Good morning, everyone. Thank you for holding, and welcome to America's Car-Mart Second Quarter Fiscal 2020 Conference Call. The topic of this call will be the earning and operating results for the company's second quarter for fiscal 2020. Before we begin, I would like to remind everyone that this call is being recorded and will be available for replay for the next 30 days. The dial-in number and access information are included in last night's press release, which can be found on America'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, 2019, 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 Vickie 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, and thank you for your interest in America's Car-Mart. We are pleased to report another good solid quarter. The results were expected and provide further validation that the hard work of our associates focusing on the basics and taking care of customers gives our business model real sustainable power. The market we serve is large and fragmented, and consumer demand for great service and peace of mind for local transportation needs is very high. And we have an obligation to grow our customer count at a rate that's in line with our ability to serve at the highest operational levels. The customer experience starts and ends with the vehicle, and we pledge to do everything we can to keep our customers on the road with quality vehicles and great customer service after the sale. We will continue to educate consumers about the financial benefits of our offering in the market with our lower interest rates, shorter terms and our focus on putting valued customers in an equity position, along with the peace of mind of knowing that we have a real sense of urgency from top to bottom to keep customers on the road. Our customers' overall quality of life is better when they're part of the Car-Mart family. I'll now turn it over to Vickie to go over some numbers. Vickie?

Good morning. As Jeff mentioned, we had a solid quarter with record revenues of $190 million. This resulted from a 14.6% increase in sales and an 8.7% increase in interest income. Same-store revenues were up 12.2%. We had a great selection of quality vehicles, and our associates did a great job of helping customers get into a vehicle that fit their needs. The investment that we've made in inventory, an additional $8.8 million since last October, is contributing to higher sales volumes by attracting more potential customers, including our repeat customers. We saw solid increases across all ages of dealerships. Revenues from stores in the over 10 years of age category was up 13%. Stores in the 5 to 10 year category was up 12%, and revenues for stores in the less than five years of age category was about 43% to $21 million. Retail units sold increased by 8.7%, and the average retail sales price increased by 5.1% to $11,589 compared to $11,030 last year. At quarter end, 20 or 14% of our dealerships were from 0 to 5 years old, 39 or 27% were from 5 to 10 years old, and the remaining 86 dealerships were 10 years old or older. Our overall productivity was 31.6 units per lot per month, up 6.4% from 29.7. Our 10-year-plus lots produced 34.2 units sold per month per lot for the quarter compared to 31.9 for the prior year quarter. Lots in the 5 to 10 year category produced 29.4 compared to 27.7 for the prior year. And the lots less than five years of age had productivity of 25.2 compared to 25.1 for the second quarter of last year. Our down payment percentage was up slightly to 6% compared to 5.8% for the prior year quarter. Collections as a percentage of average finance receivables was up 30 basis points to 13.3%. We did see some slight increases in term, primarily due to the increasing average selling price. The average originating contract term was 30.4 months compared to 29.2 for the prior year quarter, and up from 29.9 months sequentially. But again, the average selling price was up $559, with a 1.2 month increase in term. Our weighted average contract term for the entire portfolio, including modifications, was 32.3 months compared to 32.1 for the prior year October. The weighted average age of the portfolio was basically flat at approximately nine months. Interest income increased $1.8 million or 8.7% compared to the prior year quarter, primarily due to the $44.2 million increase in average finance receivables, an 8.3% increase. The weighted average interest rate for all finance receivables at the end of the quarter was approximately 16.4%, flat from the prior year quarter. The gross profit percentage for the second quarter was 40.5% compared to 41.7% for the prior year quarter, but basically flat compared to the prior two sequential quarters. This is primarily a result of the higher average selling price as our gross margin percentages are lower at a higher selling price. While we did sell a few more SUVs compared to the prior year, most of the increase relates to selling an overall higher cost vehicle as a result of our focus on quality inventory and the overall strength of the used car values in our market. Our gross profit margin dollars per unit sold increased by $116 or 2.4% to $4,935 compared to $4,819 per unit in the prior year. SG&A for the quarter was up $2.1 million or 16.9% of sales compared to 17.9% for the prior year quarter, and at 57.4% of total revenues less cost of sales and the provision for credit losses compared to 60.5% for the prior year quarter. This 310 basis point improvement is important as a large part of our efforts have been focused on keeping good customers and driving down credit losses. So this measurement is important for integrated sales and finance business. We believe the investments that we are making in our associates, systems and infrastructure are essential to continuing operational improvements. The increased SG&A spend was mostly related to salaries and benefits, including stock-based compensation as we are making long-term investments focused on recruiting and developing great associates and an infrastructure to support a growing customer base. We added over 4,500 customers since this time last year and 1,700 this quarter. We continue to stay focused on efficiencies and cost control while continuing to invest for the long term. For the current quarter, our net charge-offs as a percentage of average finance receivables was 6.1%, down from 6.6% in the prior year second quarter. We continue to see both improvement in both the frequency and severity of losses compared to the prior year as a result of the higher quality vehicle, improved deal structures and the consistent focus on our operational non-negotiables related to collections practices. We will stay focused on these, while ensuring that we provide great customer service after the sale to keep customers in their car and on the road. The improved collections of 30 basis points better contributed to the decreased severity of the losses. Recovery rates for the quarter were slightly lower than the first quarter of fiscal '20, but approximately flat compared to the same quarter last year. The effective income tax rate was 22.7% for the second quarter compared to 20.1% for the prior year second quarter. Income tax expense does include an income tax benefit of $140,000 and $543,000 related to share-based compensation for the current quarter and the prior year quarter, respectively, about a $0.06 per share change. 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 $177 million. We had over $63 million in additional availability under our credit facilities. Our current debt-to-equity ratio is 63.6% and our debt to finance receivables is 30.1%. We did repurchase 112,091 shares during the quarter for approximately $10 million at an average cost of $89 per share. Since 2010, we've repurchased approximately 54% of our company for $239 million at an average price of approximately $38 per share. We continue to have strong cash flows. For the six months, we have added $43.8 million in finance receivables, repurchased $14.7 million of common stock, funded $1.7 million in CapEx and increased inventory by $10.6 million. This is a total of $70.8 million with only a $24.1 million increase in debt. Thank you, and I'll turn it back to Jeff.

Okay. Well, thank you, Vickie. Our hard work and attention to detail is allowing us to grow in a healthy manner. We've opened two locations this year, and we have new dealerships in process in Chattanooga, Tennessee and Cabot, Arkansas. Additionally, as mentioned in the press release, we've begun work on our new dealership in Edmond, Oklahoma. We have high expectations for new openings, and we will continue to open new stores as we move forward. As we've said many times, we have significant market share opportunities from existing dealerships, and we will continue to leverage these locations, our cost structure and the management talents that we already have in place. Most of our existing general managers have the potential to serve 1,000 customers or more from their current dealerships over time. It's a great time to be in America's Car-Mart. We have such a great team and our associates are dedicated to helping customers succeed. Thanks to our customers for coming to us for their transportation needs. And for our associates for the hard work and dedication to this effort. There is real purpose in our work, and we're pushing hard to get better every day. We will now open it up for questions. Operator?

Our first question comes from John Murphy at Bank of America.

This is Yarden Amsalem on for John. The first question on the cost side. SG&A to gross has been getting incrementally better in recent quarters, and it was very strong in 2Q as well. Can you maybe talk a little more about the specific actions you're taking there? And where do you see that number going to over time? You think about mid- to high 50s is kind of the limit or can it get even potentially better over time?

Well, we certainly feel like the top line can continue to grow at a healthy rate. So that's going to help with that ratio. And then in addition to that, we do expect to continue to see some improvements on the credit loss line. We're working hard. We're running the play at a higher level. And our operations team focused on collection is doing good work. So we would expect to continue to see some good improvements in that ratio.

And can you just remind us what percentage of your SG&A is fixed versus variable?

Yes, most of our SG&A will be fixed. A large portion of our costs, particularly salaries, are related to benefits. However, nearly all of our costs are fixed in nature. Therefore, incremental volumes are extremely important to us.

Okay, got it. And then can you maybe give us some details on the sales cadence through the quarter? Was it kind of an even growth throughout or were there any particular month that was stronger or weaker than the other?

No, it was a pretty solid quarter, pretty consistent between months.

Our next question is from Hugh Miller from Buckingham.

And just on the sales side, following up on the prior question. As we think about kind of the change in unit volume growth over the past couple of quarters versus seeing a nice improvement, in rebound this quarter, can you just give us a little bit more as to kind of what the bigger drivers of that? Are you seeing benefits from the online credit app or the digital inventory? I think you referenced kind of the quality of inventory. And any success you're having just on the education of the consumers on the total cost of ownership? If you can just provide a little bit more color on maybe, are you seeing any of those being more drivers than others and your thoughts there?

Yes, it's a combination of several factors, starting with our inventory. We've made significant strides in enhancing the quality of our inventory and increasing the number of cars available at our dealerships. We're focusing on getting titled on-display units in front, which is driving more traffic to our locations. Our field sales efforts are also operating at a higher level. Additionally, our online initiatives are proving beneficial, particularly with our online inventory and credit applications, which are relatively new to us in the past six months, but we've observed some positive developments in these areas. Furthermore, providing improved customer service at the lot level is contributing to our growth in market share. We believe there's still room for expansion as these communities really require our services, and we feel confident that our current strategies and hard work will enable us to continue gaining market share in our existing locations.

Okay, that's helpful. And then maybe you've talked a bit about the procurement process and maybe working a bit more with some of your larger wholesalers to source higher quality inventory, maybe kind of reduce some inventory costs and so on. If you can give us an update on where things stand with that and the potential to see an improvement in the coming quarters?

Yes, we've made some good progress. With procurement efforts, we are looking at leveraging our size more than we have in the past. Sourcing from maybe a few less sources, but holding those sources more accountable, creating partnerships through the chain. And so we've got a lot of good things going on with the procurement side of the business, and it's relatively a new effort for us, but we're catching up in a hurry there and feel like we're going to have some good answers on the procurement side in terms of getting really good cars for good prices at the right times and the right places by partnering with our better wholesalers.

Okay, that's helpful. And then one more for me. When we think about kind of the repossession process with a car, consumer defaults. Can you give us a sense, how much are you typically going to an auction in order to kind of liquidate the asset versus maybe scrapping the car and going through that channel or something else?

Well, almost all of our repos are going to be run through the auction. We don't do anything straight to salvage. Most of our repos are processed and sold at auction.

Our next question is from John Rowan from Janney.

Just to follow up on the last question. Most cars get repossessed and then sold at auction, but there's got to be a percent, I mean, I always remember you talking about a good percent hitting or going for scrap value. Is there a rate of cars that don't hit minimums in the auction lane, so there's no bid that then wind up in a salvage situation?

Yes, that's going to be fairly minor. I think our average sales price with wholesales at this point is around $2,000. So there are a few in that average that are at the $200 or $300, $400 range, but I don't think that's a big piece of our puzzle.

Okay. You often mention that a reduction in used car values is a positive development, right? This allows you to provide a better car for consumers, resulting in something that is likely more mechanically reliable, which is obviously the main reason people have to repossess a car when it stops working. As we've observed, many indexes indicate a decline in used car values this fall. Could you explain how this affects your recovery on current deals compared to its potential impact on future credit availability if you can offer customers a better vehicle?

Yes, I believe the benefits significantly outweigh the drawbacks. When prices decrease, it allows us to provide our customers with a better vehicle for the same amount of money, which is very advantageous for our business. There may be a minor concern regarding short-term recovery rates, but even in that scenario, we're dealing with a ten-year-old car that has over 100,000 miles. Therefore, the depreciation we experience is not as pronounced as what others in higher tiers might face. We view the decline in used car prices as highly beneficial for our business.

I believe this relates to the scrap value. There may be an uneven effect on your recovery if you're scrapping a certain number of cars, as this is determined by the metal's market price rather than the retail price of the car. Additionally, you are gaining a benefit, and your customers are benefiting from having a better, more mechanically sound car. This suggests to me that Car-Mart could have an advantage in a weaker wholesale market. Does that sound accurate?

Yes. Yes, we hit the floor. We do hit that floor pretty quick.

Okay. And then just to clarify, the duration numbers that you gave, Vickie, I think it was 32.3 months total weighted portfolio a term versus 32.1 last year. Is that correct?

Yes. 32.3 this year, 32.1 last year.

Okay. And then any comments on CECL? Whether or not you're going to implement it? What you see happening to the allowance under a CECL scenario? And that's it for me.

Sure. The case scenario should not result in any significant change to our financials. We are already provisioned for our entire portfolio through the term, especially with our term being a little shorter. So we're not expecting a financial impact, there will be some additional disclosures once we do adapt it.

Our next question is from Kyle Joseph from Jefferies.

Congratulations on a good quarter. Most of them have been answered, but just a few follow ups. In terms of the same-store sales acceleration in the quarter. I know you touched on an increase in inventory as well as some of the sales initiatives you were talking about, but I think it would be helpful if you could comment on the overall competitive environment as well?

The competitive environment has remained quite stable for an extended period. We haven't noticed any significant changes, positive or negative, in competition. The improvements we are experiencing internally stem from our own initiatives to enhance our product offerings and sales strategies. There is still considerable investment targeting these consumers, but we believe we are significantly raising our standards.

Got it. And then one last one for me. Just in terms of credit, obviously, it sounds like you guys are putting a better car out there. And just weighing macro factors, the health of your underlying consumer as well as your accelerating growth and the fact that you've had improving credit for numerous quarters. Just can you give us an outlook from where we are and your thoughts on credit going forward?

Well, I think that we've got a couple of factors here. One, the increasing selling price that we've been dealing with. So we may have to, at some point, make some term adjustments. But I think, overall, with the quality of the car we're putting out there and the service that we're talking about for this customer after we sell the vehicle and our collections practices that we've got in place, we certainly hope to keep those stable, if not still improving to some extent.

Yes. And to add on to that, we are really focused on keeping customers in the Car-Mart family much longer than we have historically, and that would be a customer that we know very well, we know their payment history, and we want to keep them in the family. And in the past, they maybe have graduated on to the used car division of a new car dealership, and we're asking why. So we may see some term increases for the right reasons as we go forward and try to keep more of these customers in the family for life by offering them a little higher quality, higher cost car but they've proven their credit worthiness over the years. So this is exactly what we need to be doing as a company to pick up market share.

Our next question is from Hugh Miller from Buckingham.

Yes. So you mentioned the improved quality of inventory aiding traffic as well as sales for the company. How do you feel about the inventory mix heading into this quarter versus where things stood heading into the last quarter? I know the overall level of inventory is higher quarter-over-quarter, but how would you say that your view in terms of the mix of vehicles and also the quality of the vehicles you have right now on the lot?

We feel like the mix and the quality is improving, improving quickly. And we feel like it's in better shape today than it was a year ago, and we'll continue to get better as we move forward.

Okay. And then in the press release, you also mentioned the dealership in Chattanooga, Cabot as well as one coming on at some point at Edmond. Can you give us a sense as to the time horizon we should be thinking about those coming on and opening up?

Yes, we're looking at the fourth quarter for Chattanooga and Cabot, and we're still a little new with the Edmond lease to have a time specified yet, but all three of those dealerships are going to be very good for us, and we're trying to get those open just as quickly as we can.

And then, obviously, you've talked about how the bench of managers will play an impact in terms of the longer-term outlook for dealership openings. How do we think about maybe calendar 2021? And where you think the bench is now and the ability to kind of open dealerships beyond the ones you have talked about now?

Yes. Our bench is getting stronger. Our training efforts are very good and getting better. And so we feel like we're on a good track to have a bench of qualified folks to run dealerships, and we're getting closer in that area. We do plan to open a few dealerships a year. But when we open a dealership, it's going to be a dealership with very high expectations like Edmond. But nothing specific as far as '21 at this point. But it's safe to say that we will open some new locations in '21 in some good spots.

Okay. For my last question, as we consider the increase in the average selling price, should we assume that this is mainly due to the growth in repeat customers and slightly moving up the credit spectrum for the right customers? How significant is this factor? I understand it's part of your initiative, but are you seeing substantial progress in this area?

Well, our repeat business is increasing. And we know that what we offer consumers is a better financial deal than they might get down the street with a longer term and a higher interest rate. So we're really trying to educate our markets about the financial benefits of a Car-Mart transaction, and it is making a difference with repeat customers, and it is bringing in folks that might choose another option. And so it's up to us, if we're going to benefit communities to make sure we're educating those communities on the total cost of ownership. And we think we've got a very good answer for consumers from a total cost standpoint.

At this time, I'm showing no further questions, I would like to turn the call back over to Jeff Williams for closing remarks.

Okay. Well, once again thanks for listening to our call this morning. As always, just like to thank all of our associates for their dedication and commitment to this effort. We've got a great team out there, and we're going to keep pushing on. So thanks, and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.