Thank you for joining us for America's Car-Mart's Third Quarter Fiscal 2025 Earnings Conference Call. All participants are currently in listen-only mode. Following the presentation, there will be a question-and-answer session. I now turn the call over to Vickie Judy, Chief Financial Officer. Please proceed.

Good morning. I'm Vickie Judy, the company's Chief Financial Officer. Welcome to America's Car-Mart's third quarter fiscal year 2025 earnings call for the period ending January 31, 2025. Joining me on the call today is Doug Campbell, our company's President and CEO; and Jamie Fischer, our COO. 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 loan origination system performance improvements. We will post a 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 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 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 and Exchange Commission on Forms 8-K and 10-Q. As a note, the comparisons that we will cover will be the third quarter of fiscal 2025 versus the third quarter of fiscal 2024, unless otherwise stated. Doug will start off with highlights of the quarter and share updates on our progress towards our strategic goals. Doug, I'll turn it over to you now.

Thank you, Vickie. Over the past 18 months, we've been hard at work improving our operations and strengthening our foundation, and this only happens when you have the right talent, and we've continued to invest in this area. Speaking of talent, I'm joined by Jamie for the first time here on the call. The environment for our customers is challenging, highlighted by persistent inflationary trends, higher used car prices and elevated interest rates. Throughout this period, we have maintained our position on the importance of originating better quality credit while never losing focus on the core values we provide to our employees, customers, and communities. As mentioned on the last call, our recent focus has been to improve and diversify our balance sheet by adding new capital and lenders, as well as improving our highly successful securitization program. Our ABL facility has been a core source of funding for over four decades. And I'm pleased to report that on February 28, 2025, we completed an extension and upsizing of the facility to $350 million, which now matures in March of 2027. This transaction represents an important milestone for the company, and we deeply appreciate the support of our existing and new relationships with our ABL partners. We also completed our sixth ABS transaction in January. This transaction was $200 million in size and was more than 10 times oversubscribed. We believe the capital markets are recognizing the success of the contracts underwritten by our enhanced loan origination system. This enabled us to have the tightest spreads that we've had to date and resulted in an overall weighted average life adjusted coupon of 6.49%, a 95 basis point improvement from our October transaction. The ABS market is an important source for us given its material improvement in the advance rate relative to the ABL and access to additional capital. Combined, our new ABL facility and recently closed ABS transaction have further improved our capital position, allowing us to turn our attention to other capital sources that will make our capital structure more competitive and efficient. We are focused on the next steps of our funding toolkit and eager to pass on these savings to our customers and shareholders. In January, we hired Sam Smith as our Vice President of Capital Markets and Treasury to help support our growing ABS platform and capital market strategy. Sam is a proven leader with over 20 years of experience in investment banking and the securitization markets. Additionally, during the quarter, Josh Smith joined our team as Chief Technology Officer and brings a wealth of knowledge and technical skills to our leadership team, having served in various technology-focused leadership roles over the last 27 years. I've continually talked about the importance of developing and attracting proven leaders to Car-Mart, and I'm pleased with the progress that we're making. With this overview, let's turn to the third quarter operating results. Jamie?

Thanks, Doug, and good morning, everyone. I am pleased to report on the progress we are making, including the successful actions we have taken to strengthen our operations. Before I begin, I just want to take a moment to express my gratitude. I joined the team approximately five months ago, and I'm incredibly thankful to work alongside such an amazing leadership team and dedicated associates. I'm thrilled to be part of the Car-Mart family, not only because there are great people here, but also because there is so much potential to better help a customer base that needs it most. I look forward to all that we will accomplish together. Now let's dive into the details of this quarter's operational results. I will start off with revenue. Total revenue increased by 8.7% despite average selling prices declining by 90 basis points. The primary driver was higher sales volume, which I will cover in more detail in a moment. Secondly, a 5.1% increase in interest income was driven by overall receivables growth of $31 million year-over-year, and the portfolio's weighted average interest rate was approximately 50 basis points higher. Finally, we made a price increase to our service contract product suite during the quarter. Our intention is to better cover the rising cost of both parts and labor repair rates seen throughout our industry. These price increases have had no meaningful change in the product's penetration rate to date. Switching over to sales. Sales volumes were up 13.2% for the quarter. The operations team did an incredible job executing on the plan this quarter. This plan included the acceleration of the launch of our annual tax season promotion in December rather than January, which led to a 3.6% increase in prequalified leads, coupled with stronger conversion year-over-year. This was due in part to the utilization of our new customer relationship management tools that rolled out late summer of last year and helped improve lead management. We also proactively increased the volume of inventory as we expanded our front lines much earlier than last year, putting us in a better inventory position as we head into our spring selling and tax season. Additionally, the underperformance in the prior year quarter was driven by intentionally tightened lending policies established during the rollout and implementation of the company's loan origination system that appropriately reduced risk but negatively impacted volumes. Vickie will speak more in a little bit about how those lending policies have continually contributed to improved portfolio performance. Looking at gross margin, gross margin was 35.7% compared to 34.2%. The initiatives around vehicle procurement and vehicle disposal continue to drive improvements in affordability, wholesale retention, and the resulting gross margin percentage. These improvements were partially offset by increased accident protection plan claims primarily related to recent weather events. We are pleased with the continuing progress in improving the gross margin percentage, and we will continue to be focused on driving to the 37% to 38% annualized gross margin that we've mentioned in prior quarters. I'll now turn it over to Vickie to cover our financial results.

Thanks, Jamie. As mentioned in the press release, we had improved net charge-offs as a percentage of average finance receivables for the quarter at 6.1% compared to 6.8% in the prior year quarter and 6.6% sequentially. On a relative basis, we saw overall improvements in the frequency of losses as well as a slight improvement in severity. In the finance receivable pools originated in fiscal years 2022 and 2023, we continue to experience increases in the frequency of losses, as can be seen in the cash-on-cash return table included in the release. The fiscal year 2024 pool performance, while improved over the fiscal 2022 and 2023 pools, also experienced a higher frequency of losses, particularly related to contracts originated prior to the rollout of the loan origination system and the tightened underwriting. Receivables originated in fiscal 2023 and prior account for approximately 21% of the total portfolio at January 31, 2025. The allowance for credit losses as a percentage of finance receivables, net of deferred revenue and accident protection plan claims was 24.31% at quarter-end, improved from 24.72% at October 31, 2024, and 25.74% at January 31, 2024. This reduction in the allowance is primarily a result of the continued performance of the receivables originated under the loan origination system, which now accounts for 58% of the total portfolio balance, excluding acquisition receivables. Our average originating term was 44.6 months, up from 43.3 compared to the prior year quarter and up slightly from 44.2 sequentially. We continue to optimize the distribution of the term by customer score, shortening term for our highest credit risk customers and allowing additional term for our best credit scoring customers. At the end of the quarter, the weighted average total contract term for the portfolio was 48.3 months. The weighted average age was 12.6 months, a 7% improvement over the prior year quarter. We continue to make progress on boosting overall collections, which are up 5.2% over last year. This was also a sequential improvement from the second quarter. The monthly average total collected per active customer was $568 compared to $540 at the same period last fiscal year. Delinquencies or accounts over 30 days past due increased 40 basis points to 3.7% at quarter-end and were 20 basis points higher than the second quarter of fiscal 2025. Winter weather late in the month of January contributed to the delinquencies as our customers' work was impacted. However, delinquencies have improved since quarter-end. Recency was 81.3% for the quarter compared to 80.4% for the same period last fiscal year. SG&A expense was up $2.9 million, an increase of 6.7%. This was primarily driven by a $1.8 million increase related to the two acquisitions completed since last year and higher stock compensation. In the short term, these two acquisitions create headwinds in our ability to leverage SG&A on a per-customer basis while they build out a portfolio of customers. These acquisitions are expected to add 5,000 or more accounts over the next 18 to 24 months. Sequentially, SG&A decreased $947,000. We continue to stay focused on the efficiencies we can find in the business while continuing to build a foundation of people and technology to support a growing customer base. Interest expense increased by $192,000 or 1.1%. Sequentially, we had a decrease of $1.1 million in interest expense as we begin to benefit from the improvement in benchmark rates, as well as the positive impacts from our recent improvements in securitization rates. At January 31, 2025, we had $8.5 million in unrestricted cash and approximately $75 million drawn on the ABL facility. With the amended and extended ABL facility now in place, our priority will be to continue to further diversify our capital structure. Now I'll turn the call back to Doug.

Thanks, Vickie. Before moving on to Q&A, I want to provide more color on the health of our consumer, our perspective on macro factors impacting our industry, and how Car-Mart is uniquely positioned to serve customers in this type of environment. Used car affordability is a major concern for both our customers and our industry and has been for some time. In addition, recent developments out of Washington related to tariffs and other potential impacts have created further uncertainties for how consumers might navigate a new environment. Our business is focused on taking care of working people who find themselves in financial hardship by providing them with basic quality transportation. The work that we've done as a company by centralizing certain functions, finding new sources of inventory, and tightening underwriting standards will help us navigate the environment more effectively should some of these changes come to fruition. We've been focused on improved deal structures that add a margin of safety into our customers' households with the loan origination system. In addition, we would expect to have a larger addressable market as consumers that could get credit easily in the past will now be at the top of our sales funnel. Our company has weathered many cycles over our 43-year history, which gives us confidence we can help customers navigate this uncertainty. We are laser-focused on what we can control, which is providing affordable financial solutions for vehicle ownership and exceptional service to customers who typically feel the greatest pressure in difficult and uncertain economic environments. This is especially true as we enter the seasonally strong fourth quarter and spring selling season. We've added inventory, fine-tuned our marketing strategy, and feel good about our position heading into this important time of year. We continue to pursue opportunities to improve deal structures with risk-based pricing and now have 34 stores that are actively utilizing our new scorecard and testing price elasticity on both ends of our customer rates. We'll share more in detail what we're learning and the opportunities it's creating for the company after the tax season. One of the items that we can control are continual investments in our platform. This includes ongoing investments we're making to improve our collections infrastructure to make the process easier for our customers and associates. Achieving this critical operational improvement this year sets us up to scale the business, enhance funding, and improve earnings with less risk as we move forward. While we're pleased with the progress that we've made during the third quarter, we remain cautious about the macro environment. By focusing on the fundamentals of our business, we are positioning ourselves for continued success and future growth. Rest assured that these challenges have made and will make your company better and will serve us in good stead going forward. So with this overview, we'll move on to the Q&A session now. Operator, please provide instructions to ask questions.

Thank you. Our first question comes from the line of Kyle Joseph of Stephens. Please go ahead with your question, Kyle.

Hey, good morning, everyone. Thanks for taking my questions. A couple here. But just wanted to dive into the unit recovery. I know you guys mentioned there were some impacts from underwriting last year and then kind of a new program to get it moving up kind of tax refund sales. But just in terms of underwriting, can you tell us where we are - where you guys are year-over-year? I know you guys mentioned risk-based pricing and everything, but in terms of tightening versus loosening, I know you guys highlighted that you're still cautious overall. But give us a sense of where underwriting has trended over the past year.

Good morning, Kyle. Thanks for the question. Yeah, if you remember last year, we had just rolled out the loan origination system, and we were down 19.9% in the third quarter. And admittedly, we had said, hey, we probably are too tight, and so we're going to work on releasing or relaxing some of that over time and trying to be really thoughtful and smart about that. The run rate that we currently have sort of implies that relative to the fiscal year '23 volumes, which is the comp in that period of time, that we would probably be down 6% to 8% versus fiscal year '23, which is the high watermark that we've had over time. So we've certainly done a lot to grab and go back and get some of that volume. And I think there's more that we can still do around that. But we've really been focused on risk-based pricing and how maybe we can do that in a differentiated way versus an overall relaxing with some of our core controls.

Yeah. Very helpful. Thanks, Doug. And then, Vickie, I know you talked about the impact of weather on delinquencies. I know it's probably tough to isolate or quantify exactly what that was. But can you give us a sense if there's any way to isolate the impact of the weather, what delinquencies would have done or what they've done kind of in - or what they did in February, I guess?

Yeah. I mean, like you said, it's hard to isolate that in particular, but we did see them trend back down pretty quickly and in line with our expectations.

Got it. Okay. And then last one for me, Vickie, on the acquisitions. Can you just remind us the timing of when those closed and how quickly you expect them to ramp towards? I think you talked about 5,000 new accounts just to help us with modeling on the G&A side.

Sure. So we closed on the one dealership in Hot Springs, Arkansas, last December. So there would have been half of the prior year quarter had some impact from that acquisition. The more impactful one is the Texas Auto Center dealerships, which are two large dealerships that we closed on in June of this year. And those are the ones that we've talked about that are large dealerships selling higher volumes than our legacy stores are, and that's where most of the impact is coming from. And there was no SG&A, obviously, from those two locations in the prior year quarter.

Got it. Very helpful. Thanks for answering my questions.

No problem. Thank you.

Thank you. Our next question comes from John Murphy of Bank of America. Please go ahead, John.

Good morning, everybody. Just a first question on provisioning. Obviously, that was a big benefit in the quarter, and it seems to be due to a lot of your micro efforts on LOS. I'm just curious if you can parse out sort of the stress that your core consumer is under versus the benefits of the LOS. And it's really kind of a complicated question. I'm just trying to understand how negative the base case would have been and how much benefit you're getting from the good efforts on LOS.

Yeah. I would say it's difficult to parse that out as well. But I think most of the benefits, we believe, are coming from how we're originating the paper. We're really dialed into looking at our different customer cohorts, what we're doing in terms of downs, term, and amount financed. And then when we add this risk-based pricing aspect on top of all of that, we believe that most of it is coming from the underwriting versus the consumer just being in a much better place because we don't believe that's the case.

Yeah. I'd add additionally too, John, it's sort of a difficult question to answer. But that the back book that we referred to, which was the paper we underwrote in fiscal year '21 through '23, that only represents a little over 20% of our portfolio at this point, almost 60% of the portfolio is this new loan origination system, and that's under these new controls. So I'd say that now we're sort of substantially more than half of the accounts are really under this. That's really sort of our focal point and the piece of the portfolio that like we've really been focused on trying to cure. If you go back a year ago, we were worried about higher for longer, and we felt like we needed to build in that margin of safety. And we've been very, very reluctant to relax that just given the uncertainty looking forward. And now it looks like a great call that we've sort of put in place. But that gives our consumers a little bit of flexibility and helps us navigate them and less susceptible to what's going on in the broader macro, right? They're not immune to it, but it certainly helps them sort of not be as susceptible as they would have been.

That's helpful. And maybe just a follow-up for Jamie. It's great to hear you on the call, and welcome to the team. I'm just curious, and you were making the shift from one good company to another good company. Obviously, Doug and Vickie and the team are leading a really good company here. I'm just curious what your take is, though, why you made the switch? What drew you to America's Car-Mart and what sort of opportunities you see as the COO in your early days?

Yeah. Great. Thank you so much. I appreciate it. Very happy to be here and thank you for the question. I’ve been here about five months or so. And I mentioned earlier, just super impressed and excited about the people of this organization. But I'd say a main driver, the company that I came from is much bigger, same segment of the subprime part of the industry, but much bigger, I'd say, probably twice the size. And so at a company that big, it's really difficult to sort of move the needle. And so you heard Doug allude to earlier some investments in our ability to change how we collect. And so it's really interesting projects like that for me that I think will give us the opportunity to really put my thumbprint on the success story of the organization. And I think that there's a lot of opportunities like that out there. So I'm really excited to be a part of that.

Great. Thank you very much, guys. Appreciate it.

Thanks, John.

Thank you, John.

Thank you. Our next question comes from Vincent Caintic of BTIG. Please go ahead, Vincent.

Hey, good morning. Thanks for taking my questions. First, I just wanted to get an update on what you're seeing so far in terms of the application pool. You talked about tax refund season, tax season. So maybe if you could give us an update if you're seeing anything so far in terms of both customers coming in, as well as credit performance from tax refunds. And then you also highlighted in your prepared remarks about more customers coming into the funnel or the opportunity of more customers coming in, especially as maybe other lenders are tightening up on credit. Just wondering what you're seeing so far and if the application funnel is seeing some increase in volume and if that volume is higher quality customers? Thank you.

Yeah. Good morning, Vincent. Good to hear you, man. So tax season started off a little bit slower. I think we all saw that. cumulative overall refunds now are sort of flat to last year, still down materially from like 2019 or sort of pre-COVID time. So we're still waiting on, I feel like a good chunk of that money. And so we should hope to realize those sales here in the month of March. Refunds were up on a per customer basis just slightly. We saw stronger demand than we saw last year from consumers. I think that's part and parcel with our advertising campaign. So last quarter, I mentioned that we were going to go to market earlier from our consumers. But we're also seeing that from some of the tax preparers that we work with that there's more demand from the consumers. And so when consumers are coming to you with their last paycheck in December instead of waiting on their 10.99, that's usually a good indication that there's strong demand from the consumer side that they need to get a hold of that money. And we're trying to make sure that we capitalize on that if there's a sales opportunity. And then also, obviously, we schedule a bunch of seasonal tax payments. And so what we've seen there is really great execution and sort of outperforming year-over-year. So we're really liking what we're seeing in and around there. For us, it's also an opportunity for us to elongate the tax season. We have thought about that historically as these really sort of consumers that really need this money. But for the broader market, the tax season is generally longer. And so if we're focusing on going up funnel and serving to these broader 5 and 6 and 7 rated customers with better credit, it means we need to be prepared to stay in the market longer. And so we're going to test that as well this season. And so those sort of things are exciting. The overall application volume, as Jamie mentioned in her pre-prepared remarks, was up a little over 3.5%. And so that was good. I think more importantly there to note was the overall application volume sequentially that we're seeing was improved month-over-month. And we were coming out of January and what was like the strongest application volume in January that we've seen in a really long time. So all positive signs. The second question you had was around the opportunity in the sales funnel, I think, Vincent, which that to me sort of speaks to these broader trends. And our business was built for this sort of environment. And it's sort of counterintuitive maybe to most that like in this sort of environment where there's a lot of uncertainty that maybe we could thrive. But historically, if you go back and look over time, we've seen a lot of positivity in these sort of environments. It doesn't mean we're immune to the effects, but certainly, this is one of the value propositions of the company. And so we're seeing strong volume, strong website visits even through February. The consumers are really focused on deploying money that they need to get through the winter season and upgrade their vehicles, etc. And I'm not sure that we're going to see any sort of immediate reaction here through the tax. It will be interesting to see post tax season sort of what that really means.

Okay. Perfect. That's very helpful detail. Thank you. And then my second follow-up question, just it seems like the process improvements you've had, the operational changes, and then the loan origination system and all the other things you've done have had a meaningful impact. And I'm just wondering how much more we can go - Car-Mart can go in terms of the benefits that we should continue to see from the loan origination system as well as some of the centralization and process improvements that you made. Thank you.

Yeah. There's more to get from the process improvements. It was - if you can believe it or not, it was only nine months ago, we kicked off this Cox partnership, and we're still sort of in our first phase. There's a lot more that we can do there. And so I would expect us to continue to get the benefit and exploit some of the benefits from that partnership over time. On the underwriting piece, I think there's an opportunity to go back, obviously, to maybe more relaxed standards. But more importantly, in this environment, we're looking at risk-based pricing and the opportunity that it might present for us. I think the last time we spoke, we might have had ten stores live. We're up to 34 stores live. We didn't want to sort of interrupt the tax season. But the learnings that we're getting there from over a fifth of the organization on the platform now with this new scorecard are really promising. And so we'll have to see what that really means. I said I would bite my tongue and hold some more remarks around that until after the tax season, and I have more to share about the strategy that we'll employ. But certainly, given the broader macro factors, we're accelerating our learnings there and the efforts and how we might anchor our strategy for the balance of the calendar year.

Great. Super helpful. Thanks very much.

You got it.

Thank you. I would now like to turn the conference back to Doug Campbell for closing remarks. Sir?

Thank you. It's an interesting time in automotive. I mentioned earlier that times like this, we've learned a lot. The company is in a different position, and the whole marketplace, there's a lot of uncertainty around that. But our business is built in this season. We help our customers navigate environments like this every day. And so we are being more mindful, more diligent about some of the moves that we're making here, and we expect those to pay dividends for both our consumers and our shareholders. We look forward to the next update. Thank you very much for joining the call.

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