advertise much, but more of a sales company, good at collections, we realized that the value of solid branding and marketing efforts is real, and we need to keep that message fresh in the minds of our consumers. I will now turn it over to Vicki to go over some numbers. Vicki?

Good morning, everyone. As Jeff said, total revenue increased 29.1% up to $288 million. This resulted from a 5.7% increase in retail units sold, a 21.1% increase in the average retail sales price, and interest income increased by 38.8% by $10 million. Our same-store revenues were up 28.2%. Revenues and productivity were up across all age categories of dealerships, and productivity overall improved to an average of 32.7 units sold per store per month compared to 31.2 over the prior year quarter. At quarter end, 17 or 11% of our dealerships were from 0 to 5 years old, 35 or 25% were from 5 to 10 years old, and the remaining 100 were 10 years old or older. The 10 year plus lots produced 33.8 units sold per month for the quarter per lot. Lots in the five to 10 year category produced 30.9 and the lots less than five years of age had productivity of 29.9. The vintage of dealership and related productivity is often higher at our older dealerships due to the experience level of the manager, as well as an established customer base and thus a higher percentage of repeat customers. Total collections of principal interest and late fees increased by 21 million or 19% over the prior year quarter and improved 6.8% per average customer. Principal collections as a percentage of average finance receivables were at 10.5% compared to 12.9% for the prior year quarter. Principal collections remain strong with the reduction in the amount of principal collected in line with the expected change due to the average term increases. The average originating contract term was 39.7 months compared to 33.8 for the prior year quarter and up from 38.8 months sequentially. The average selling price again was up 21.1% or $2,814 with a 5.9 month increase in the term compared to the prior year second quarter. However, average wholesale prices in the market were up over 30% year over year, so our team has done a good job of working hard to find the best quality vehicles at an affordable price for our customers. Our average term length is still well below most competitors in our industry, and we will continue to review term lengths for the right customer and the right vehicles as we seek to gain market share. Our weighted average contract term for the entire portfolio, including modifications, was 40 months compared to 34.7 for the prior year quarter. The weighted average age of the portfolio decreased slightly from approximately 8.8 months to 8.4 months. Total gross profit per retail unit sold increased by $644 to $6349. That's up 11.3% compared to the prior year second quarter. The gross profit percentage was 37.5% down from the sequential quarter at 38.1%. This reduction in gross profit percentage resulted from the lower margin percentage on higher retail sales prices according to our pricing guideline. The gross profit dollars continue to improve and we're doing a nice job of controlling other cost of sales expenses in an increasing cost and inflationary environment as we gain market share. SG&A for the quarter was up 4.6 million compared to the prior year quarter and down 1.6 million sequentially. We continue to leverage the investments we're making with SG&A at 14.8% as a percentage of sales compared to 16.5% for the prior year quarter, and from 15.7% sequentially. We are now serving over 93,000 customers, an increase of more than 5,100 in the last six months, with over 2,000 total associates. Jeff mentioned each of our initiatives with the focus being to provide excellent service to a larger number of customers, and we're focused on doing this in an efficient manner. For the current quarter, net charge-offs as a percentage of average finance receivables was 4.8%, relatively flat from 4.7% in the prior year second quarter. And it's important to note that charge-offs were 6.1% for the quarter ended 10-31-19 pre-pandemic. While we did see a slight uptick in our frequency of losses just above the unusually low prior year period levels, Our severity of losses on a relative basis were still 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% compared to 26.7% in the prior year quarter. Our accounts 30-plus passed due. We're at 4% compared to 2.5% in the prior year second quarter and 3.5% at 10-31-19 pre-pandemic. The 30-plus delinquencies were partially due to the Sunday month-end close date, as Sundays are generally the highest. As with everyone in the market, we do expect credit losses to normalize somewhat over time, but there's no historical reference for what that looks like in these times. But as Jeff mentioned, our initiatives are aimed at creating a better customer experience and improving customer success rates compared to historical norms. The effective income tax rate was 22.4% for the second quarter fiscal 22 compared to 23.6 for the prior year quarter. Income tax expense included an income tax benefit of $265,000 and $240,000. 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 option exercise. At quarter end, our total debt was approximately $324 million. We had $2.1 million in cash and approximately $107 million in additional availability under our revolving credit facility. Our current debt net of cash to finance receivables ratio is 33.3%. During the first six months of fiscal 22, we have added 157 million in receivables, increased inventory by 27 million, and we've repurchased 20 million of our common stock while funding 7 million in capital expenditures. We did increase our credit facility during the second quarter and added two new lenders. We're very excited by the participation and the commitment of our lending group. The increase is fundamental in our strategy to transition from a collections company to more of a sales company very good at collections. The increased facility will allow us to continue to grow our customer base for a period and to continue making key investments to better serve our customers both digitally and in person. As Jeff mentioned in the press release, we believe our conservative balance sheet will allow us to increase our available financing for future growth by accessing the securitization market as well at some point. Now I'll turn it back to Jeff.