Good day, everyone. Thank you for holding, and welcome to America's Car-Mart’s Third Quarter Fiscal 2023 Conference Call. The topic of this call will be the earnings and operating results for the company's third quarter of fiscal year of 2023. Before we begin, today's call is being recorded and will be available for replay for the next 12 months. As a reminder, 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 forward-looking statements. For more information regarding forward-looking statements, please see Part 1 of the company's annual report on Form 10-K for the fiscal year ended April 30, 2022 and its current quarterly reports furnished to or filed with the Securities and Exchange Commission on Forms 8-K and 10-Q. Participating on the call this morning are Jeff Williams, the company's Chief Executive Officer; Doug Campbell, President; 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 this morning. We saw an increase in unit volumes for the quarter both on an absolute basis and on the same store basis and absent weather challenges would have seen more unit volume increases. Doug will cover sales for the quarter in just a minute. Our volume increases are in the face of affordability challenges and overall inflationary pressures, and when compared to the previous two years, a lack of stimulus in the marketplace. However, overall used car prices did come down in 2022. As expected, we are seeing a normal tax season uptick in the most recent months, but we do expect pricing to level off in the short-term and experience a more gradual normal decline for the balance of the year. The car we do buy is expected to better hold value due to supply-demand affordability dynamics. Customer wages are expected to continue to rise, leading to improvements in affordability and higher future sales volumes. We expect that used car affordability will shift back to historical levels over time bringing with it an increase in customers seeking credit and the outstanding service they received from America's Car-Mart. According to Cox Automotive, access to auto credit tightened again in January, reflecting the conditions that were the tightest since June of 2021 for all loan types, there was a slight loosening for the independent dealer channel in January from December. But on a year-over-year basis, all channels were tighter with credit unions tightening the most. We will benefit as good folks migrate down into our market. The timing of our loan origination system rollout, which we will discuss more could not be better, picking up market share and setting ourselves up to sell between 40 and 50 cars per dealership per month over the next three years and to eventually average over 1,000 active customers per dealership. Doug and I will cover a few specifics on some key initiatives. As to people, the recent addition of several talented people to our senior management team is allowing us to benefit from their skills and outside experiences, helping us effectively complete and leverage the initiatives and investments that we've been making in the business. We're improving processes, increasing accountability and reorganizing work to maximize efficiency. As we've discussed, areas include procurement and inventory management, wholesale improvements, reconditioning logistics, the loan origination system and IT data and digital are making huge strides in all these areas, very exciting. Our Enterprise Resource Planning or ERP initiative is progressing and is expected to be completed by the end of the calendar year. The ERP is critical in our efforts to eliminate manual tasks and improve efficiency and operating flexibility, allowing for future growth. Within the ERP is the customer relationship management module or the CRM. The continuing development of the CRM will allow us to harness visibility of customer touch points in one place, improving the customer experience, allowing us to serve more customers at a high level while increasing the funnel for potential new customers. The CRM provides the underpinning of our new loan origination system. This investment is critical and will allow us to become a data-driven company, better supporting field operations teams as they serve our customers. As mentioned in the press release, we completed the acquisitions of three new dealerships in December. These dealerships are located in Knoxville, Tennessee, and in Tyler, Texas. We expect acquisitions to play a leading role in our future plans, and we're actively talking to multiple parties. We believe we can add five or more dealerships per year via acquisitions with our current resources, and more as we look forward and refine our processes.

Thanks, Jeff, and good morning everyone. I'll cover two more initiatives before providing some color on our sales performance. Our reconditioning pilot is moving along nicely, and we're processing several hundred vehicles per month now with strategic partners who have a footprint in our trade territory. We've been pleased with the results thus far and are seeing cost reductions and quality improvements when compared to other channels. Our expectation is that within six months, we'll be processing north of 1,000 units per month, utilizing this channel and we'll continue to scale it as needed. At maturity, we see a scenario where we could source 50% of our vehicles utilizing this channel. Our preliminary findings indicate the effort is worth $300 to $500 per unit. However, the indirect benefits are enormous and will allow us to grow sales and volume productivity. Next, I spoke a fair bit regarding our new loan origination system on the last call, where I outlined that we had successfully installed the credit application portal throughout 23% of our stores. Our original goal was to complete the balance of the installation by May 1. I want to take the opportunity to thank all of the teams who have worked tirelessly on completing the installation are now 100% of our operation as of February 1. All customers who apply online are receiving text message responses regarding the status of their application, including payment requirements and what they're qualified for. Customers who reply to these messages are interacting with team members here at headquarters on follow-up questions and appointment setting needs. Any customers who require more time cascade into a different workflow, where one of our stores will ensure that it worked alongside them until they're ready to purchase. We're currently prioritizing what functionality to deploy for dealerships and consumers that will enable a more frictionless transaction. I'd also like to discuss credit application volumes, which is one of the larger issues we were trying to address with the LOS initiative. Our customers have been and continue to engage with us differently. The submission of the online credit application is a great indicator for customers and their propensity to buy and the demand for our services. Prior to COVID, we had begun seeing that shift, but it has accelerated throughout the pandemic and continues to do so. Historically, applications that were done at our stores exceeded the applications performed remotely. This has been a slow shift but approached a ratio of one to one just prior to COVID. However, currently, that ratio now favors remote applications versus in-store applications at a ratio of two to one. All of this has transpired while gross credit application volume from the two channels has grown over 25%, when comparing the monthly averages from 2019 and 2022. If we isolated the results from the pilot stores compared to the rest of the company, the results are even greater. It's notable that this was achieved with no incremental marketing spend. There are more customers, and we can serve, and it's important that we serve them in a differentiated way.

Hey, Doug, that was a great point. I'd like to add a few others to consider. The LOS will allow us to streamline underwriting, including credit reports and income verification, eliminate the manual processes and capture documents more efficiently than we have in the past. The opportunities around regression analysis, marketing, and data mining are huge. In addition, we'll also be leveraging a third-party to perform tax and fee calculations, which have historically been done by internal resources. So the LOS benefits are both better efficiencies and cost savings, and the total CapEx for this initiative is very minimal with ongoing incremental cost of around $13 per unit sold. So hugely positive, all the way around.

Thanks, Vickie. Those points really underscore the importance of the initiative. I'll take a moment to provide some additional color on sales. We finished the quarter with a little over 14,500 units. As Jeff mentioned earlier, the adverse effects from weather had an impact on our operations team. There were a couple of weather events during the quarter, but I'll limit my commentary to the events that took place in late January. Almost every store was impacted in some way. But over half of our stores are located in areas where a state of emergency had been declared. During this period, we requested our leaders to prioritize the safety of our associates and our customers by providing adequate time to hunker down and to return to work when it was safe to do so. We believe this event had a drag on our sales volume for the quarter of roughly 300 to 400 units, which impacted our pre-tax income by about a million dollars. Absent that impact, our sales performance versus the prior year would have been up about 5% or 6% versus the 2.7% positive that we finished the quarter with. We're very proud of our leaders and associates for navigating all of these challenges and still finishing the quarter on a positive note. When looking at the average selling price, it was up 8% or about $1,341 when compared to the same period last year. We continue to manage the issues in our industry regarding affordability and supply chains, some of which is reflected in our sales price. When comparing the average selling prices of vehicles sequentially. They're relatively flat. Additionally, as a reminder, we made some decisions as a management team in the prior quarter to increase the selling prices of vehicles and ancillary products, given the average selling price for the first time as they went into effect in mid-December. Lastly, I'll cover gross margins. We finished the quarter at 33.6%. And on the prior call, we mentioned wholesale performance having a negative contribution to these gross margins by approximately 200 basis points. While there's much we can and will do to improve the margins as a general statement. The quickest way to add some benefit here was to centrally manage the sale of these wholesale vehicles. During the quarter, we ran a pilot on a subset of wholesale volume, which got us a healthy bump in retention prices. That's reflected in the 147 basis point improvement you see here sequentially. Given wholesale volumes for us as a company have hovered around 20,000 units a year and have been for about the last five years or so. This represents a huge opportunity when you annualize that benefit. We'll be continuing to scale the pilot and anticipate the entire company benefiting from this over the next couple of quarters.

Thank you, Doug. For the current quarter, our net charge-offs, as a percentage of average finance receivables, were 5.9%, relatively flat sequentially, but also flat compared to the pre-pandemic third quarter fiscal year 2019. They were slightly above our prior five-year average of 5.6%, but still below our 10-year average of 6% for third quarters. The primary driver of the increased charge-offs was an increased frequency of losses, but we also experienced an increase in the relative severity of losses. The declining wholesale prices also had an effect. Recovery rates decreased to about 28%. As Doug discussed, we will be focused on maximizing our efficiencies around the wholesale process to offset a piece of the declining market impact. We are focused on keeping customers in their vehicles as always, but especially working with them during the upcoming income tax refund time. The quality of the portfolio remains strong. With applicant quality consistent with the prior year, we continue to improve the percentage of the portfolio held with our highest credit quality customers. Delinquencies have remained in line with historical percentages and are trending positively over the prior year. Our accounts 30-plus days past due was at 3.7% compared to 4% in the prior year quarter. This is particularly notable since this year's quarter end was on a Tuesday, the highest delinquency day on average versus the prior year quarter, which ended on a Saturday, the lowest delinquency day on average. Total collections were up over 11% to $153 million and total collections per active customer per month were up 5.9% to $519. The average originating contract term for the quarter was 42.5 months compared to 40.4 for the prior year quarter and down slightly from 42.6 months sequentially. As Doug mentioned, the average selling price was up $1,341 for the quarter versus the prior quarter with only a 2.1 month increase in the term compared to the prior year third quarter. It is encouraging that the originating terms and the average retail selling prices increases are flattening. Our weighted average contract term for the entire portfolio, including modifications is 45.4 months compared to 41.2 for the prior year quarter. And positively the weighted average age of the portfolio increased 12.5% from approximately 8.8 months to 9.9 months. Our SG&A spend increased $5.6 million over the prior year quarter. Most of this increase relates to the investments in our people, both the cost for the new key positions and our focus on staying competitive in terms of total rewards and compensation for our valued associates. Increased collection costs, due primarily to the higher frequency of repossessions, the addition of three new dealerships since last year, and the inflation impact on nearly all expenses also contributed to the remaining increase. Many of the long-term investments we're making are reflected in the income statement as we centralize certain non-core functions. As we complete our initiatives that Jeff and Doug discussed, we will become more efficient, be able to increase sales volumes, and expect to leverage our SG&A costs. Our customer count increased by 6% over the prior year to 99,577 customers. We continue to believe we can serve a much larger customer base with appropriate return. Our expectation is to leverage these investments by serving more customers. At quarter end, our revolving debt was approximately $27.8 million and we have $4.3 million in cash and approximately $148 million in additional availability in our revolving credit facilities based on our current borrowing base of receivables and inventory. We closed on our second securitization at the end of the quarter, issuing $400 million in bonds with a weighted average fixed coupon of 8.7% and our total securitized non-recourse notes payable with $588 million was $61 million in restricted cash related to those notes. Our total debt, net of cash to finance receivables ratio is 42.2%. Thank you. And I'll let Jeff close this out.

Okay. Thank you, Vickie. Obviously, we're very proud of our company. I wanted to take and give you a perspective on where we are, where we've come from in the last three years, and most importantly, where we're going. Since January of 2020, our book value per share has grown from $44 to $78. That's a 77% increase, while equity has gone from around $290 million to almost $500 million. This in an environment where the average retail sales price has moved up 50% and inflation and all other areas of the economy has increased the cost of doing business. For many years, we've talked about the need to hold on tight to our conservative balance sheet with a historical debt AR of around 30% or less, so that we would be in a great position to accelerate growth when conditions moved in our favor. The pandemic resulting stimulus in the return of inflation with higher interest rates presented such an opportunity to us and we've taken advantage. Our debt to AR net of cash is 42%, extremely healthy, and the increase can be looked at as representing a one-time investment in moving our book from 32 months to 45 months with the increase in car prices plus additional investments in the initiatives that we have funded. Investments have been made to position the company to come out on the other side of this historic period in better shape with more opportunities than we had going in. These investments are individually and collectively heavy lifts that are all necessary for us to reach our full potential and to be the company that we all want to be. Also, as Vickie mentioned, a significant amount of our current investment in SG&A is long-term focused to be leveraged over time. Our business model is time-tested. And with the improvements we're making, the best way to serve our customer base. The all-in cost of ownership from a consumer standpoint is in most cases better than competitive offerings, when considering our shorter terms and lower interest rates. The fact that our repeat business is now over 50% is an indicator of how strong the model is, and the model is getting stronger every day. What we do is essential, and we have an obligation to serve more customers who deserve the peace of mind they get from being part of the Car-Mart family. We expect the cost of vehicles to flatten in terms of affordability and our cash flows to improve as we look ahead. We will be gaining significant efficiencies in the inventory management area and expect annual turns to materially improve above pre-pandemic levels. Going forward, as we stated in the press release, over the next three to five years, we expect to generate returns on equity at historical levels by increasing volume productivity, improving gross margins as a function of procurement initiatives, by leveraging SG&MA, and through acquisitions of well-operated dealerships. We expect our cash-on-cash returns to not only produce an increased dollar return but also percentage returns in line with historical results. The cash generating potential of our business is strong. We will continually review our organizational and cost structure and make changes proactively to put our company in the best position. And finally, the consumers we serve want to hear yes, and the LOS is designed to give them a yes from the comfort of their homes, minimizing the sometimes unpleasant part of the car buying experience, allowing their time at our dealerships to be focused on kicking tires and taking test drives and getting in and out quickly. Our ability to provide a sufficient quantity of quality vehicles with affordable payment terms is our biggest opportunity and will set the baseline for where we take our company. The demand for our offering is high and will continue to increase over time. We are confident in our ability around procurement and inventory management, and we're very excited about our future. As always, I'd like to thank all our great associates for their dedication to our purpose and for all they do every day to keep our customers on the road. Thank you, and we will now open it up for questions.

Thank you for joining us. We request that you limit yourself to one question and one follow-up. Now, let's take our first question from John Murphy at Bank of America. John, if your line is muted, please unmute it. Next, we have a question from John Rowan at Janney. Your line is now open.

Good morning.

Good morning.

Great morning.

So I was wondering I’ll drill down on duration a little bit. So the originating duration is relatively flat sequentially, actually down a little bit sequentially. But the effective entire portfolio duration was actually up sequentially and up year-over-year. I'm assuming that this is due to higher modifications. Is that correct?

Yes. We did have slightly higher modifications this quarter. Not anything out of our ordinary range, but certainly a time for us to continue to work with our customers, certainly, as we approach the income tax refund season as well.

Okay. So most of it, John, might relate to the fact that the average age of the entire portfolio went up 12.5%, from 8.8 months to 9.9 months. So that's going to shift out the overall age of the entire portfolio, which is representative of just the increase in age and turn.

Okay. And then if there were some increased modifications, does that have any impact on delinquencies? I mean, you did get a lower delinquency number for 30 days year-over-year, but in the press release, it shows the average, or the total current portion of the portfolio is down year-over-year. So you can just compare the two, one going up, one going down and whether or not modifications had any impact on those? Thank you.

Yeah, I mean, I would have some impact, again, our modifications were not outside a normal range, pretty consistent with where we usually see modification.

Okay, all right. Thank you.

And thank you. Our next question comes from Vincent Caintic from Stephens. Your line is now open.

Hi, good morning. Thanks for taking my question. So first question is a broad one, one I've been getting a lot from investors. But if you could maybe talk about what you think would be a right post-pandemic annual earnings run rate, so you have $0.22 of EPS for this quarter. Consensus for fiscal 2024 is about $535. So just wondering, what you think, annual earnings should be when we think about a post-pandemic number, and then how we get from this quarter to where you'd like to be on a run rate basis going forward? Thank you.

Yeah, as we mentioned in the press release, in the comments earlier, we do expect to return earnings to return on equity more in line with historical results pre-pandemic. And to do that, all the initiatives in place on volume and productivity improvements, gross margin improvements, expense management, and better credit results should get us there over time. We’re currently adding a lot of reserves to the balance sheet on the credit reserve side. But cash-on-cash returns for us look very healthy. And we expect over time again, as we mentioned, dollar returns and percentage returns to be in line on a cash-on-cash basis with historical results. So we're optimistic that what we're doing and the initiatives in place and productivity improvements will come along nicely. And spot within three years, five years to get ROE back, closer to historical levels.

Okay, perfect. So like historical metrics are, sort of, you think we can get back to that, or even improved from that level? Is that fair from your comments?

That would be, yes, that would be our intentions with all the investments we're making in the business.

Okay, great. Thank you. And my follow-up, so a more specific question just about the inventory. So I appreciate your comments on the press release about that inventory levels. We're getting back to historical levels. But if you talk about what's the average age inventory, and are we pretty much done from this point, or maybe after tax refund season, we're done from this point in terms of inventory normalization? Thank you.

I think we've worked through a good percentage. The majority of our inventory challenges, there's some left to work through. But we are getting there making progress, fully focused on improving efficiencies and inventory turns and working through some product that has been acquired over the last year. So, but I'd say we're well on our way. And we're not fully finished yet, but making good progress.

I’d add the inventory that we're sourcing out of this new channel, as it starts to make its way through the ecosystem. We'll also have a benefit there, and the wholesale, what I'll call the centralized wholesale selling that to be accretive to the margins that we'll have going forward to, so that's exciting as well.

Okay. Great. And sorry, did you have the days of ages inventory? I think last quarter was in the mid or high 50s, just want to have that comparison. Thank you.

That was days inventory in days sales in inventory. It's relatively flat compared to last year. I believe the aged inventory has decreased. We're making progress again and have worked through most of it, although there is still a little work to do.

Okay. Gotcha. Thanks very much.

Okay. Again, well, thank you for listening in today. I appreciate your interest in America's Car-Mart. And again, thanks to all of our associates out there for all they do to keep our customers on the road. Have a great day. Thank you.

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