Earnings call transcript Q3 2023

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Operator

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.

pursuant Litigation Safe Reform made the provisions are Securities Private Act statements to Harbor the of These of XXXX. guarantee it to cannot estimate, company the any of The forecast nor does forward-looking undertake update obligation any statements. accuracy or

on or please and and For Part X-K the reports its Forms Form for current X on Exchange ended year to see the more quarterly report forward-looking fiscal annual filed April XX-Q. of Securities regarding XX-K information Commission with statements, the company's XX, and furnished XXXX

Participating call Chief Officer. the Judy, President; this on Williams, morning Financial the Executive and are company's Chief Campbell, Jeff Officer; Doug Vickie

And now, company's the Jeff I'd to Williams. to like call over Executive Officer, the Chief turn

Jeff Williams

volumes and for an us quarter saw thank volume for in just have the morning. on sales you quarter minute. Well, will Okay. unit more the both would store increases, weather absolute challenges joining Doug absent on cover basis in seen and basis this We the same unit an a increase for

Our two volume and the of to affordability when of compared are inflationary previous face and overall challenges a in the pressures, lack stimulus marketplace. in years increases the

used come did in XXXX. car overall prices down However,

expected a the recent year. season the The car expect of normal better are in dynamics. do the experience value uptick to more is most hold supply-demand and short-term affordability we expected, to level As for decline months, balance the seeing do we due in but tax pricing off gradual to buy normal we

wages improvements future leading volumes. in to expected affordability to higher continue sales rise, Customer’s and are to

January, increase outstanding Car-Mart. access they to time levels shift will credit received from basis, a that from a channel there But in credit tightening and We the most. on unions Automotive bringing the the car for the back service with expect tighter affordability loan seeking loosening of reflecting use with Cox auto again an channels XXXX slight it December. dealer customers were in all historical tightened over in June to According America's credit to tightest was January year-over-year all the since were for that conditions types, independent

into will better, between eventually as We our sell and average we setting could folks will market. XX not discuss which per loan key migrate The active up and month next few customers on of more some years XX system ourselves per to origination our a market cars share X,XXX the and Doug dealership rollout, over be initiatives. per benefit timing dealership. to will picking up three cover specifics and good I over down

addition to skills to to is outside we've making from leverage people, of the us their our team and senior reorganising As processes, We're the business. accountability increasing recent in the investments improving us effectively to benefit and complete people been and helping several initiatives work and experiences, efficiency. allowing that talented management maximize

As loan are procurement include areas logistics, very areas, wholesale huge IT inventory and making management, reconditioning strides all we've exciting. and digital origination these discussed, in system, data improvements, the

our the critical operating end allowing eliminate and or the flexibility, for year. growth. is and be by is of ERP expected Resource ERP Planning Enterprise and future progressing efficiency to efforts Our tasks calendar completed improve in initiative The manual is to

supporting serve our driven the as level, company us origination underpinning This points to the customer The operations the CRM. to investment to customers. our improving critical, new of CRM teams, data become increasing experience, Within development CRM harness the in serve module provides us us funnel field customer new is the place, they relationship at for ERP high allow allowing management the while of and better the will loan one visibility is system. customers or potential allow of more will The touch a customers. continuing customer a

acquisitions the Towns. completed we These release, press in the Texas, are and new in of dealerships three Tyler, Tennessee, dealerships Greg Knoxville, December. in in located mentioned As

leading our or acquisitions we talking more our and year a via resources, role dealerships forward expect in per And processes. look We five to future we acquisitions refine plans. believe, play we're parties. with add We our actively more current can multiple as and to

I'll now. over Doug to Doug. turn it

Doug Campbell

everyone. Thanks, on two Jeff, sales and providing good our morning more I'll initiatives performance. before cover some color

pleased channels. several nicely. And results quality far. are and partners thus in is trade pilot have reconditioning We've footprint with who now Our per vehicles moving cost with And territory. seeing XXX to along we're reductions improvements other strategic compared processing been our month the when

month, processing we'll north is be per that channel needed. as six expectation and to scale units of this it X,XXX within utilizing Our months, continue we'll

maturity, see utilizing this a At channel. our XX% we vehicles could source of we scenario, where

Our is $XXX worth $XXX preliminary effort per the unit. findings to indicate

However, the indirect us enormous are grow will and and allow productivity. benefits sales to volume

application on I system origination fair installed Next, credit a regarding I spoke last new portal outlined stores. of XX% bit successfully throughout the loan our the that where we had our call,

payment February XXX% to customers online requirements responses, who of message operation was by the goal receiving of the are May complete Our our on X. and teams, have qualified status their what all of to X. as original of who tirelessly the worked the of apply for. completing All application, the installation text take they're to want now as are the to I thank including balance opportunity installation

at will and appointment ensure transaction. frictionless to for time, alongside they're workflow, more that consumers different one on to are of ready until that will here stores to them prioritizing reply more into cascade currently it purchase. team any a We're headquarters who with deploy our needs, members interacting functionality enable worked dealerships setting these require where who questions a Customers up customers follow messages and what

of address initiative. larger like credit volumes, is we trying the application LOS to discuss also which one I'd the to issues were with

services. but begun shift, engage is to their the Our do one our of that throughout done for accelerated application great were prior Prior ratio to slow been for approach and the the one, customers applications have continues we credit to so. and just buy the but to demand with performed have us and propensity has indicator The customers that applications to differently. This our Historically, of continue it shift, remotely. online been at a COVID. exceeded COVID, the stores submission and to seeing a pandemic has

favors versus that ratio applications in a now one. currently, remote at store two applications However, of ratio to

from grown All credit transpired, two volume has application of this while and has comparing channels the XX%, gross XXXX. monthly XXXX from when the over averages

stories we we that It's in results more are marketing notable serve important If them no the we it's with pilot compared of spent. rest was even serve, this There and differentiated the the way. from incremental greater. results are achieved a the to company, isolated the can customers and that

Vickie Judy

allow point. huge. us we Doug like credit a Hey, streamline that the to LOS in efficiently few around income mining add documents marketing was past. I'd and and a more regression reports verification, The including capture the than underwriting, The analysis, consider. to to opportunities manual have eliminate and great others are processes will data

perform addition, leveraging third done and internal also have to party In which historically fee tax be been we'll calculations, a by resources. done

and very sold. for this cost per total both around So incremental CapEx with better the is unit minimal LOS benefits efficiencies and $XX of the ongoing initiative this – cost are savings,

hugely all So positive, way the around.

Doug Campbell

the of provide I'll moment XX,XXX Vickie. a quarter underscore a the importance the take Those units. color over to additional Thanks, with really some We on initiative. points little finished sales.

impact our declared. our half of the quarter, team. in had I'll a events of were way. was earlier, had been weather mentioned store Jeff adverse that my effects from events stores were a weather late on where operations but There an emergency areas, limit impacted to the January. during As couple the in But some state took place over Almost, located in every of commentary

for our providing had so. our We to of time our to by drag XXX hunker quarter adequate roughly period, leaders our do a requested by down, return to priorities impacted XXX During volume and associates, event when customers the units, dollars. work believe this was we and which safety income it to the of about safe to our to a pre-tax on million this sales

or sales positive up associates these and our a impact, note. navigating with. very quarter X% that that versus have been proud quarter still finished leaders X.X% all the the on of we would versus We're our challenges, positive year and Absent prior of finishing the about a X% for performance

or at price, selling was looking average compared it the when $X,XXX, to year. X% about up When period last same the

issues our regarding manage in supply affordability industry the continue to and chains. We

is in Some of which reflected our price. sales

When sequentially. comparing vehicles They're the selling of relatively average prices flat.

increase as selling the effect for Additionally, mid management they time selling vehicles the as and December. to given the we prices made the a prior average some in of went into ancillary reminder, quarter in products, team as price decisions first a

on contribution the on the mentioned Lastly, a at we basis I'll negative finished having approximately And gross margins. cover points. quarter XXX wholesale gross We call, margins by performance prior XX.X%. these

to some benefit statement. we a the much add While the margins here to vehicles. centrally wholesale The there's do manage of will these was as improve can to quickest sale and way general

improvement pilot That's quarter, the prices. the reflected in basis ran in healthy got During subset here a on see we volume, bump retention of wholesale sequentially. you a us a XXX which point

over entire from been us XX,XXX the be years Given volumes and you and to that opportunity the huge company, for We'll for continuing wholesale or couple company This quarters. as next five the around last about scale when the so. of units a a represents annualize pilot a year anticipate hovered benefiting this have benefit. have

over Vickie, who will it results. our to Vicki? turn highlight I'll Now, financial

Vickie Judy

Doug. you, Thank

XXXX. the quarter, year still compared fiscal average X.X%, for relatively pre-pandemic average year but our percentage For X% our receivables, prior average current third also of were finance X.X%, quarters. five flat below our to year third as XX slightly the a sequentially, net of above flat quarter were They charge-offs, of but

but declining decrease primary an about increased of the losses. effect. an Recovery prices relative driver charge-offs to was XX%. experienced wholesale we frequency the rates severity also of an The increased losses, in increase also of The had

discussed, focused on wholesale process impact. market to piece our maximizing As will declining the a offset the Doug around efficiencies of we be

during We refund are time. income on with in their vehicles upcoming focused working keeping especially them the always, as but tax customers

we with percentage year. with With prior Delinquencies improve highest over trending our of remains remained credit line have portfolio the the quality the continue portfolio The quality in and the positively strong. prior held of historical are quality to customers. percentages applicant consistent with year,

this a year Saturday, year XX-plus particularly year's ended since on day past is was Our which delinquency at average compared on prior days prior delinquency highest quarter accounts was a X% average. versus to the notable Tuesday, end due, the lowest on This in on quarter, the day the quarter. X.X%

quarter up year were for quarter months The term over month for average months and contract million total XX.X up X.X% collections XX.X originating XX.X Total prior XX% per sequentially. the the collections customer were from and down per compared active $XXX was to to $XXX. to slightly

quarter increases the the the prior with only for retail As was the originating prior term increase to encouraging Doug versus compared selling the the It mentioned, $X,XXX are is average month quarter. selling and third prices terms average price up in flattening. a X.X quarter that the year

Our contract weighted the for average portfolio, of for weighted X.X average entire quarter. X.X approximately year XX.X% XX.X including modifications months positively with increased months term the months. from prior portfolio to XX.X And age the compared the to

increase of over SG&A $X.X associates. investments million total prior quarter. competitive for this compensation for people, and staying the relates valued to our our spend on our in in increased year focus key terms positions the the cost the new and Our rewards Most both of

nearly and costs, the the addition new the contributed three the to expenses remaining repossessions, of inflation collection all to due increase. year, on since higher dealerships primarily of impact frequency last Increased also

long-term are in certain reflected of non-core we the income Many centralize statement investments as making we're the functions.

volumes more leverage our expect be SG&A we become will and that and our to discussed, Jeff Doug sales As able increase costs. to efficient, we initiatives complete

prior Our XX,XXX X% over customers. customer increased count by the year to

we We continue with believe return. much a customer larger can to appropriate base serve

more is customers. investments expectation to leverage Our serving by these

approximately At base have $XX.X inventory. million our in was of $XXX we quarter and end, credit and current facilities our $X.X revolving million approximately our cash and receivables borrowing revolving additional and availability million in debt on based

of weighted a restricted our million the at end payable second fixed million $XXX on coupon cash the closed $XX non-recourse X.X% with in securitize issuing notes bonds related and We of notes. those total our to average was with securitization $XXX quarter, million

receivables Our ratio total cash debt, finance to XX.X%. net is of

I'll Thank close Jeff out. And this you. let

Jeff Williams

average where I our give a are, XXXX, and you, take we've million. of areas $XXX we're $XX where our Since to almost and sales the $XXX retail all economy on Okay. importantly, doing January book business. in last we This we're XX% where perspective company. Thank in the up three gone $XX. of increased XX% inflation has from increase, value equity from of very Vickie. come to and Obviously, an environment share the That's you other while cost and where is the going. years from most grown has moved a price million to proud per wanted of around has

we've conditions of around many The need resulting be with the to return hold that rates years, our an position AR to XX% pandemic when historical less, inflation would on stimulus tight conservative in For so in great a such advantage. of accelerate debt our growth higher we've sheet we taken with balance about and talked in us the presented to to a opportunity favor. or moved interest

additional with Our in plus increase increase as have looked funded. cash can moving in be the debt a months initiatives XX we car book healthy, XX months of in and to is our from investments prices net that AR extremely investment one-time the XX% the at representing to

These in. that to are the shape we company all other going Investments of be. historic to that to our out full be lifts have for better collectively come investments with are that all had been to to this we individually on we us and then company in more had the and made opportunities potential reach necessary want heavy – position side period the

as of Also Vickie long-term leveraged focused is be our a investment current SG&A over-time. mentioned, significant to amount in

in from is have the essential tested. shorter-terms, mind an model is our getting And is a more deserve the customer considering our XX%, is strong of interest standpoint better our to to Car-Mart offerings, making, indicator rates. of over and fact from business when time is the the cost ownership and customers every and the lower peace of day. cases obligation now The of get serve part than that is all-in model an we how the who model best consumer business improvements base. competitive Our serve they The stronger we're do we family. with repeat being way What most is

We vehicles cash our expect cost well look and flatten flatten flows improve with to to the as affordability of terms in we consumer as ahead. of

to be will inventory the in expect management gaining annual We significant pre-pandemic improve levels. and materially above area efficiencies turns

gross to the stated of of five expect as margins as forward, levels initiatives we on a dealerships. press returns the increasing in SGMA improving and Going operated at over years, productivity, we equity function by to procurement release, historical well three next by acquisitions generate volume leveraging through

The is not only produce We increased our also an generating expect in to potential return, line our business but cash-on-cash returns dollar returns percentage cash with strong. historical of results.

organizational will We position. review in company best the structure cost proactively continually and make changes our our put and to

out to in unpleasant at and the to on and And experience, and comfort minimizing them and consumers focused test be designed quickly. their LOS we of car finally, taking the the want of from give sometimes kicking dealerships hear getting the is to yes the a drives part yes time tires their homes, serve allowing buying our

quantity Our will the biggest company. for with will for quality payment our where set increase affordable our of over high opportunity demand ability continue we offering is and to vehicles take time. and provide terms a is to our baseline The sufficient

ability We procurement management our confident in we're are and very excited and future. our around inventory about

now customers As Thank on to always, for do our Operator? every purpose keep thank to of dedication the for will our and great day like open to associates we up for you our I'd all questions. and they all their road. it

Operator

one limit from first you. to Bank [Operator one from of first question, we that that one And question, limit follow-up. question John yourself follow-up. one question. to And America. comes ask our for thank our ask Murphy Instructions] And you And moment one we Again, you yourself

please is is John if now on it? you mute, line your line open. Your unmute could

moment our next One comes from And our question. question Janney. John Rowan next from

line now is open. Your

John Rowan

morning. Good

Doug Campbell

Good morning.

Vickie Judy

Great morning.

John Rowan

on duration So I little was wondering I’ll down drill bit. a

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

Vickie Judy

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

Doug Campbell

Okay.

might that XX.X%, So of to months. portfolio fact relate entire most X.X X.X the went up from of it, months to average the the John, age

of out entire So overall that's going to portfolio, age shift just the the age is representative and of which turn. increase in the

John Rowan

portfolio delinquency I it Okay. does for year-over-year. And on did impact the current then delinquencies. lower there have get in mean, any average, portion the a press were if release, modifications, or the of some days increased XX year-over-year, shows is the but that total number down you

you So you. impact on not Thank going one compare modifications down the had one going up, and or can whether two, just those? any

Vickie Judy

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

John Rowan

you. Okay, all Thank right.

Operator

And thank Vincent you. Stephens. from [Operator question comes next Instructions] Caintic Our from

Your line is now open.

Vincent Caintic

for Thanks morning. question. taking good Hi, my

So question a maybe a so XXX you earnings think be could have rate, XXXX $X.XX annual But lot about EPS from this is post-pandemic if would is I've what fiscal quarter. [ph]. for getting broad Consensus talk you right been investors. of one one, first about run you for a

on should quarter what be we from wondering, number, annual just get a basis how think like going forward? and So to you. when this then a you'd about where post-pandemic Thank run we to think, be rate you earnings

Jeff Williams

better us press credit comments all results and in the improvements, that, over release, to margin management, as we time. to the -- get gross and productivity earlier, mentioned expense historical on do in with Yeah, results earnings initiatives line there volume return expect equity return do more we the improvements, on in in place to should And pre-pandemic.

returns credit look as to very on dollar time percentage balance cash-on-cash expect we sheet a the returns a over for cash-on-cash healthy. side. we with basis results. historical mentioned, the But to adding us currently be line And We’re reserve in returns on and of reserves lot again,

optimistic closer productivity that to we're historical nicely. spot what improvements years doing within back, And levels. we're So ROE to years, five place three initiatives and and will come in the along get

Vincent Caintic

Okay, perfect.

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

Jeff Williams

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

Vincent Caintic

you. Thank great. question a just inventory. follow-up, Okay, the so And specific my more about

that comments talk we normalization? your to appreciate about tax the Thank getting much this So inventory, season, I we're release press age if terms inventory or refund of about what's and average the after in levels. on But maybe you levels. historical back from inventory done pretty We're are you. this done point from point,

Jeff Williams

I has work some fully worked we through. making our product through on getting to working there's that majority are good percentage. over year. last a think the progress, inventory been focused some through efficiencies acquired of there and left improving we've The challenges, inventory But turns and

yet. on but way. good we're, say well we're progress. making So, not we're our And I'd But fully finished

Doug Campbell

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

Vincent Caintic

Great. Okay.

And did ages the you days inventory. sorry, have of

I that have or quarter high XXs, was just to you. think the Thank last comparison. want in mid

Jeff Williams

it in last that was inventory. -- was was in sales year. days totally flat with inventory That relatively days what That's

the aged has inventory come down. think I

are making We've progress through most We of again. worked it.

do little a there. to work have We

Vincent Caintic

Okay. Gotcha. much. very Thanks

Jeff Williams

Thank You.

Operator

turn Williams now further am I thank remarks. And over Jeff call I closing showing to to you. would no for the And like back questions.

Jeff Williams

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

Operator

concludes call. Thanks participating. for This today's conference

may now You disconnect.

America's Car-Mart (CRMT) 22 Feb 232023 Q3 Earnings call transcript