Good morning, everyone. Thank you for holding, and welcome to America's Car-Mart Fourth Quarter Fiscal 2023 Conference Call. The topic of this call will be the earnings and operating results for the company's fourth quarter of fiscal year 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 of 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 any 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, 2022, and its current and quarterly reports furnished to or filed with Securities and Exchange Commission on Form 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.

Thank you for joining us this morning. Productivity and market share gains continue, but current profitability is not representative of where the company and the business will be in the future. Our model is flexible, and we will continue to deploy capital to maximize appropriate long-term returns. Expect to earn returns on equity at levels we were generating prior to the pandemic, the mid-teens. We're extremely excited about our company and the unique profitable opportunity in front of us. There's no other company sitting in a position to scale in this highly fragmented industry. Our book value is $79 per share. We have $500 million in equity, which we will protect as we move forward. As discussed in our press release, competitive dynamics are rapidly moving in our favor. Our industry has had significant disruptive challenges over the last 12 to 18 months, leading to the sudden exit of two large regional competitors who were collectively serving over 80,000 customers, mostly in the Southeast region of the U.S. We will see benefits in our procurement and inventory areas, as well as in our sales and collection efforts from these two companies exiting the marketplace. We've gone from a period of consumers having trillions in stimulus with zero inflation to no stimulus with very high inflation. Again, in our industry, in particular, inflation has been especially pronounced, showing up in used car prices, parts, shop labor rates, transport services, all being at record highs. Interest rates for auto loans have escalated sharply. According to Cox Automotive, credit availability was tighter year-over-year by 8.5% across all loan and lender types in April. Consumers have been stretched and affordability has been tight. But as Vickie will talk about more in a minute, our net charge-off levels are just slightly above pre-pandemic levels back in 2019. All of these challenges are working in our favor. We have not just persevered; we have significantly improved our position. Fiscal year '23 represents steps, huge steps in the right direction. In the face of all these challenges, we've added great talent to our team and pushed on with difficult, complex, time-consuming, resource-heavy investments and initiatives. We are clearly seeing the signs of the expected benefits of our efforts. Our model is the best way to serve our customer base who needs us and the service we provide, which is evident by the increasing demand for our offering. Just a quick update on some initiatives. As to people, we've now completed the key additions to our leadership team. The incredible talent that we've attracted to our company is as expected, serving as an accelerant in driving operational improvements through change management and completing and leveraging our initiatives that we have in process. Our ERP initiative is progressing as expected and will be completed by the end of this calendar year. It's hard to quantify the enormous benefits of us moving away from our legacy system, but the move is essential for us to become a data-driven company, better supporting operations as we serve customers. This change is foundational to efficiency improvements, elimination of manual tasks, giving us operating flexibility, allowing for future profitable growth. Also, as we've discussed, the CRM module, parts of which are being utilized currently, sits within the ERP. It will allow us to significantly increase and improve our marketing, selling, and supporting customers. And as a reminder, the CRM provides the underpinning to our loan origination system and attracting a higher number of better credit score customers, which Doug will expand on in a minute. Also, as we've communicated, we will look to acquisitions and well-operated dealerships as a powerful use of capital. Our acquisition team has their ear to the ground, and we expect further disruptions in the competitive landscape to provide additional opportunities as we move forward. We're actively talking to a number of parties regarding some of those opportunities. As mentioned in the press release, we have completed a large percentage of the heavy lifting related to our extensive long-term investments, and we're now set to push efficiencies and leverage our cost structure as we bring credit losses down, and we bring gross margin percentages up.

Thanks, Jeff, and good morning, everyone. I want to express my gratitude to our field and corporate teams for effectively executing our strategy in preparation for the tax season. We adopted a multipronged approach, which included ensuring our stores were well-stocked, addressing high-cost and aged inventory, and reducing overall inventory levels by 25%, primarily through efficiency gains while meeting our sales targets. This was no easy feat, especially while navigating a challenging wholesale pricing environment. The wholesale prices declined over 20% last year, the highest on record, prompting concerns that the decline was too rapid. Considering that wholesale and retail inventory levels in our industry were at historical lows, this created potential for unusual price strength beyond typical seasonal patterns. Despite a 7% decrease in the average income tax refund, we experienced a strong spring selling season, and there were several accomplishments worth noting. We sold 17,655 units in the quarter, marking a record sales volume for any quarter in the company's history, a 7.5% increase from the same quarter last year. February was particularly remarkable, being the best month on record and featuring the best sales day of 620 units. On a same-store sales basis, there was a 5.6% increase. This growth demonstrates the positive impact of our recent acquisitions and their future benefits for the organization. For the fiscal year, sales rose by 4.9%. We achieved our targeted 25% inventory reduction by finding efficiencies within our operations, such as halving the time to in-fleet vehicles. We improved our retail and wholesale inventory turns to 7.4, up from 6.7 in the previous year's fourth quarter, maintaining manageable inventory aging. Our team also successfully navigated the pricing environment, as wholesale pricing typically drops early in the year and begins increasing late February, peaking in April, a phenomenon we refer to as the spring bounce. During this timeframe, prices usually return to their January 1 values and may slightly rise before normalizing and declining at a standard rate throughout the rest of the year. Unlike the usual seasonal pricing, we observed increases very early, as soon as the second week of the year. Prices reached a peak of 6% or 7% above their January 1 values in early April before beginning to decrease. In contrast, the small and midsized car segments experienced price hikes over 10%, as dealers vied for vehicles to address affordability challenges in the industry. Our ability to effectively plan and respond to this environment is essential. During this period, our vehicle purchase prices only deviated by less than 3%, largely because we conducted most of our purchasing early in the season. We also adjusted our make and mile mix to prevent excessively higher sales prices that could slow down our sales process. In reality, when comparing sales prices sequentially between the third and fourth quarters, there was only a $42 difference in price despite processing some high-cost inventory. As Jeff noted in the press release, we are becoming more strategic and efficient with our inventory investments. A significant portion of our growth is attributed to effectively driving traffic, both online and in-store, using our new LOS. The simplified application and approval process has increased customer visits to our stores, contributing to the strong growth this quarter. Online application volume was up over 22% compared to the same period last year, and total application volume, considering both online and in-store traffic, rose over 10% compared to the previous year. This indicates that our LOS efforts have positively impacted our business. We are also seeing an increase in higher-scoring customers applying for credit. Jeff has pointed out that, as credit tightens, we expect to see more of this customer profile, and we are prioritizing these applications due to the rising cost of capital and their ability to enhance our receivables portfolio performance. Lastly, regarding the LOS, I previously mentioned the application volumes. The application portal is now live in all our stores, and we are digitizing our sales process. The first store digitization is this week, meaning that customer paperwork will be reduced by 75%, speeding up the sales process. This change will increase our processing capacity without needing additional staffing. The ongoing management and processing of documents will also improve efficiency for our office staff while offering better oversight from an underwriting perspective. Most importantly, the data analysis now improving our decision-making will lend us a level of agility that we previously lacked. After rolling out our pilot store, we’ll activate additional stores in various states over the next few months. Moving on to gross margins, we finished the quarter at 33.4%, down about 2% from the previous year. The wholesale loss was a contributing factor, but it has improved, with losses reduced by 27% compared to the previous quarter. We continue making progress here and have the potential to significantly outperform pre-COVID benchmarks. Another significant opportunity to enhance gross margins lies in what we invest in vehicle repairs. There are two main categories here. First, making inventory frontline ready; our reconditioning pilot is showing positive results, with projected savings upwards of $300 to $500 per unit, and recent findings suggest savings exceeding $500 per unit. While we are facing challenges in processing adequate inventory through this channel, particularly given last quarter's pricing fluctuations, we remain committed to overcoming these obstacles. The second category concerns repairs for vehicles in our receivables portfolio tied to service contract obligations or customer repairs necessary to keep our clients on the road. We have noted a significant year-over-year increase in expenditures here. A normalized market would yield better outcomes, but we are implementing measures to improve performance. For instance, during the pandemic, we leveraged the age and mileage of vehicles to manage costs. While effective initially, some of these vehicles have since incurred higher-than-normal repair expenses post-sale. We anticipated this and adjusted service contract pricing to mitigate predictive exposures. The primary goal is to realign this while maintaining the benefits of higher revenue from service contracts. A straightforward solution is to revert to standard practices concerning vehicle age and mileage, or to accelerate progress by targeting newer vehicles with fewer miles than our historical averages. This has been a primary focus of our efforts over the past six months. During this timeframe, we've adjusted our purchasing guidelines to acquire vehicles that are two years newer and have 10,000 to 12,000 fewer miles for the same price, which we've been selling over the last 1.5 quarters. There are also tactical actions we are taking at the field level to better manage the active fleet, which should help contain these expenses and yield benefits concerning service contract failure rates and customer interventions for out-of-warranty repairs. We look forward to updating you in the upcoming quarters and are eager to share the progress of our initiatives.

Thank you, Doug. Good morning, everyone. For the current quarter, our net charge-offs as a percentage of average finance receivables were 6.3% compared to 5.1% for the fourth quarter of fiscal year '22, and 6.1% for the pre-pandemic quarter ended April 30, 2019. These are just above our prior 5-year average of 5.7% and below our 10-year average of 6.8% for fourth 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. Recovery values were held flat in the last quarter at about 28%. As of April 30, 2023, the allowance for loan losses was 23.91% of finance receivables net of deferred revenue. We did increase the allowance percentage in the fourth quarter, up from 23.65% to reflect the effect of the higher net charge-offs on our overall portfolio performance, as well as the uncertain macroeconomic environment and continued stress of inflation on our consumers. This change resulted in a $3.3 million, or $2.5 million after-tax charged to the provision in the fourth quarter. We will continue to be focused on improving the loan structure with better down payments and upfront equity. The rollout of our LOS will assist us with achieving these improvements. Our internal applicant scores were slightly above the prior year, and we expect to be able to gain market share and attract higher credit quality consumers as other lenders above us continue to tighten credit. An early indicator of this, in the fourth quarter we saw FICO scores for customers originating during the fourth quarter, reflecting the largest percentage improvement that we've seen in several years and higher than any other quarter. This will allow us to continue to improve the percentage of the portfolio held by our highest credit quality customers. Our accounts 30-plus past due were at 3.6%, flat sequentially and compared to 3% in the prior year quarter. Total collections were up 7% to $178 million and total collections per active customer per month were $586, flat with the prior year quarter. This was considered a positive given the continuing inflationary environment and income tax refunds down overall by 7%. The average originating contract term for the quarter was 43.5 months compared to 42.1 for the prior year quarter and up slightly from 42.5 months sequentially. We added 1.4 months to the originating contract term compared to the prior year's fourth quarter to accommodate the $614 or 3.5% increase in the average selling prices. And as Doug mentioned, the average retail selling price remained relatively flat with only a $42 increase sequentially from the third to the fourth quarters. Our weighted average contract term for the entire portfolio, including modifications, was 46.3 months compared to 42.9 for the prior year quarter, and the weighted average age of the portfolio improved to approximately 10 months. Our SG&A spend increased $4.8 million over the prior year quarter and $1.1 million over the sequential quarter. Although inflationary and wage pressures have significantly impacted our SG&A spend, we're actively focused on identifying efficiencies in our processes and, where appropriate, making reductions in spend to marketing, staffing, and variable costs. Our investments in people, technology platforms, and strategic initiatives will eventually lead to better efficiencies in the business. The majority of our SG&A investments have been made, and increases going forward will be much lower than the percentage increases we've had the last couple of years and more in line with or below general inflation. Our customer count increased by 7.6% over the prior year to over 102,000 customers, and our investments are being made to better serve this growing customer base while improving these efficiencies. At quarter end, our revolving debt was $167.2 million. We had $9.8 million in cash and approximately $121 million in additional availability under our revolving credit facilities based on our borrowing base of receivables and inventory. Our total securitized nonrecourse notes payable was $498.5 million, with $58 million in restricted cash related to those notes. Our total debt, net of cash to finance receivables ratio is 41.5%, down from 42.2% at the last quarter end.

Okay. Thank you, Vickie. The consumer demand for our offering is high and increasing, and we've been making investments to increase our operating moat. As Vickie mentioned, we're now serving over 102,000 customers. About half of those are repeat customers with a high lifetime value. Our growth in recent years has primarily come from the expansion of the customer base in existing markets, markets that we know well. We've also completed a few highly successful acquisitions, and we'll continue to prioritize our acquisition strategy, especially considering the current competitive marketplace disruptions, which we anticipate more of. While we constantly scrutinize capital deployment, the significant increase in the cost of capital that we've seen recently requires us to be even more diligent and we will be. Our balance sheet is very healthy, and we will keep it that way. We will continue to make prudent investments in the business, and the timing of these investments will be made in an effort to properly align expenses with sales, something we've done successfully for a long period of time. Our CapEx will be lower going forward. And to reiterate, most of our projects are completed or near completion. As to vehicle affordability, we do expect vehicle costs to flatten and normalize even in a tight supply market as we improve our processes. Sales prices and loan terms will also continue to flatten with consumer affordability returning to pre-COVID levels over time as the job market stays strong, wages continue to increase, and other inflationary pressures ease. Improvements in affordability will result in higher customer success rates, our ultimate measure. We are confident in our ability around procurement and inventory management, and we're very excited about the potential improvements in this area of our business. And as Vickie mentioned, the SG&A will level off as we move forward. We've had to make significant investments that can now be leveraged. The ERP will allow for huge efficiencies across all administrative and data functions, unleashing powerful benefits. As always, we'd like to thank all of our associates for their dedication to our purpose and for all they do to keep our customers on the road. Thank you, and we will now turn it over to the operator for questions.

And our first question comes from the line of John Murphy with Bank of America. Your line is open. Please go ahead.

This is Billy Healey on for John Murphy. Can I just ask you about the availability of credit for consumers in total? And has there been any pullback in aggregate? And have others come in and backfill with that availability?

Yes. I think we're certainly seeing credit restrictions, and the Cox report for April indicated that credit is tighter by about 8.5% compared to this time last year. We're certainly seeing that in our markets. And as Vickie alluded to, the credit scores of customers we're seeing, especially in the fourth quarter, have come up significantly, which would be another indication that credit is certainly tightening above us in our markets.

And if I could follow up, just on the state of your average consumer, what are you seeing there? Are you seeing any improvement at all? Or are your consumers still struggling?

Our customers have always faced challenges, both in good times and bad, and this is something we constantly manage. Currently, the situation feels a bit tighter due to inflation, but we have effectively navigated the initial shock we experienced last summer. Consumers have made necessary adjustments, though there is still some pressure from inflation. Nonetheless, our customers have historically found ways to make ends meet, especially with our support in keeping them mobile. The situation is definitely better than it was last summer.

Yes. Additionally, what we observed in the fourth quarter regarding FICO scores indicates that the customer dynamic is changing. When we analyze it based on FICO scores, we experienced the highest influx of better credit customers in the fourth quarter compared to any quarter on record over the past five or six years. This improved credit profile is very encouraging, especially considering the volume we achieved last quarter.

Could you please discuss the overall availability of reasonably priced vehicles? Has there been any improvement in that area?

Yes, it's tight. We're all retailers competing for the same inventory. As rates have increased, we're all focused on acquiring a share of the available products. There's been an influx of competitors in our space for vehicles that we typically target, which has pushed us to be more innovative. Interestingly, in the last quarter, two major competitors left the market, who also operated in that area, which has somewhat relieved pressure on procurement. We've noticed that purchasing has become easier due to reduced competition. If you consider those two companies, they were just slightly smaller than us, so their exit has been a significant advantage, particularly in the southeastern United States where much of our procurement activity occurs. Furthermore, those companies catered to a different customer base. With higher-priced assets, it's also becoming easier to sell those vehicles, providing us with additional growth opportunities.

Our next question comes from the line of Derek Sommers with Jefferies. Your line is open. Please go ahead.

Could you talk about the impact of lighter tax refunds on this quarter's performance, and if there are anticipated to be any lingering impacts from this dynamic moving forward? Seems like the trickle down of FICO scores may have overshadowed this dynamic in the performance.

Well, the refunds were down about 7% for the year. And with the inflationary pressures that consumers are feeling, our tax refund payments were less than they had been pre-pandemic. So there's just indications that consumers are a little tighter on cash, a little more stretched than they've been in the past. But we fully anticipated that. Not surprised at all. But collections during tax time, as a percent, were lower than pre-pandemic, and that's just based on affordability and other inflationary pressures on the pocketbooks of consumers, but we're working through that. And again, charge-offs are in good shape, and we're optimistic looking forward.

Yes. I think the flat amount collected per customer is some indication of that as well, so.

Our next question comes from the line of an unidentified analyst. Your line is open. Please go ahead.

It's Citadel Investment Advisory. I wanted to ask if you could provide a profile of the companies that have exited the market. Is this situation characterized by significant challenges for the industry, given rising interest rates, increasing car prices, labor shortages, and overall inflation? Without targeting anyone in particular, what factors have led to their departure from the market? Additionally, how does this situation compare to what you are doing?

We don't know exactly what led to the exits, but the factors you mentioned certainly contributed. Interest rates are significantly higher than last year, and the operating costs, particularly for vehicles, have also increased. While we are not aware of the specific challenges faced by those two competitors, our focus remains on cash flow and efficient operations at the dealership level. We maintain a strong and clean balance sheet, avoiding excessive leverage and ensuring a solid equity position, which is crucial in challenging times. Additionally, more than half of our business comes from repeat customers, primarily in markets where we have established a long presence. This gives us a competitive edge in attracting and retaining a loyal customer base. We are committed to enhancing our product offerings and making corporate investments to support our consumers. I am not certain if other companies have the capacity to invest amid these challenges as we do, not only to survive but to strengthen our position by leveraging our financial resources and focusing on areas that contribute to customer success.

The one thing I'd like to follow up with is that the people that have exited the marketplace, how long have they been in business? I mean are these people that have been in the business 5, 10 years or longer, 20, 30 years?

Yes. Longer than 15 years.

And I'm showing no further questions, and I'd like to turn the conference back over to Jeff Williams for any further remarks.

Okay. Well, again, thank you for joining us, and thanks to all of our associates making a difference every day in the lives of other associates and our customers. So thank you, and have a great day.

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