America's Car-Mart, Inc.

Taking a little bit longer, but hold on one second.

Good morning, everyone. Thank you for holding, and welcome to America's Car Mart's first quarter fiscal 2024 conference call. Before we begin, today's call is being recorded and will be available for replay for the next 12 months. During today's call, management may make certain statements that are considered forward-looking 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 one of the company's annual report on Form 10-K for the fiscal year ended April 30th, 2023, and its current and quarterly reports furnished to or filed with Securities Exchange Commission on Forms 8-K and 10-Q. Please see the company's website for the earnings release for the first quarter of fiscal 2024, along with a second news release about a leadership transition. Participating on the call this morning are Jeff Williams, CEO, Doug Campbell, President, and Vicki Judy, CFO. I will now turn the call over to Jeff Williams, CEO. You may begin.

Okay. Well, thank you for joining us on the call this morning, and thank you for your interest in America's car mart. I'm pleased to report that we delivered strong revenue growth for the quarter. We had solid improvements in many areas of our business. Near-term credit results are a challenge, and we'll discuss that in more detail in just a few minutes. Before we get into the details, I'm excited to cover our other news today, that President Doug Campbell will succeed me as CEO effective October 1st. Over the last year in his role as president, Doug has more than demonstrated his readiness for the new role. In my role as CEO and a board member, there are many responsibilities, but succession planning has been at the very top of the list for me Identifying a candidate with a strong cultural fit, the skill set to capitalize on opportunities and navigate the challenges ahead is why we first engaged with Doug almost two years ago now. Doug's appreciation of the company's culture, strong industry knowledge, and being a change agent is why he's the perfect fit to lead us to the next level. Our transition plan will allow for a smooth handoff, and I'll be here to fully support Doug as we move forward. So congratulations and thank you, Doug. I'll now turn it over to Vicki and to Doug to review the quarter results, update you on the status of initiatives, and provide an outlook on our business. Doug?

Thanks, Jeff. I want to thank Jeff for all that he's done for the company over his 18 years of service, and in particular, the last six years as CEO. We have continued to source inventory and grow our business, despite the industry being very constrained and volatile over the last couple of years. While competitors are exiting the business unable to manage capital constraints, we've been investing in our business. It's in stark contrast with how others are managing through the environment and a testament to Jeff's bold leadership and vision for the company in what has been one of the most challenging environments in the history of our industry. I owe Jeff a debt of gratitude for the time he has spent with me over the last year. And during that time, we've cultivated a fantastic working relationship that will serve us in facilitating the transition ahead. I'm equally appreciative to our chair, and our board members who have been investing in my development and their feedback and guidance has been valuable. On a personal note, I'm deeply humbled and thankful for the opportunity. As I look forward, I'm more enthusiastic about our future here at America's Car Mart than I was a year ago. We're focused on the long-term health and success of our business and are demonstrating our ability to operate in any environment. Before we transition over to the quarterly results, I'd like to thank our associates who work tirelessly to deliver improvements in sales volume gross margin, procurement efforts, wholesale performance, and reductions in repair spend. Their relentless pursuit to both put and keep our customers on the road continues to be a winning combination. Let's start with sales performance. Our sales performance was strong, generating 15,912 units sold, which was up 2.4% over the prior year's quarter. On a same-store sales basis, up 8.2%. That had a nice impact on inventory turns as those moved up from 5.9 to 7.2 turns. Growth in online credit applications was up 19% for the quarter, which was mentioned in the press release. That accounts for about 70% of all of our applications. Overall application volume was up 8.1% when including the walk-on traffic that we see at our dealerships. This is especially impressive when you consider that we've now begun to augment our advertising spend because of the power of the LOS and its ability to drive online traffic. The LOS continues to be the primary driver for our sales growth, despite what is a down cycle for many with the remainder of the industry down in sales year over year during the same period. Credit availability continues to be an issue for the industry and is tighter than previous year when looking at Cox Automotive's dealer track credit availability index. It has shown some mild improvement in the last month or two, but it's still worse when comparing it to pre-pandemic periods. This is a benefit for us as consumers now look to us for access to credit. When I think about average selling prices during the quarter, they were up by 4.1% year over year. About half of that was related to the price of the vehicle. The other half was related to the ancillary products that we sell. On the last call, I discussed that the cars we were purchasing during the spring market were up about 3%, so there should be no surprise here. However, we also mentioned that the cars that we are buying are newer and have lower mileage. This ultimately makes them eligible for longer warranties, which generates more revenue with the selling prices. As a reminder, This is now even more pronounced when you consider the price increase that we made to our service contracts in December of last year. The industry saw wholesale pricing decline sharply in May and June, while prices in July decreased at a more normalized rate. During the first quarter, our procurement teams lowered purchase prices sequentially throughout the quarter, contributing to a 3% reduction in prices from where we started. August wholesale pricing is showing price increases, which is abnormal this time of year. It could be related to the sales strength we're seeing in the overall marketplace in August or low inventory day supply on the ground. And I think some speculation on what will happen between negotiations with the UAW and the big three in Detroit. We're keeping a close eye on that and what's transpiring and working to mitigate any effects and mute some of its effects there. Gross margin came in at 34.6%, which was up 20 basis points compared to last year, and up 120 basis points when I look at it sequentially versus the fourth quarter. We went into a fair bit of detail in the press release regarding gross margin and articulated what our plan was on the last call, so I don't want to be too redundant. But to put it simply, we're executing at an elevated level on the plan that we had laid out. We are buying newer and lower mileage assets, and those are trickling through our ecosystem. We're improving the performance of our operations teams as it relates to vehicle repairs, and we continue to scale our reconditioning initiative, which has a target savings of $3,500 per unit. We're seeing progress in all three areas, which isn't surprising, but I guess I'm really encouraged at the rate at which we're seeing some of this benefit. We had estimated that we could recover 260 basis points of gross margin to achieve a 36% target that we alluded to on the last call. However, there are other opportunities that we're now exploring. I'll give you an example. Transportation would be one of these. Last year, we changed the technology stack that we use to move vehicles throughout our ecosystem by optimizing loads and routes. We began to roll this out in the fourth quarter, but Q1 is the first full quarter we're seeing the benefit. It represented an improvement of 20 basis points in gross margin when compared to the first quarter of last year. And ultimately, we're now saving about 15% on the way we move our vehicles. There are other opportunities with ancillary products, wholesale, and repairs that we're looking at to drive even further improvements beyond what was initially indicated. Some of these opportunities can be realized during this fiscal year. Others will be more long-term in nature. I'll now turn it over to Vicki, who will cover our financial results.

Good morning, and thank you, Doug. For the current quarter, our net charge-offs as a percentage of average finance receivables were 5.8%. That's compared to 5.1% for the first quarter of 23, and 6.3% sequentially. It is above our five-year average of 5% and our 10-year average of 5.6% for first quarters. Both of these include the low credit loss pandemic periods. For some comparison, pre-pandemic, our first quarter losses for fiscal year 18 and 19 were 6.1%. A little over half of the increase in losses compared to the first quarter fiscal 23 was due to the higher severity of losses and the remainder being an increased frequency in the losses. Our recovery values were down from historically high levels in the prior year quarter of 32% and held flat sequentially at approximately 27%. As of July 31, the allowance for loan losses was 23.91% of finance receivables and out of deferred revenue. And as discussed in the press release, our provision exceeded actual charge-offs by $14.8 million We have over $125 million of deferred revenue on the balance sheet, and in addition, we also collected an additional $12 million in interest income, an increase of 27.3% when compared to Q1 of fiscal 23. We also mentioned in the press release the benefit of the LOS in attracting additional customers. It's also going to be instrumental in helping us improve deal structures and ultimately the success rate of our customers once it is fully implemented across all lots. Our customer scores during the quarter remained consistent with the prior year. On the delinquency side, our accounts 30 plus past due was at 4.4% compared to 3.6% in the prior year quarter. The month ending on a Monday versus a Sunday in the prior year contributed to part of this, as well as the continuing negative impact of the inflationary environment on our customers. Total collections were up 12% to $166 million, and total collections per active customer per month were $535 compared to $516 in the prior year quarter. We continue to work with our customers on payment options and modifications in an effort to keep them in the vehicle and successful on their contract. The average originating contract term for the quarter was 44.7 months compared to 42.8 for the prior year quarter, and that's slightly from 43.5 months sequentially. We added 1.9 months to the originating contract term compared to the prior year first quarter to assist our customers with an affordable payment. Our weighted average contract term for the entire portfolio, including modifications, was 46.9 months compared to 44 for the prior year quarter. The weighted average age of the portfolio increased to approximately 10.4 months. The percentage of the portfolio held by the highest credit quality customers continues to improve compared to the prior year. On the SG&A side, we've been focused on identifying efficiencies in the business across the board, and as mentioned in the release, we had a savings on our SG&A spend of over $600,000 from the fourth quarter, excluding the stock-based compensation. A large percentage of this savings was in advertising. We continue to shift more of our advertising dollars to digital spend, which is more efficient and also helps supplement our LOS efforts. Our customer count increased by 8.1% over the prior year to almost 105,000 customers. Our SG&A spend per average customer improved over the prior year first quarter and over the sequential quarter. Our investments are being made to better serve this growing base while improving the efficiencies as we move forward. And although we continually evaluate our return on investments and allocation of capital, It becomes even more important in this environment of increasing funding costs. With that in mind, we did close two underperformed dealerships during the quarter to better allocate our available capital. We'll continue to review and monitor capital invested in each dealership and other investments to maximize returns. At quarter end, we had $6.3 million in unrestricted cash and approximately $159 million in additional availability under our revolving credit facilities based on our current borrowing base of receivables and inventory. Our total securitized non-recourse notes payable was $711.8 million with $86 million in restricted cash related to those notes. We closed on our third securitization in early July with net proceeds of $356 million and a coupon of 8.8%. This paid off our revolving line of credit. Our total debt net of cash to finance receivables ratio is at 42.9% and up from 41.5% at April 30th. Interest expense increased $6.9 million, with approximately 60% of that related to the increased rates over the prior year, and the remainder resulted in increased borrowing. I'll now let Jeff close us out.

Okay. Well, thank you, Vicki. The demand for our offering will continue to increase. Our model is the very best way to serve our high-touch customer base and the unique challenges that require a balance between face-to-face decentralized decisioning and leveraging scale where it makes sense. We're striking just the right balance, and that's more apparent as we continue to pick up market share. Current demand exceeds what we can supply. We believe that affordability will improve over time as basic transportation must be available for average consumers. Currently, many customers are sitting out and will flow back into the market over time. In many respects, our customers are always in recession, which makes the current environment ideal as we focus on affordability and delivering outstanding service to keep our customers on the road. Foundational investments are nearing completion and will be leveraged, allowing us to become a more efficient, data-driven company. We've not yet seen the benefit that will come. We're on track to sell between 40 and 50 retail units per dealership per month in the next few years and eventually serve 1,000 customers per dealership. We believe credit results will improve, especially as we look at the opportunities with the LOS, increasing car quality, and execution levels. We believe gross profit percentages will improve and will leverage SG&A as we move forward. And as discussed in the press release, we're in a unique period in the industry, and we have significant opportunities in the acquisitions areas, and we're talking to several strong operators with highly accretive opportunities. Very excited about that. We have great days ahead and Doug is ready to lead our team forward. Thank you to all of our passionate associates who have signed on to our vision to be the best and dreamed big about what we could be while taking care of our customers one at a time. Thank you and we'll now open it up for questions. Operator.

And thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And we do ask that you limit yourself to one question, one follow-up. Again, we ask that you limit yourself to one question, one follow-up. Thank you.

And one moment for our first question.

And our first question comes from John Murphy from Bank of America. Your line is now open.

Good morning, everybody, and congrats to Jeff and Doug on the next legs of your careers here. I guess just a first question. When you think about the extension in contract terms to help with the monthly affordability equation, I'm just curious if you think that ever reverses or is this something that is now structurally in place and that we'll continue to see lengthening, or has there been a period of time where you know, Car Mart's history or over time where contract terms have actually shortened once they've been lanterned over time.

Yeah, we do see an opportunity in the future to reel back in and decrease terms as we go forward. Our customers' wages continue to go up, and I think the last few months, few quarters, we've seen real wage increases for our consumers, so we do feel like eventually We can move that term the other direction, but that's going to be based to a large extent on what happens with car prices and wages as we go forward and other inflationary pressures. But we would certainly like to reel in term, and we do think there's a very realistic and real possibility of us moving that direction, especially as we look at the LOS and all the different features and functions and benefits we're going to get when that tool gets fully rolled in.

It's helpful. And then just a follow-up on some of the comments that were made in the press release about the changes in purchase and disposition of vehicles. And I'm just wondering if you could sort of expand on what changes have actually occurred. Is it something where we're just looking at slightly newer vehicles that are being put into inventory that have lower recon costs? And that's the efficiencies that are gained. What's actually happening? changing there that's making that more efficient over time? Because I thought you've been pretty good at that historically, but it sounds like you see room for improvement.

Yeah, thanks for the question. I would say historically we have been very good at that. It was, I think, my very first call on that I spoke about how we had used that as a lever to mitigate some of the cost, and we went to a little bit older car with a little bit higher mileage. And while it had its benefits up front, you know, there's the repair costs associated with that downstream, which has been somewhat problematic. And so what we're trying to do is get back to our historical norms. But beyond that, we've seen efficiency gains, what I would call that are more closer to pre-pandemic levels. And so the car we used to sell might have been 9 or 10 years old. We're able to shave a year off that and improve the overall mileage by 10,000 to 12,000 miles, what I would call versus pre-pandemic. So the car inherently is a lower mileage car, which should generate less in repairs. And ultimately, I think it gives us a second chance at retailing the unit should we have to go down the repossession route. It creates a second chance for the inventory to have another purpose in our business.

John, I would add, in the last two or three years with the pandemic and the chip shortage and the used car issues and all the supply chain issues we had, that there was some real disruption in our historical performance on product and procurement. And it's kind of working itself out at the same time that we're making some good improvements internally.

All right. Thank you very much, guys. I'll get back in the queue. That's very interesting. Thank you.

Thank you. And thank you. And one moment for our next question. And our next question comes from Kyle Joseph from Jefferies. Your line is now open.

Hey, good morning, guys. Congrats, Jeff. Let me know if you ever want to go play golf. Go. Anyway, so kind of piggybacking on that last question in terms of gross profit margin, obviously used car prices have been elevated. It seems like they're maybe coming back to earth for a while, but longer term, do you think the gross profit margin has changed

systemically or do you think you know gradually over time we get back to where it was yeah thanks Kyle for the question I think there's an opportunity to sort of have a middle ground there but we as we sort of called out earlier maybe we set our expectations a little too low on that 36% and we're realizing in real time there's benefits beyond what we initially anticipated especially when you consider items like transportation that maybe wasn't sort of initially on the table, but we're looking at any and all things in the business to sort of drive improvements there. One thing that I didn't mention in the last answer was what we own those cars relative to the book value. And if I just go back, if I used a call this time last year and to the current time, so over the last 12 or 13 months, how we own those cars relative to the book has improved eight or 9%. So there's a combination of improvement of how these cars are starting life in our portfolio there's the improvement in a younger car with lower miles which all should have benefits downstream in terms of credit loss and fair market value retention right it sort of takes some of that risk and exposure off the table got very helpful and then yeah my follow-up would be you know that the health of the underlying consumer I know you mentioned

The quarter ended on a different day, but at the end of the day, the low-end consumer still employed. Inflation pressures are easing a bit. How would you gauge the health of your underlying consumer?

Yeah, I don't think we're seeing any large changes yet. Again, to your point, unemployment is still very low. They're working. Wages are still good. Hours worked are still good. But there are still a lot of inflationary pressures and just the adjustment to those inflationary pressures and the lack of stimulus that was there for a point in time. So the use of credit has gone back up for our consumers. We're seeing that kind of across the board. Our consumers are almost typically always in a recession, living paycheck to paycheck, so it's really just an adjustment and getting them back used to the higher car payments and keeping them in their car.

But overall, the health of our consumer is increasing quarter over quarter. As we move forward, we believe that's going to be a better situation for us. As we go forward, and as Vicki mentioned, unemployment rates are historically low, and real wages are gaining some steam in the areas we serve and the customers we serve.

And I think a piece of that is, as Doug mentioned, the tightening in the lending environment. We are seeing a different cohort of consumers come down into our market. We continue to see that.

Got it. Thanks, Vicki. Thanks, Doug. Thanks, Jeff.

Thanks, Kyle.

And thank you. And one moment for our next question. And our next question comes from John Rowan from Janie Montgomery Scott. Your line is now open.

Good morning. Congrats, Jeff and Doug. Thank you.

I guess, you know, some other, you know, larger lenders have postulated that, you know, with the potential for a strike, and you guys mentioned this in your prepared remarks a little bit, that there would be an increase in dealer inventory. You know, guys would take up floor plan loans. Obviously, you know, fiscal 2023 mid-year, you are very heavy in inventory. Are you planning on, you know, raising inventory levels at all if, you know, this – Strike looks like it's going in one direction. Obviously, everything flows downstream. I don't necessarily think there's an immediate shortage in used cars, but I'm just curious if you think there'll be a ripple effect that could cause you to raise inventory levels.

I think about it differently. It's a great question and certainly been on our minds. I don't know which way it's going, but we're trying to prepare ourselves for any variation of an outcome. I think ultimately... If you go back to the last strike on record, I think it was the GM strike, and you go track overall used car prices, what you saw was upward pressure, especially on those brands. I think it was a General Motors strike. If you go back and look at those brands, you saw a nice increase in pop in pricing as day's supply diminished on the ground. It almost happened in real time because there's a lot of speculation in and around that. And so when you have three automakers potentially Going on strike and the deadline is looming here You have to sort of be ready for that and it's going to be more than just the overall impact on those 3d automakers It'll just be a shortage of supply on the ground If you looked at absolute supply in our industry, it's still really it's sort of all-time lows. And so The instance of something like this happening could drive values up. And so for us that is some headwind on the buying side we can combat that with being more selective on the cars we buy and To your point, I think what you were alluding to is, do we stock up for an event like that? I don't think that is necessarily a lever we would pull. However, I do think if there was some appreciation of values, it becomes a tailwind on the fair market values that we have for the cars that were taken back, the repo vehicles. So there's good and bad to us having the lending side to this, and we're just trying to make sure we're ready. We don't know sort of which way it's going to go, but our job is to be ready for that, and we're looking at those options available to us now. Okay, great.

Thank you. We mentioned on the last call, too, that a lot of competition that we have is struggling with capital. We had a couple of sizable competitors go out of business in the last six months or so, too. So there's some positive on the supply side in addition to some potential negatives, too. So that all balances out, and we're pretty nimble on our procurement. So we'll be able to address and adjust to any situation we see.

great thank you thanks john and thank you and again if you would like to ask a question that is star one one again if you would like to ask a question that is star one one one moment for our next question and our next question comes from vincent cantik from stevens your line is not open

hey good morning uh thanks for taking my questions uh doug uh congratulations and look forward to working with you and jeff it's been a pleasure working with you for the past uh several years and uh we'll miss you um for um so first wanted to zoom out just kind of a broad question about the the ceo transition and if he could walk us uh through that it sounds like this uh process has been going on for the past few years um so just wanted to uh kind of get a sense for why now is a good time for the transition. And then, Doug, anything in particular you'd like to focus on as you start your tenure? Thank you.

Well, yeah, as to the timing, this is just a good time in our history. We've been through some pretty difficult times. Things are still tough, but getting a little bit better. And some of these long-term, highly competitive, complex, labor-intensive investments and initiatives we've had in place. Doug's been able to participate in those for the last year, and those are all coming into play. And with Doug and his experience and his talent level, it's just a perfect time for us as a company, especially with the transition being extended. There'll be plenty of support, plenty of time to transition appropriately as we go forward. So this is just a good time and For me, for Doug, and for our company and our associates and shareholders, it's a good time in history to be making this change, especially with the transition plan we have in place.

Thanks. I'd add, you know, my first, you know, obviously opportunity to be a CEO of a company. And, again, I'm humbled. But, you know, at the end of the day, there are a lot of associates who are relying on smooth transitions, a lot of shareholders relying on a smooth transition. And the more we thought about it, the longer Jeff stayed on to help assist with the transition for the things I know, and especially on the credit side of the business, Vincent, that it sort of made more sense to accelerate making the announcement and then having Jeff stand up for a longer period of time as opposed to postponing it and doing the transition, do a shorter period of time. And I think leading to your question, I'd probably spend more time on the credit side of the business, the underwriting side of the business, and see what improvements that we have there, especially given credit loss. And when I think about some of the improvements we made in other areas of the business, I'm excited to sort of roll up my sleeves and see what other opportunities are there as well.

Okay, great. That's super helpful. Thank you. My next question, I wanted to touch on the shelf filing that was filed a couple of weeks ago and some of the comments that were made in the shelf filing, particularly the kind of the unprecedented opportunities you might be seeing. If you could talk about that in more detail, what you're seeing and sort of what you're looking for that makes you excited about those opportunities. Thank you.

Yeah, the industry obviously has been in turmoil. We've had major competitors going out of business. There's a lot of folks that have been in the business for decades that don't have an exit strategy, don't have a succession plan. The cost of being in the business continues to go up. So there's a lot of very good, very strong operators out there of size that are looking for a succession plan or how to get out of the business. And so what we do and what we've offered on the acquisition side is appealing to more and more good operators. And we've got some good discussions going on, very optimistic about being able to continue to pick up productivity and profits from our existing store base, and then add this acquisitions effort on separate and apart from all the other good stuff going on. And it could be really a good point, a great point in history for us to be going out and getting more aggressive with acquisitions, and we're setting ourselves up to do just that. And the shelf registration was just another aspect to that opportunity and giving us more options on the financing side if and when needed to support some acquisitions.

Okay, great. Thank you. And if I could maybe sneak one more in for Vicki. Just on the credit side, the credit reserves have been increasing and understandably about the mix and the term and so forth. Just as the way things stand right now, Do you foresee that the credit reserves were at that sort of the right level or should we be anticipating just help determine next things continue to change? Thank you.

Sure. Well, you know, we continue to look at that quarterly based on, you know, historical numbers and what's happening in the current market as well as some forecasting, you know, for some economic events. So, you know, we did increase it slightly in the fourth quarter. we were able to keep it level this quarter. So it's hard to say quarter over quarter, but we're working on a lot of things, as we mentioned in the press release and in a few of my comments, in bringing down term, working on down payments, hopefully reducing some selling prices and amount financed as we move forward. Those will all be things that we're working on to hopefully offset the impact of any allowance increases. But that's certainly a possibility, you know, as we move forward here and depending on what happens over the next few quarters.

Okay. That's super helpful. Thanks again, everyone.

Thank you. Thank you, Vince. Thank you, Vince.

And thank you. And I am showing no further questions. I would now like to turn the call back over to Jeff Williams for closing remarks.

Okay, well, once again, thank you for listening to our call, and thank you for your interest in America's Car Mart. Doug, congratulations again on your promotion to CEO. We'll have a smooth transition, and we appreciate and respect all of our associates out there that have passion for what we do and support each other and support our customers at very high levels. So thank you, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you.

Thank you. Thank you. the the Thank you. Bye. Thank you. Thank you.

Good morning, everyone. Thank you for holding, and welcome to America's Car Mart's first quarter fiscal 2024 conference call. Before we begin, today's call is being recorded and will be available for replay for the next 12 months. During today's call, management may make certain statements that are considered forward-looking, 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, 2023, and its current and currently Quarterly reports furnished to or filed with Securities Exchange Commission on forms 8K and 10Q. Please see the company's website for the earnings release for the first quarter of fiscal 2024, along with a second news release about a leadership transition. Participating on the call this morning are Jeff Williams, CEO, Doug Campbell, President, and Vicki Judy, CFO. I will now turn the call over to Jeff Williams, CEO. You may begin.

Okay. Well, thank you for joining us on the call this morning and thank you for your interest in America's Car Mart. I'm pleased to report that we delivered strong revenue growth for the quarter. We had solid improvements in many areas of our business. Near-term credit results are a challenge and we'll discuss that in more detail in just a few minutes. Before we get into the details, I'm excited to cover our other news today. that President Doug Campbell will succeed me as CEO effective October 1st. Over the last year in his role as president, Doug has more than demonstrated his readiness for the new role. In my role as CEO and a board member, there are many responsibilities, but succession planning has been at the very top of the list for me. Identifying a candidate with a strong cultural fit, the skill set to capitalize on opportunities and navigate the challenges ahead is why we first engaged with Doug almost two years ago now. Doug's appreciation of the company's culture, strong industry knowledge, and being a change agent is why he's the perfect fit to lead us to the next level. Our transition plan will allow for a smooth handoff, and I'll be here to fully support Doug as we move forward. So congratulations and thank you, Doug. I'll now turn it over to Vicki and to Doug to review the quarter results, update you on the status of initiatives, and provide an outlook on our business. Doug?

Thanks, Jeff. I want to thank Jeff for all that he's done for the company over his 18 years of service, and in particular, the last six years as CEO. We have continued to source inventory and grow our business, despite the industry being very constrained and volatile over the last couple of years. While competitors are exiting the business unable to manage capital constraints, we've been investing in our business. It's in stark contrast with how others are managing through the environment, and a testament to Jeff's bold leadership and vision for the company in what has been one of the most challenging environments in the history of our industry. I owe Jeff a debt of gratitude for the time he has spent with me over the last year, and during that time we've cultivated a fantastic working relationship that will serve us in facilitating the transition ahead. I'm equally appreciative to our chair and our board members who have been investing in my development, and their feedback and guidance has been valuable. On a personal note, I'm deeply humbled and thankful for the opportunities. As I look forward, I'm more enthusiastic about our future here at America's Car Mart than I was a year ago. We're focused on the long-term health and success of our business and are demonstrating our ability to operate in any environment. Before we transition over to the quarterly results, I'd like to thank our associates who work tirelessly to deliver improvements in sales volume, gross margin, procurement efforts, wholesale performance, and reductions in repair spend. Their relentless pursuit to both put and keep our customers on the road continues to be a winning combination. Let's start with sales performance. Our sales performance was strong, generating 15,912 units sold, which was up 2.4% over the prior year's quarter. Same store sales basis up 8.2%. That had a nice impact on inventory turns as those moved up from 5.9 to 7.2 turns. Growth in online credit applications was up 19% for the quarter, which was mentioned in the press release. That accounts for about 70% of all of our applications Overall application volume was up 8.1% when including the walk-on traffic that we see at our dealerships. This is especially impressive when you consider that we've now begun to augment our advertising spend because of the power of the LOS and its ability to drive online traffic. The LOS continues to be the primary driver for our sales growth despite what is a down cycle for many with the remainder of the industry down in sales year over year during the same period. Credit availability continues to be an issue for the industry. and is tighter than previous year when looking at Cox Automotive's dealer track credit availability index. It has shown some mild improvement in the last month or two, but it's still worse when comparing it to pre-pandemic periods. This is a benefit for us as consumers now look to us for access to credit. When I think about average selling prices during the quarter, they were up by 4.1% year over year. About half of that was related to the price of the vehicle. The other half was related to the ancillary products that we sell. On the last call, I discussed that the cars we were purchasing during the spring market were up about 3%, so that should be no surprise here. However, we also mentioned that the cars that we are buying are newer and have lower mileage. This ultimately makes them eligible for longer warranties, which generates more revenue in the selling prices. As a reminder, this is now even more pronounced when you consider the price increase that we made to our service contracts in December of last year. The industry saw wholesale pricing decline sharply in May and June, while prices in July decreased at a more normalized rate. During the first quarter, our procurement teams lowered purchase prices sequentially throughout the quarter, contributing to a 3% reduction in prices from where we started. August wholesale pricing is showing price increases, which is abnormal this time of year. It could be related to the sales strength we're seeing in the overall marketplace in August, or low inventory day supply on the ground. and I think some speculation on what will happen between negotiations with the UAW and the big three in Detroit. We're keeping a close eye on that and what's transpiring and working to mitigate any effects and mute some of its effects there. Gross margin came in at 34.6%, which was up 20 basis points compared to last year and up 120 basis points when I look at it sequentially versus the fourth quarter. We went into a fair bit of detail in the press release regarding gross margin, and articulated what our plan was on the last call, so I don't want to be too redundant. But to put it simply, we're executing at an elevated level on the plan that we had laid out. We are buying newer and lower mileage assets, and those are trickling through our ecosystem. We're improving the performance of our operations teams as it relates to vehicle repairs, and we continue to scale our reconditioning initiative, which has a target savings of $300 to $500 per unit. We're seeing progress in all three areas, which isn't surprising, But I guess I'm really encouraged at the rate at which we're seeing some of this benefit. We had estimated that we could recover 260 basis points of gross margin to achieve a 36% target that we alluded to on the last call. However, there are other opportunities that we're now exploring. I'll give you an example. Transportation would be one of these. Last year, we changed the technology stack that we use to move vehicles throughout our ecosystem by optimizing loads and routes. We began to roll this out in the fourth quarter, but Q1 is the first full quarter we're seeing the benefit. It represented an improvement of 20 basis points in gross margin when compared to the first quarter of last year, and ultimately we're now saving about 15% on the way we move our vehicles. There are other opportunities with ancillary products, wholesale, and repairs that we're looking at to drive even further improvements beyond what was initially indicated. Some of these opportunities can be realized during this fiscal year. Others will be more long-term in nature. I'll now turn it over to Vicki, who will cover our financial results.

Good morning, and thank you, Doug. For the current quarter, our net charge-offs as a percentage of average finance receivables were 5.8%. That's compared to 5.1% for the first quarter of 23 and 6.3% sequentially. It is above our five-year average of 5% and our 10-year average of 5.6% for first quarters. Both of these include the low credit loss pandemic period. For some comparison pre-pandemic, our first quarter losses for fiscal year 18 and 19 were 6.1%. A little over half of the increase in losses contributed or compared to the first quarter fiscal 23 was due to the higher severity of losses and the remainder being an increased frequency in the losses. Our recovery values were down from historically high levels in the prior year quarter of 32% and held flat sequentially at approximately 27%. As of July 31, the allowance for loan losses was 23.91% of finance receivables and out of deferred revenue. And as discussed in the press release, our provision exceeded actual charge-offs by $14.8 million. We have over $125 million of deferred revenue on the balance sheet. And in addition, we also collected an additional $12 million in interest income. an increase of 27.3% when compared to Q1 of fiscal 23. We also mentioned in the press release the benefit of the LOS in attracting additional customers. It's also going to be instrumental in helping us improve deal structures and ultimately the success rate of our customers once it is fully implemented across all lots. Our customer scores during the quarter remain consistent with the prior year. On the delinquency side, our accounts 30 plus past due was at 4.4% compared to 3.6% in the prior year quarter. The month ending on a Monday versus a Sunday in the prior year contributed to part of this, as well as the continuing negative impact of the inflationary environment on our customers. Total collections were up 12% to $166 million. and total collections per active customer per month were $535 compared to $516 in the prior year quarter. We continue to work with our customers on payment options and modifications in an effort to keep them in the vehicle and successful on their contract. The average originating contract term for the quarter was 44.7 months compared to 42.8 for the prior year quarter and up slightly from 43.5 months sequentially. We added 1.9 months to the originating contract term compared to the prior year first quarter to assist our customers with an affordable payment. Our weighted average contract term for the entire portfolio, including modifications, was 46.9 months compared to 44 for the prior year quarter. The weighted average age of the portfolio increased to approximately 10.4 months. The percentage of the portfolio held by the highest credit quality customers continues to improve compared to the prior year. On the SG&A side, we've been focused on identifying efficiencies in the business across the board, and as mentioned in the release, we had a savings on our SG&A spend of over $600,000 from the fourth quarter, excluding the stock-based compensation. A large percentage of this savings was in advertising. We continue to shift more of our advertising dollars to digital spend, which is more efficient and also helps supplement our LOS efforts. Our customer count increased by 8.1% over the prior year to almost 105,000 customers. Our SG&A spend per average customer improved over the prior year first quarter and over the sequential quarter. Our investments are being made to better serve this growing base while improving the efficiencies as we move forward. And although we continually evaluate our return on investments and allocation of capital, it becomes even more important in this environment of increasing funding costs. With that in mind, we did close two underperformed dealerships during the quarter to better allocate our available capital. We'll continue to review and monitor capital invested in each dealership and other investments to maximize returns. At quarter end, we had $6.3 million in unrestricted cash and approximately $159 million in additional availability under our revolving credit facilities based on our current borrowing base of receivables and inventory. Our total securitized non-recourse notes payable was $711.8 million, with $86 million in restricted cash related to those notes. We closed on our third securitization in early July with net proceeds of $356 million and a coupon of 8.8%. This paid off our revolving line of credit. Our total debt net of cash to finance receivables ratio is at 42.9% and up from 41.5% at April 30th. Interest expense increased $6.9 million, with approximately 60% of that related to the increased rates over the prior year, and the remainder a result of the increased borrowing. I'll now let Jeff close us out.

Okay. Well, thank you, Vicki. The demand for our offering will continue to increase. Our model is the very best way to serve our high-touch customer base and the unique challenges that require a balance between face-to-face decentralized decisioning and leveraging scale where it makes sense. We're striking just the right balance, and that's more apparent as we continue to pick up market share. Current demand exceeds what we can supply. We believe that affordability will improve over time as basic transportation must be available for average consumers. Currently, many customers are sitting out and will flow back into the market over time. In many respects, our customers are always in recession, which makes the current environment ideal as we focus on affordability and delivering outstanding service to keep our customers on the road. Foundational investments are nearing completion and will be leveraged, allowing us to become a more efficient, data-driven company. We've not yet seen the benefit that will come. We're on track to sell between 40 and 50 retail units per dealership per month in the next few years and eventually serve 1,000 customers per dealership. We believe credit results will improve, especially as we look at the opportunities with the LOS, increasing car quality, and execution levels. We believe gross profit percentages will improve and will leverage SG&A as we move forward. And as discussed in the press release, we're in a unique period in the industry, and we have significant opportunities in the acquisitions areas, and we're talking to several strong operators with highly accretive opportunities. Very excited about that. We have great days ahead and Doug is ready to lead our team forward. Thank you to all of our passionate associates who have signed on to our vision to be the best and dreamed big about what we could be while taking care of our customers one at a time. Thank you and we'll now open it up for questions. Operator.

And thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And we do ask that you limit yourself to one question, one follow-up. Again, we ask that you limit yourself to one question, one follow-up. Thank you.

And one moment for our first question.

And our first question comes from John Murphy from Bank of America. Your line is now open.

Good morning, everybody, and congrats to Jeff and Doug on the next legs of your careers here. I guess just a first question. When you think about the extension in contract terms to help with the monthly affordability equation, I'm just curious if you think that ever reverses or is this something that is now structurally in place and that we'll continue to see lengthening, or has there been a period of time where you know, Car Mart's history or over time where contract terms have actually shortened once they've been lanterned over time.

Yeah, we do see an opportunity in the future to reel back in and decrease terms as we go forward. Our customers' wages continue to go up, and I think the last few months, few quarters, we've seen real wage increases for our consumers, so we do feel like eventually We can move that term the other direction, but that's going to be based to a large extent on what happens with car prices and wages as we go forward and other inflationary pressures. But we would certainly like to reel in term, and we do think there's a very realistic and real possibility of us moving that direction, especially as we look at the LOS and all the different features and functions and benefits we're going to get when that tool gets fully rolled in.

It's helpful. And then just a follow-up on some of the comments that were made in the press release about the changes in purchase and disposition of vehicles. And I'm just wondering if you could sort of expand on what changes have actually occurred. Is it something where we're just looking at slightly newer vehicles that are being put into inventory that have lower recon costs? And that's the efficiencies that are gained. What's actually happening? changing there that's making that more efficient over time? Because I thought you've been pretty good at that historically, but it sounds like you see room for improvement.

Yeah, thanks for the question. I would say historically we have been very good at that. It was, I think, my very first call-on that I spoke about how we had used that as a lever to mitigate some of the cost, and we went to a little bit older car with a little bit higher mileage. And while it had its benefits up front, you know, there's the repair costs associated with that downstream, which has been somewhat problematic. And so what we're trying to do is get back to our historical norms. But beyond that, we've seen efficiency gains, what I would call that are more closer to pre-pandemic levels. And so the car we used to sell might have been 9 or 10 years old. We're able to shave a year off that and improve the overall mileage by 10,000 to 12,000 miles, what I would call versus pre-pandemic. So the car inherently is a lower mileage car, which should generate less in repairs. And ultimately, I think it gives us a second chance at retailing the unit. Should we have to go down the repossession route, it creates a second chance for the inventory to have another purpose in our business.

John, I would add, in the last two or three years with the pandemic and the chip shortage and the used car issues and all the supply chain issues we had, that there was some real disruption in our historical performance on product and procurement. And it's kind of working itself out at the same time that we're making some good improvements internally.

All right. Thank you very much, guys. I'll get back in the queue. That's very interesting. Thank you.

Thank you. And thank you. And one moment for our next question. And our next question comes from Kyle Joseph from Jefferies. Your line is now open.

Hey, good morning, guys. Congrats, Jeff. Let me know if you ever want to go play golf. Go. Anyway, so kind of piggybacking on that last question in terms of gross profit margin, obviously used car prices have been elevated. It seems like they're maybe coming back to earth for a while, but longer term, do you think the gross profit margin has changed

systemically or do you think you know gradually over time we get back to where it was yeah thanks Kyle for the question I think there's an opportunity to sort of have a middle ground there but we as we sort of called out earlier maybe we set our expectations a little too low on that 36% and we're realizing in real time there's benefits beyond what we initially anticipated especially when you consider items like transportation that maybe wasn't sort of initially on the table, but we're looking at any and all things in the business to sort of drive improvements there. One thing that I didn't mention in the last answer was what we own those cars relative to the book value. And if I just go back, if I used a call this time last year and to the current time, so over the last 12 or 13 months, how we own those cars relative to the book has improved eight or 9%. So there's a combination of improvement of how these cars are starting life in our portfolio there's the improvement in a younger car with lower miles which all should have benefits downstream in terms of credit loss and fair market value retention right it sort of takes some of that risk and exposure off the table got very helpful and then yeah my follow-up would be you know that the health of the underlying consumer I know you mentioned

The quarter ended on a different day, but at the end of the day, the low-end consumer still employed. Inflation pressures are easing a bit. How would you gauge the health of your underlying consumer?

Yeah, I don't think we're seeing any large changes yet. Again, to your point, unemployment is still very low. They're working. Wages are still good. Hours worked are still good. But there are still a lot of inflationary pressures and just the adjustment to those inflationary pressures and the lack of stimulus that was there for a point in time. So the use of credit has gone back up for our consumers. We're seeing that kind of across the board. Our consumers are almost typically always in a recession, living paycheck to paycheck, so it's really just an adjustment and getting them back used to the higher car payments and keeping them in their car.

But overall, the health of our consumer is increasing quarter over quarter. As we move forward, we believe that's going to be a better situation for us. As we go forward, and as Vicki mentioned, unemployment rates are historically low, and real wages are gaining some steam in the areas we serve and the customers we serve.

And I think a piece of that is, as Doug mentioned, the tightening in the lending environment. We are seeing a different cohort of consumers come down into our market. We continue to see that.

Got it. Thanks, Vicki. Thanks, Doug. Thanks, Jeff.

Thanks, Kyle.

And thank you. And one moment for our next question. And our next question comes from John Rowan from Janie Montgomery Scott. Your line is now open.

Good morning. Congrats, Jeff and Doug. Thank you.

I guess, you know, some other, you know, larger lenders have postulated that, you know, with the potential for a strike, and you guys mentioned this in your prepared remarks a little bit, that there would be an increase in dealer inventory, you know, guys would take up floor plan loans. Obviously, you know, fiscal 2023 mid-year, you are very heavy in inventory. Are you planning on, you know, raising inventory levels at all if, you know, this Strike looks like it's going in one direction. Obviously, everything flows downstream. I don't necessarily think there's an immediate shortage in used cars, but I'm just curious if you think there'll be a ripple effect that could cause you to raise inventory levels.

I think about it differently. It's a great question and certainly been on our minds. I don't know which way it's going, but we're trying to prepare ourselves for any variation of an outcome. I think ultimately... If you go back to the last strike on record, I think it was the GM strike, and you go track overall used car prices, what you saw was upward pressure, especially on those brands. I think it was a General Motors strike. If you go back and look at those brands, you saw a nice increase in pop in pricing as day supply diminished on the ground. It almost happened in real time because there's a lot of speculation in and around that. And so when you have three automakers potentially Going on strike and the deadline is looming here You have to sort of be ready for that and it's going to be more than just the overall impact on those 3d automakers It'll just be a shortage of supply on the ground If you looked at absolute supply in our industry, it's still really it's sort of all-time lows. And so The instance of something like this happening could drive values up. And so for us that is some headwind on the buying side we can combat that with being more selective on the cars we buy and To your point, I think what you were alluding to is, do we stock up for an event like that? I don't think that is necessarily a lever we would pull. However, I do think if there was some appreciation of values, it becomes a tailwind on the fair market values that we have for the cars that were taken back, the repo vehicles. So there's good and bad to us having the lending side to this, and we're just trying to make sure we're ready. We don't know sort of which way it's going to go, but our job is to be ready for that, and we're looking at those options available to us now. Okay, great.

Thank you. We mentioned on the last call, too, that a lot of competition that we have is struggling with capital. We had a couple of sizable competitors go out of business in the last six months or so, too. So there's some positive on the supply side in addition to some potential negatives, too. So that all balances out, and we're pretty nimble on our procurement. So we'll be able to address and adjust to any situation we see.

Great. Thank you. Thanks, John.

And thank you. And again, if you would like to ask a question, that is star 11. Again, if you would like to ask a question, that is star 11. One moment for our next question. And our next question comes from Vincent Cantik from Stevens. Your line is now open.

Hey, good morning. Thanks for taking my questions. Doug, congratulations and look forward to working with you. And Jeff, it's been a pleasure working with you for the past several years and we'll miss you. So first I wanted to zoom out, just kind of a broad question about the CEO transition and if you could walk us through that. It sounds like this process has been going on for the past few years. So just wanted to... kind of get a sense for why now is a good time for the transition. And then, Doug, anything in particular you'd like to focus on as you start your tenure? Thank you.

Well, yeah, as to the timing, this is just a good time in our history. We've been through some pretty difficult times. Things are still tough, but getting a little bit better. And some of these long-term, highly complex labor-intensive investments and initiatives we've had in place. Doug's been able to participate in those for the last year, and those are all coming into play. And with Doug and his experience and his talent level, it's just a perfect time for us as a company, especially with the transition being extended. There'll be plenty of support, plenty of time to transition appropriately as we go forward. So this is just a good time and For me, for Doug, and for our company and our associates and shareholders, it's a good time in history to be making this change, especially with the transition plan we have in place.

Thanks. I'd add, you know, my first, you know, obviously opportunity to be a CEO of a company. And, again, I'm humbled. But, you know, at the end of the day, there are a lot of associates who are relying on smooth transitions, a lot of shareholders relying on a smooth transition. And the more we thought about it, the longer Jeff stayed on to help assist with the transition for the things I know, and especially on the credit side of the business, Vincent, that it sort of made more sense to accelerate making the announcement and then having Jeff stand up for a longer period of time as opposed to postponing it and doing the transition, do a shorter period of time. And I think leading to your question, I'd probably spend more time on the credit side of the business, the underwriting side of the business, and see what improvements that we have there, especially given credit loss. And when I think about some of the improvements we made in other areas of the business, I'm excited to sort of roll up my sleeves and see what other opportunities are there as well.

Okay, great. That's super helpful. Thank you. My next question, I wanted to touch on the shelf filing that was filed a couple of weeks ago and some of the comments that were made in the shelf filing, particularly the kind of the unprecedented opportunities you might be seeing. If you could talk about that in more detail, what you're seeing and sort of what you're looking for that makes you excited about those opportunities. Thank you.

Yeah, the industry obviously has been in turmoil. We've had major competitors going out of business. There's a lot of folks that have been in the business for decades that don't have an exit strategy, don't have a succession plan. The cost of being in the business continues to go up. So there's a lot of very good, very strong operators out there of size that are looking for a succession plan or how to get out of the business. And so what we do and what we've offered on the acquisition side is appealing to more and more good operators. And we've got some good discussions going on, very optimistic about being able to continue to pick up productivity, and profits from our existing store base, and then add this acquisitions effort on separate and apart from all the other good stuff going on. And it could be really a good point, a great point in history for us to be going out and getting more aggressive with acquisitions, and we're setting ourselves up to do just that. And the shelf registration was just another aspect to that opportunity and giving us more options on the financing side if and when needed to support some acquisitions.

Okay, great. Thank you. If I could maybe sneak one more in for Vicki. Just on the credit side, the credit reserves have been increasing and understandably about the mix and the term and so forth. Just as the way things stand right now, Do you foresee that the credit reserves were at that sort of the right level or should we be anticipating just help determine next things continue to change? Thank you.

Sure. Well, you know, we continue to look at that quarterly based on, you know, historical numbers and what's happening in the current market as well as some forecasting, you know, for some economic events. So, you know, we did increase it slightly in the fourth quarter. We were able to keep it level this quarter, so it's hard to say quarter over quarter, but we're working on a lot of things, as we mentioned in the press release and in a few of my comments, in bringing down term, working on down payments, hopefully reducing some selling prices and amount financed as we move forward. Those will all be things that we're working on to hopefully offset the impact of any allowance increases. But that's certainly a possibility, you know, as we move forward here and depending on what happens over the next few quarters.

Okay. That's super helpful. Thanks again, everyone.

Thank you. Thank you, Vince. Thank you, Vince.

And thank you. And I am showing no further questions. I would now like to turn the call back over to Jeff Williams for closing remarks.

Okay, well, once again, thank you for listening to our call, and thank you for your interest in America's Car Mart. Doug, congratulations again on your promotion to CEO. We'll have a smooth transition, and we appreciate and respect all of our associates out there that have passion for what we do and support each other and support our customers at a very high level. So thank you, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.