Good morning, everyone. Thank you for holding and welcome to America's Car-Mart's First Quarter Fiscal 2023 Conference Call. The topic of this call will be the earnings and operating results for the first 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 their present view. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The company cannot guarantee the accuracy of any forecast or estimate, nor does it undertake any obligation to update 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, 2022 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.

Well, hello and thank you for joining us this morning and thank you for your interest in America's Car-Mart. Unit volumes for the quarter were up 2.1%, with revenues up 23%. Given the inflationary operating environment and the lack of product at lower price points, we're convinced that we're picking up solid market share and many potential customers are staying out of the market because of affordability concerns. Consumer demand for our offering is expected to remain high and increase moving forward. We believe the challenging macro conditions will eventually improve and volume opportunities for us will only get more attractive. We will remain focused on the things we can control, the initiatives we have in place to allow us to be a much larger, more profitable company over time, so that when headwinds switch to tailwinds, we will be ready to leverage our infrastructure even more. We operate in the high touch, high friction segment of the market and consumers need a lot of support before, during and especially after the sale. Infrastructure to support a growing customer base is extremely important. We give our customers peace of mind by keeping them on the road. We have a long history of success through many different business and credit cycles and we believe we do it better than anyone. Our customers are most certainly feeling the negative effects of the absence of stimulus, combined with high inflation, but the job market is strong and wages are increasing and at the same time, car prices are leveling off some. We believe that wages will continue to increase at a healthy clip as we move forward. Also specifically, gasoline prices are down materially in the areas we serve and food costs are expected to moderate some. As always, we will support each customer one at a time in the best way possible to ensure that we keep them on the road. That's what we do. That's America's Car-Mart. I'll now turn it over to Vickie to go over some numbers. Vickie?

Good morning. Thank you, Jeff. Thank you all for being with us this morning. A 2% sales volume increase, a 20% increase in the retail sales price and 32% increase in interest income drove a 23% revenue increase over the prior year quarter. Our per store productivity was flat compared to last year at 33.6 units. This demonstrates the demand for our product even in a tough environment with high overall inflation, high vehicle prices and a softening demand in the overall market. Our gross profit dollars per unit increased by 12% over the prior year and up slightly from the sequential quarter. The gross profit percentage was 35.7%, down from the sequential quarter at 36.5%. This decrease primarily resulted from the increase in the average selling price, coupled with the inflationary pressures and increased costs for repair parts, transportation fees, fuel costs and other cost of sale expenses and lower options on wholesale. For the current quarter, net charge-offs as a percentage of average finance receivables was 5.6% and in line with our prior five-year average and compared to 4.3% in the prior year quarter. For a historical comparison pre-pandemic, net charge-offs were 5.4% for the quarter ended 7/31/19 and our 10-year average for first quarter is at 6%. The primary driver of the increased charge-offs was an increased frequency of losses, coupled with a slight increase in the relative severity of losses. Our quality of customer does continue to improve and we remain confident that our customers need the dependable transportation and reliable service that we offer and that coupled with the investments we're making, we believe we'll be able to continue to perform well in a more normalized credit environment. Our recovery rates were essentially flat at approximately 30%. Our accounts 30-plus past due was at 3.6%…

Okay. Thank you, Vickie. This business we are in is hard but we've never been more optimistic about our potential. Last year at this time, consumers had received the largest and the last of the stimulus checks. The advance child care tax credits were in the market, enhanced unemployment benefits were still out there in consumers' hands and all of that stimulus is now gone and we're looking at a 9% inflation. Supply is tight. We think it will ease but there's been massive changes in our industry that have happened at speeds never seen before. However, we are seeing some leveling off of prices. Our customer lives paycheck to paycheck and affordability is more of a challenge than ever right now. With all that said, we believe that we're the best at what we do and we have a long proven track record of working with our customers. We're beginning to see better customers come down into our market from above. This customer we serve absolutely positively needs personal transportation. While there are certainly other available options, we believe our basic transportation option is clearly the best and will again show itself to be just that over time. We have an enormous market share acquisition opportunity. We believe the competition is being disrupted far worse than we are and we intend to capitalize. We have significant upside from gaining market share in areas that we already serve. We average 629 customers per dealership and we believe that should be 1,000 or more over time. The current used car price environment is not affordable for all. This does not mean that it cannot persist for longer but the prices of vehicles are disconnected from the economic reality of a section of the population and we believe this situation will gradually rectify itself over time. We have the scale, the customer base, the industry expertise and the balance sheet to play some offense in tough markets like this. We're making significant investments doing what we think we need to do, to be a far larger player that can better serve our customers at a high level. We are currently supporting almost 97,000 customers, most living paycheck to paycheck and we will keep them on the road and work with them through life's challenges including pandemics, recession, inflationary periods and other disruptions just like we have for 41 years. We have an obligation to serve more customers. And in 3, 5 and 10 years, more people will need us and we will be ready. I'm proud of our associates and the incredible work we do every day to support our customers and to support each other. We will now open it up for questions. Operator?

[Operator Instructions] First question comes from the line of John Rowan from Janney.

You guys said in the opening comments that some of the charge-off was both frequency and severity. Is the severity more a function of higher duration, lower down payments? Or is it a function of car prices leveling off?

The severity just relates to the higher balances that the customers have at the time of charge-offs. So as that average selling price and the average amount financed has increased over the recent quarters, that's where the severity comes into play.

Okay. And then you said, obviously, you’re teeing up a new ABS. Can you just give us what the marginal cost of debt is now on the revolver versus where you think this ABS will price?

Yes. Currently, it's about 2 percentage points difference.

So it's 200 basis points lower?

Yes.

Our next question comes from the line of Vincent Caintic from Stephens.

Just first a broad overview question and I know there’s a lot of changes going on in the macro right now. But as you’re looking at this past quarter, I’m just wondering if you think that have things stabilized in the business such that this is a good quarter for us to be forecasting off of or is there something else that you think you should be thinking about this year or in the near future that we should be anticipating about and modeling that going forward?

Well, we feel like, again, car prices are leveling off and wages are going up. So we feel good about both of those components of the look forward. We are going to serve customers at a very high level and keep them in their cars and on the road. So we're optimistic looking forward and anticipate that results are going to be solid as we look forward. And again, we do expect wages to continue to pick up and be strong and the labor market will be strong and the leveling off of car prices, putting our customers in better cars for better prices moving forward. The timing of that is a little unknown, but we do expect over time to see some good benefits and some improvements as we go forward.

Okay, understood. For the loans that you’re originating today, I know you were talking about kind of the averages of the – like average term and the sales price and so forth. But I guess for what you’re originating today, could you talk about what are the terms of the new loans you’re seeing where you’re comfortable taking churn? And then also, where are you comfortable taking the average selling price?

Yes. I mean we are -- again, we're seeing some prices level off. We are intentionally looking for a less expensive product. It's a little tough to find right now. So a little of this is out of our control but we are laser-focused on putting a better product and a less expensive product out there for the shortest term that we can. We like to put our customers in equity positions, keep them in good positions and keep that term as short as we can and at the same time, not lose good customers and make sure that payment is affordable. So we are focused on taking advantage of some market opportunities with prices leveling off and we'd love to see that sales price level off and that term level off at the same time. And really, as we look forward, we can see some opportunities down the road for some term reductions even as prices move more in line over time.

Okay. And last one for me. The SG&A expenses, I understand you’re making more investments in the business and it’s up about, I think, 11% year-over-year. Where do you feel comfortable taking SG&A? I guess, what should we be thinking about that on a go-forward basis?

Yes. Again, we are still investing. Jeff mentioned the wages going up. So when they're going up for our customers, they're also putting some pressure on wages for our associates as well. And as you know, in this high-touch business, our associates and the service they provide to our customers are very important. So to Jeff's point, we are going to continue to leverage this as we move forward. We've always been very focused on efficiencies and frugal with our expenditures just like our customers have to be. So we'll continue to look to leverage that. Again, it's hard sometimes on a quarter-over-quarter basis. The largest part of our investments have been made, but there will continue to be some as we move forward.

Okay, great. And sorry, Vickie, one more. Just quickly, the ongoing interest expense, what's the right quarterly expense to be forecasted going forward?

Yes. Well, a lot of that will depend on, of course, what the Fed does coming up over the next few quarters. I mean, I think there are still expectations that there will be perhaps even three more rate increases this year, as we look forward to the securitization market and what the benchmarks and the spreads are doing in that market. I mean I think there's expectations that, that will increase as well. So, I would expect that there will continue to be some increases in interest expense as we move forward here just based on the market. And then, as I mentioned too, in the environment we’re in now and that’s growing market share, growing finance receivables, that results in higher debt balances as well.

[Operator Instructions] I'm not showing any further questions in the queue at this moment.

Okay, thank you. Once again, thanks, everybody, for listening in. We've been in business for over 41 years. We've gone through a number of cycles, credit cycles. And when we do see some disruption, we always come out the other end in better shape. And we expect, once again, as we set our company up to handle more customers and handle more growth and be more productive and leverage SG&A, when these headwinds we're seeing now do switch, we're going to be in a great spot to take advantage of what our company does and what we do so well. So we appreciate everybody. Thanks to all of our associates for their dedication and hard work to what we do. We're very proud of our company. We're very proud of where we're at and we're extremely excited about our future and our place in the world. So thank you and have a good day.