America's Car-Mart, Inc.

Hello, and thank you for standing by. Welcome to America's Car Mart second quarter fiscal 2025 results. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hands raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to Vicki Judy. You may begin.

Good morning. I'm Vicki Judy, the company's chief financial officer. Welcome to America's Car Mart's second quarter fiscal year 2025 earnings call for the period ending October 31st, 2024. Joining me on the call today is Doug Campbell, our company's president and CEO. We issued our earnings release earlier this morning and it is available on our website along with supplemental slides detailing our cash on cash returns and our new loan origination system performance improvements. We will post the transcript of our prepared remarks following this call and the Q&A session will be available through the webcast. During today's call, certain statements we make may be considered forward-looking and inherently involve risk and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision 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, including important cautionary notes, Please see Part 1 of the company's annual report on Form 10-K for the fiscal year ended April 30, 2024. And our current and quarterly reports furnished to or filed with the Securities Exchange Commission on Forms 8-K and 10-Q. I'll let Doug start with color on the quarter and perspectives on CarMart's business strategies. Doug, I'll turn it to you now.

Thank you, Vicki. We had significant activity during this quarter that I want to comment on. which were designed to shape our outcomes in the future. In September, we amended our revolving credit facility. The purpose was to provide additional cushion around our financial covenants to help navigate uncertainty around the macroeconomic environment and the back half of the year. We also raised approximately $74 million of net proceeds through the issuance of new shares. It's important for me to explain the rationale for this decision. Our management team and board of directors gave very thoughtful consideration and review. effect on current shareholders. Our performance over the past few quarters was below our expectations, which was an important factor in our decision to bolster our balance sheet. As we've talked about in the past, we've been challenged by marketplace factors. On the sales side, we've tightened underwriting standards given the industry-wide auto loan loss pressure, evident by the performance of our own backbook. Our consumer is and has been more susceptible to challenges in today's inflationary environment. We needed breathing room in our forecast to account for these factors. We did consider options that would increase additional leverage in various forms, but ultimately we felt that equity was more prudent. This decision pained us to execute. However, we felt it was the best decision for all shareholders to maintain flexibility during marketplace challenges and a higher interest rate environment. With the equity raise completed, the company is currently in discussions to extend which matures in September 2025. And we're working through potential initiatives to expand the company's funding program while also making it more robust. These initiatives include options to add warehouse capacity, a redesigned floor plan facility, and a bespoke line of credit for receivables originated by our acquired dealers. The objectives of these facilities are to increase overall availability, optionality on when we enter the ABS market, and to build a level of redundancy and conservatism in our funding structure. We appreciate the support of our ABL partners, and they will continue to be a critical part of our capital structure. They have been supportive for many years, and we appreciate their consideration in navigating near-term challenges to date. We will share more with you in our progress on these initiatives in the coming quarters. We completed our fifth ABS transaction in October. This transaction was $300 million in size and well oversubscribed. generating over $1.5 billion in demand. We believe improved demand was for loans underwritten by LOS, which represented approximately 70% of the receivables in this transaction. Ultimately, this enabled us to have the tightest spreads we've had to date, which when combined with lower benchmark rates resulted in an overall coupon of 7.44%, a nearly two-point improvement over our January transaction. This platform is important for us given material improvement in the advance rate relative to the ABL and the access to additional capital for a growing portfolio. Also in October, we welcomed our new Chief Operating Officer, Jamie Fisher, to our leadership team. Last quarter, I mentioned how important existing and new talent will be in rounding out our leadership team. Her skill sets will complement and accelerate our growth, and she's already proven to be a great fit within the organization. Before turning it over to Vicki, I want to comment on our continued improvements in underwriting. Back in June, I spoke about the LOS results relative to the loans generated in our legacy system during the LOS rollout. At the time, we noted that it was still early, but we were optimistic that the results that we were seeing showed a 20% improvement in cumulative net losses through May. An update through October is now showing this at a 21% improvement in cumulative net losses. On the surface, very difficult to see where such nominal changes to down payments, originating term lengths, payment to income ratios, and overall amounts financed could represent such an improvement to cumulative net losses. But our focus has been on the cohorts of customers with the most risk within our customer rankings. We rank our customers one through six, with six having the very best credit and one ranked customers holding the most risk. Approximately 40% of our sales come from ranks one through four consumers. And that has been where most of our focus has been for us on improving loan structures and allowing more flexibility to five and six rank customers. On these lower cohorts, we systematically now can hold more control over these structures when compared to our legacy system. This has resulted in a 15% improvement in down payments, allowing us to carry smaller loan sizes of four to $800 less, depending on the customer rank, and curtail originating terms by three months on average, in addition to lower payment-to-income ratios. Looking at the bottom quartile of stores, those results are even more pronounced. The LOS receivables within the portfolio at quarter end represent almost 50% of the portfolio dollars. In terms of the number of contracts, it's about 38%. It's why we're starting to see an improvement sequentially in the severity of loss, but the volume of contracts originated in the legacy system are still driving the frequency of loss. We were able to take another reduction in our loan loss reserve percentage based on the LOS improved performance and increasing size of the portfolio impacted by it. We expect a crossover point at the end of the fiscal year where the LOS will start to be a larger driver on both frequency and severity. With that overview, let's turn to the second quarter financial results. Vicki?