Good morning, everyone. Thank you for holding and welcome to America’s Car-Mart Second Quarter Fiscal 2022 Conference Call. The topic of this call will be the earnings and operating results for the company’s second quarter fiscal year 2022. Before we begin, I would like to remind everyone that this call is being recorded and will be available for replay for the next 30 days. The dial-in numbers and access information are included in last night’s press release, which can be found on America’s Car-Mart’s website at www.car-mart.com. As you all know, some of management’s comments today may include forward-looking statements, which inherently involve risks and uncertainties that could cause actual results to differ materially from management’s present view. These statements are made pursuant to the Safe Harbor provisions of Private Securities Litigation Reform Act of 1995. The company cannot guarantee the accuracy of any forecast or estimate nor does it undertake any obligations to update such forward-looking statements. For more information regarding forward-looking information, please see Part 1 of the company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2021 and its current and 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 President and Chief Executive Officer; and Vickie Judy, Chief Financial Officer. And now, I’d like to turn the call over to the company’s Chief Executive Officer, Jeff Williams.

Okay. Well, thank you for joining us this morning, and thank you for your interest in America’s Car-Mart. For the quarter, total revenue was up 29% to over $288 million. Unit sales volume per dealership, what we refer to as productivity increased to 32.7 retail units sold per dealership, per month, or close to 6%, this in a period with supply shortages at all time highs. We believe that productivity would have been better had the supply of used vehicles being at more normal levels. As a reminder, we are a fully integrated auto sales and finance company. We’re both a retailer of used cars, and we finance almost 100% of our sales. It’s a powerful, captive lender relationship. We buy the cars, arrange for transport and repair, merchandise the car, sell the cars. We provide financing to the consumer, and we service the retail installment sales contracts, which includes servicing, our add-on products. As we look at the key variables in our industry, specific to our unique place in the market. We look at the price and availability of vehicles, the resulting retail price to the consumer, and the gross margin dollars generated, the term length, which will result in an affordable payment for our consumer, and give our customers true equity in the transaction. We look at productivity levels, supporting a larger number of customers, allowing us to leverage our cost structure. And we look at overall unit loss rates, which is the ultimate customer success factor driven by our strong consumer advocacy. All of our ongoing initiatives, which are in process to address these key industry variables are allowing us to improve and scale our model without losing the benefits of the de-centralized character lending nature of our business. The overriding theme and direction of all of…

Good morning, everyone. As Jeff said, total revenue increased 29.1% up to $288 million. This resulted from a 5.7% increase in retail units sold at 21.1% increase in the average retail sales price and interest income increased by 38.8% by $10 million. Our same-store revenues were up 28.2%. Revenues and productivity were up across all age categories of dealerships and productivity overall improved to an average of 32.7 units sold per store, per month, compared to 31.2 over the prior year quarter. At quarter end 17 or 11% of our dealerships were from zero to five years old, 35 or 25% were from five years to 10 years old and the remaining 100 were 10 years old or older. The ten-year plus lots produced 33.8 units sold per month for the quarter per lot, lots in the five year to 10 year category produced 30.9, and a lot less than five years of age had productivity of 29.9. The vintage of dealership and related productivity is often higher at our older dealerships due to the experience level of the manager, as well as an established customer base and thus the higher percentage of repeat customers. Total collections of principal, interest and late fees increased by $21 million or 19% over the prior year quarter, and improved 6.8% per average customer. Principal collection as a percentage of average finance receivables were at 10.5% compared to 12.9% for the prior year quarter. Principal collections remained strong with the reduction in the amount of principal collected in line with the expected change due to the average term increases. The average originating contract term was 39.7 months compared to 33.8 for the prior year, quarter and up from 38.8 months sequentially. The average selling price again was up 21.1% or $2,814 with a 5.9…

Okay, well, thank you Vickie. Once again, we’re pleased with our progress and believe we’re in the early innings with our key initiatives. We’re now serving over 93,000 customers. That’s up about 11% in the last 12 months. And we believe that most of our existing dealerships could be serving over 1000 active customers and we’re currently at 613. Earning repeat business and increasing the funnel of potential new customers, it’s very exciting to us and we’re optimistic about our unique offering to the market and our place in the world. As we move forward, as Vickie mentioned, our sales price is up 21%, but wholesale prices in the market are up over 30%. As we work hard to maintain affordability for our customers, as we’re in the boat [ph] with them to help them succeed on their underlying contracts. We’re seeing market share gains and productivity improvements as we attract more customers to the family, so that we can keep those customers in the Car-Mart family, through repeat business. As we said on our press release, we believe our highest and best use of capital is to grow market share from our existing dealership base. We will continue to open new dealerships as we move forward. We’re very excited to be opening our Norman, Oklahoma dealership. In addition to El Reno, this last quarter, as we expand our reach in the Oklahoma market. We also continue to look for acquisition opportunities and believe there are several excellent operators who would like to join our Car-Mart family. The cost of operating in our industry continues to increase at a very high rate and we provide an owner with an attractive exit strategy. The debt markets are very supportive of our, of solid auto finance companies. And with our focus on cash flows and cash on cash returns, we believe solidly that we can continue to grow and pick up market share at the right pace. Last, but certainly not least, we would like to recognize and thank our outstanding and dedicated and committed associates who carry out our mission, vision and value every day in very difficult operating environments. It takes a great team to excel in this high touch consumer business and we’re very proud of our associates and their work. We’ll now open it up for questions. Operator?

[Operator Instructions] Your first question comes from Kyle Joseph with Jefferies. Your line is open.

Hey, good morning, Jeff, Vickie. How are you guys? I wanted to start on credit. And I think you guys talked about losses normalizing. Obviously I think your business is a little insulated given the auto exposure in used car prices, but is the outlook for kind of, frequency to continue to normalize, but in terms of severity, it should be kind of below historical averages until used car prices eventually kind of get some relief, but at that point you’d have some offset and then the gross profit margin. Am I thinking about that correctly?

Well, there will continue to be some pressure on the severity as well, if you think about the larger dollars amount financed. So, when you take one of those vehicles back, your severity will be higher. Our challenge there is and what we’re trying to do is keep our customers in the cars longer, get them closer to an equity position to keep that severity down.

Yes. And we’re just – we’re doing so many things to improve the customer experience and keep customers on the road longer. But you can’t be in this environment and not expect some kind of normalization over time. We’re just, it’s a little unsure at this point, but we believe that we can manage credit, manage credit well, and we do expect good credit results as we look forward. But I think consensus in the industry is there will be some normalization over time, but we don’t know what that looks like yet. But all of these investments, we’re making, all the efforts that we’re putting in place to improve that customer experience and take and take some non-core work out of the field, all those directives and initiatives are meant to improve customer success rates over time.

Got it. And then one follow-up from me kind of a two part question. If you just talk about competition, both in terms of the supply of credit available to the auto market, as well as some of the other mom-and-pops you compete against on the dealership front, and then talk about opportunities for expansion, whether it be de novo or M&A, please.

Sure. Well on the competitive side, we do believe and are seeing that smaller dealers are having some trouble with the increases in the car cost, and the increases in cost to operate the businesses. So there are market opportunities for us and picking up market share from smaller operators who might not be able to thrive and survive in this type of environment. So that’s a, positive on our side. And we are seeing some early benefits from that. On the credit side, there is, as always, there’s plenty of credit out there from bigger players. But the credit that is out there is rational and something that we can match up with very well against in terms of our pricing and our credit. So, we feel good about, the credit side on the competitive side. We are picking up market share from smaller competitors, and on the expansion side, we do continue to believe we’re going to open up some, a few dealerships each year. And then the acquisition side, believe there’s some very good smaller players out there that would love to be part of the Car-Mart family as we look to expand our footprint. So we’ve got several channels of expansion. The primary focus of course, is increasing customer count from the dealerships we already have. We believe there’s a large amount of market share to pick up from getting better and more productive, supporting more customers, selling more cars from the network we already have. And then when you put new dealership openings in that mix and then some acquisition opportunities, we believe that we have a long road for expansion with our base business here.

Very helpful. Thanks a lot for answering my questions.

Thank you, Kyle.

Your next question comes from Vincent Caintic with Stephens. Your line is open.

Hey, good morning. Thanks for taking my questions. I wanted to talk about the add-on products that you’ve been rolling out. And so I guess the service contracts on additional things seems like you’ve been having success there. If I calculate the non-vehicles kind of revenues you’re generating, it seems to be about $11 million this quarter. So, if you could maybe talk about the uptake you’re getting on, add-on products, maybe the know how much of your customers are taking add-ons and maybe what’s the potential penetration rate once we, maybe once you were able to expand that product and anything else that you’re planning to do with add-ons? Thank you.

Yes. Penetration rate for our add-on products is high. Our customers see real value in these products and they’re priced at a value for them to increase success rates, like we’ve talked about the new service contracts with the longer terms and the way we have to defer and recognize revenue on those we’ll continue to add to our revenue stream as we go forward. And we bake in, the full two and three year higher price contracts.

Okay, great. Thank you. And then when you think about kind of going back to your discussion on gross profit margins. So your gross profit dollars continues to grow and it’s been nice to see that you’re able to get some incremental value, even with higher used car prices. And just as you’re thinking about that going forward, are there additional levers you can pull or sources of vehicles that you’ve had? I know in the past you talked about off rental vehicles, but when you think about gross profit going forward, just kind of wanted to get your perspective on that. Thank you.

Yes, I think when the add-on products get fully baked in that, that should be a benefit. We anticipate that being a benefit to the gross margin dollars and percentages as those products get fully rolled out. So, and then other areas where, in this business consumers aren’t that focused on the sales price, it’s up to us to put customers in our market in situations where they can succeed and earn equity throughout the contract term. So, we always have the ability to go in and tweak prices, but with a significant increase in costs out in the market we’ve certainly seen an uptick in market share as consumers are looking at retail prices and looking at our prices in the market. So, we’ve benefited from having some very attractive retail prices out there that consumers are looking at because of the price increases in the market. And as a result those percentages have come down a little bit, but as we go forward and get more clarity on where the market’s going, then we do have the ability to tweak our retail pricing, but we always have to keep in mind that customer success rate, customer equity and we are truly in the boat with our customers over that contract term, and we’re working with them to complete those contracts and get title to the car. And so we’ve got to look at all aspects of price increases and do what’s right for our consumers. It’s fantastic to see these quarter-over-quarter increases in the gross profit dollars that we’re making. And we’ve focused much more heavily on the gross profit dollars. And we think that’s the best focus to have here. And it’s been very strong and we’re going to continue to look at pricing and dollars and make sure we’re putting our customers in situations that they can succeed with.

I think everyone knows this, but you know, the parts, labor, for mechanics, all of that stuff, is increasing. Those costs are increasing. And I kind of mentioned that we’d done a really good job of controlling that part of our cost of goods sales. When you look at repairs and recon to the vehicles that we’re having to do. So, we’re trying to minimize all of that in this inflationary environment.

Okay, great. Thanks so much.

Thank you, Vincent.

Your next question comes from John Murphy with Bank of America. Your line is open.

Good morning, everyone. This is [indiscernible] on for John. The first question I have for you, I think you alluded to it in your prepared remarks, but I believe we’ve got one Child Tax Credit payment left this year which is pretty important for your customer base. How do you think about the phasing out of that program? Or just the end of that program impacting customer demand in the next couple of quarters and, could that result in some transitory pressure on your business?

Well, yes, there’s certainly a percentage of our customers that do benefit from that credit. And that would certainly be a cash flow event for a percentage of our customers. But tax time is just around the corner and all of our customers do benefit from tax time. And again, we’re trying to put customers in an affordable payment with an affordable down payment outside of tax credits or other events that happen throughout the year. This is – again, we’re in the boat with these customers. And we’re not depending on a Child Care Tax Credit amount to, for them to be successful on our contracts. But we are aware of that. We’re looking at that and monitoring that, but at the end of the day, it’s not going to change the way we approach our customers, and their success, and tax time refunds are just around the corner, and we expect our consumer base to perform well with or without these additional child credits.

Okay. Got it. And then as we think about the variety of credit metrics in your business, whether it’s consumer credit metrics like payments and days outstanding or it’s, the financing metrics that you guys are reporting. Obviously you’re working off of some very abnormal levels from last year and earlier this year. How do you think about normalization to pre-COVID levels, and specifically timeline and then are there any initiatives in your business where you think you can operate at a more optimal levels in the future than perhaps you have in the past?

Well, we’ll start with just the normalization of used car prices. And that’s a little hard to pinpoint, I think consensus might say that they were going to be in a period of a car shortages and higher prices through the end of 2022. And at that point we don’t really see prices dropping off a cliff or decreasing, maybe they level off some. So this we’ve seen in the last 12 months, a significant increase in costs obviously, and we do expect within a year or so for the prices to level back off, and hopefully be more in line with general inflation as we go forward. This has been a very unusual period, as you say, and it’s hard to know what normal looks like, but consumers do need cars. They need our service. And what we do is very unique, and how we do it’s very unique. And we’re putting customers in transactions that make a lot of sense for them and for us. And as long as wages are going up and continue to go up to offset inflationary pressures, which we’re seeing, we’re seeing tremendous wage gains in the markets we serve, then we believe, we’re going to be able to put an affordable product out there for our customer, and that customer is going to be able to succeed on those contracts. And again, we expect continuing price pressure and increases for at least another nine months, maybe another year. And then we would love to see prices level off and be more in line with general inflation. But that’s the question everybody’s trying to ask us. Is what does that normal look like? When does –when do things return back to a more normal level and, but we’ll adjust and be nimble and always focus on putting a customer in a good solid transaction, mechanically sound car with a payment amount that’s affordable. And then back up that a sale with fantastic service after the sale, we have a number of touch points after the sale to keep customers on the road and give them peace of mind in dealing with America’s Car-Mart. And we we’re getting better every day and our customer support with some of these investments we’re making to keep our customers on the road, if created normalizes, or if the business changes, we believe we’re going to be in a great spot to help our customer succeed.

Okay. And one more for me, if I may, apologies if I missed this in the prepared remarks, but what is your current level of day’s supply that you’re sitting with at your dealership, and how does that compare to pre-COVID levels?

Yes, we’re a little over 60 – right, at 60-days supply. And that’s up about 25% from pre-COVID levels. And we’ve been conservative in this market. We’re carrying more inventory, and the cost of that inventory is higher, but if you see our dealerships, that they’re really all right, they are full of good solid cars, a good mix of product, and we’ve been conservative and carrying more inventory just based on this, the shortage of product and how long it takes to get product to the locations, repaired parts shortages, labor issues. So, we’re carrying a little more inventory on purpose right now than we would in a more normal period, a more normal flow of product. And we think that’s the best way for us to be looking at this short term, especially with tax time, just around the corner.

Okay, great. That’s helpful. Thanks for taking my questions.

Thank you.

[Operator Instructions] Your next question comes from John Rowan with Janney. Your line is open.

Good morning guys.

Good morning.

Good morning.

So if we continue to see price increases for any, you alluded to up to a year and used car market. Do we – should we continue to expect gross profit margin to continue to come down a little bit, and then, subsequent to that when corporations do level off, is there still some potential weakness in the gross profit margin as you work through the inventory that you required as prices were accelerating?

Well, again, if we’re talking about gross profit dollars…

Or percentages.

Percentages, okay. We’re going to continue. That’s a constant analysis on our part. And we’ll continue to look at that. The service contracts and the other add on products as they roll in are expected to help us on the percentages, certainly the dollars also, but that’s a constant analysis on our part to make sure that retail pricing and our profit percentages are appropriate to support our customer base. Also looking at what’s going on in the market as we grow. We’ve got to look at other retail prices in the market and make sure we’re in the neighborhood on that standpoint. So a lot of this is a little outside of our control as we try to gain market share, but there is a point that we need to and should and deserve. And with all the work we do and investments we make. There is a level of gross profit dollars and percentages that would represent levels that we need to stay at. So, we’re very focused on making sure that our pricing is where it needs to be giving that consumer value and when prices level off, then they will make adjustments accordingly there too. But we’re always looking at gross profit dollars, percentages, pricing in the market attracting new customers and customer success. So it’s not a one dimensional decision. It affects all of our entire entirety of our business, but we are looking at where we can tweak? What we can do to offset some inflationary pressures, and keep our margins where they need to be. Thank you.

All right. Thank you.

Thank you.

[Operator Instructions] All right. There are no further question on queue. I’ll turn the call back to Jeff Williams.

Okay. Well, once again, thank you for listening to our call this morning. We’ve got a great company here at America’s Car-Mart. We keep our customers on the road. We give them peace of mind in a very stressful area of life and that’s car ownership. The investments we’re making, the initiatives we have in place are all directed at supporting our customers at even a higher level. Keeping them in the family for life, communities are better. Customers’ lives are better, when they’re part of the Car-Mart family. We’ve got an extremely dedicated team, and we’re all fired up about our place in the world, our purpose, and our way. And we’ve got a fantastic outlook for our future. We’re going to keep growing and getting better, and we appreciate your time this morning. And thanks again to all of our associates that do such great work in the field and at corporate each and every day. So have a great day.

Thank you. And that concludes today’s conference. Thank you for your participation. And have a wonderful day. You may all disconnect.