Good morning, everyone. Thank you for holding and welcome to America's Car-Mart First Quarter Fiscal 2022 Conference Call. The topic of this call will be the earnings and operating results for the company's first 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 the 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.

Jeffrey A. Williams - President & Chief Executive Officer

Good morning, and thank you for joining us and thank you for your interest in America's Car-Mart. We're very excited to be celebrating 40 years in business supporting our associates, our customers and making our communities better. We will carry on these great traditions and continue to improve as our industry changes and the next 40 years will be even better. We will stay close to the consumer and focus on customer experience and provide unmatched support after the sale by keeping our customers on the road, giving them peace of mind by being part of the Car-Mart family. We have delivered a legendary service as we move this great company forward.

We're making good progress with our various initiatives, which are foundational and focused on supporting our shift from a 40-year-old collections company to a sales company that's very good in collections. Our goal is to continue to gain market share and support an ever-increasing customer base, allowing our field associates led by our talented General Managers to have more time to focus on growing and improving their businesses. We have the balance sheet to support their growth. This sales focused shift starts and ends with our ability to efficiently and effectively source good, affordable vehicles at increasing quantities.

We're making good progress with our procurement and inventory management effort. We're still in the early innings and we will continue to improve in this critically important area. We ended the quarter with 604 customers per dealership. That's an increase of 21 or about 3.6% for the first quarter. We have significant opportunity and room to continue to serve more customers and as we stated, we believe most of our dealerships can support 1,000 or more customers in the future as we continue to centralize some key inventory procurement and management aspects and some other non-core support functions.

I'll now turn it over to Vickie to go over the numbers. Vickie?

Vickie D. Judy - Chief Financial Officer

Good morning, everyone. Our total revenue for the quarter increased 49.2%, up to $280 million that resulted from a 25% increase in retail units sold, a 20.4% increase in the average retail sales price, and our interest income increased by 33.7%. Same-store revenues were up 46.7% with revenues from stores in the over 10 years of age up 48%. Stores in the five to 10 year category were up 56% and revenues for stores in the less than five years of age category were up to approximately $26 million. Our productivity improved to an average 33.6 units sold per store per month compared to 27.4 over the prior year quarter and to 29 units per store per month for the quarter ended 07/31/19 pre-pandemic.

We continue to invest in inventory to accommodate the higher sales volumes and to provide customers a quality mix of vehicles. Our retail inventory was up due to higher quantities, about 50% of the increase combined with higher pricing compared to the same time in the prior year. At quarter end, 16 or 11% of our dealerships were from zero to five years old, 38 or 25% were from five to 10 years old and the remaining 97 were 10 years old or older. Our 10 year plus lots produced 35.2 units sold per month per lot for the quarter compared to 31.2 for 07/31/19 pre-pandemic. Our lots in the five to 10 year category produced 31.3 and 26.5 for the quarter ended 07/31/19.

Our lots less than five years of age had productivity of 29.5 units per month per lot for the quarter. Our down payment percentage was 6.9% compared to 7.6% for the prior year quarter and collections as a percentage of average finance receivables was at 11.5% compared to 13% for the prior year quarter. Our collections remained strong with the reduction in line with the expected change due to the average term increases. The prior year also included the impact of the pandemic related stimulus payments, which contributed to a higher collection percentage. The average originating contract term for the quarter was 38.8 months compared to 32.4 for the prior year quarter, and up from 37.1 months sequentially.

The average selling price was up 20.4% or $2,600 with the 6.4-month increase in the term compared to the prior year first quarter. Our term increases are necessary to be competitive and to ensure affordability for our customers as the retail sales price increases. The quality of the vehicle in terms of age and mileage continues to improve as well. And as always, we will continue to be mindful of balancing the term length with affordability, but we believe we're putting a better customer and a higher quality vehicle for the most successful outcome, combining that with our commitment to keep customers on the road with excellent service after the sale.

Our weighted average contract term for the entire portfolio including modifications was 38.7 months compared to 33.9 for the prior year quarter. The weighted average age of the portfolio decreased slightly from approximately 9 months to 8.2 months. Interest income increased $8.5 million or 33.7% compared to the prior year quarter, primarily due to the $217.1 million increase in average finance receivables, a 34.4% increase. The weighted average interest rate for all finance receivables at the end of the quarter was approximately 16.5%, relatively flat from the prior year quarter. Total gross profit per retail unit increased $596 to $6,175, a 10.7% increase compared to the prior year first quarter.

The gross profit percentage was 38.1% compared to 41.7% for the prior year quarter and also down from the sequential quarter at 40.2%. The reduction in gross profit percentage resulted primarily from the lower margin on the retail unit partially offset by slightly lower repair costs. And increasing average selling prices result in lower gross margin percentages, but higher gross margin dollars per unit, as our gross margins are lower at a higher selling price. And increasing average selling price will continue to put pressure on our gross profit percentage. The mix of the type of vehicles sold was comparable to the sequential quarter with increases in car and SUV sales and pickup trucks decreasing due to their high price and tight supply of trucks.

SG&A for the quarter was up $10 million compared to the prior year quarter and up $2.7 million sequentially but down as a percentage of sales to 15.7% compared to 17.7% for the prior year quarter, and up from 14.5% sequentially. SG&A as a percentage of total revenues less cost of sales and provision for credit losses is an important metric for our integrated sales and finance business, as a large part of our efforts are focused on keeping our customers on the road. This metric was 52.8% compared to 50.5% for the prior year quarter. The prior year first quarter reflected significantly reduced expenses and credit losses due to the impact of COVID-19.

We are now serving over 91,000 customers, an increase of more than 9,400 since this time last year with over 2,100 associates. The SG&A increases have primarily been investments in our associates with increased headcount, increased wages and benefits and increased commissions related to the higher net income. We're also continuing our investments in our infrastructure with our ERP and CRM projects, facility updates, as well as expanding our marketing and advertising to support the transition to the sales company and our goal of increasing market share.

All of this while continuing our commitment and investments in recruiting, training and retention, our inventory procurement and management, customer experience and our digital efforts. For the current quarter net charge-offs as a percentage of average finance receivables was 4.3%, down from 4.8% in the prior year first quarter and down from 5.4% for the quarter ended 07/31/19 pre-pandemic. Both our frequency of losses and severity of losses on a relative basis were improved compared to the prior year quarter. Recovery rates of repossessed units also contributed to the decrease in net charge-offs.

Recovery rates for the quarter were approximately 28.7% compared to 24.5% in the prior year quarter. Our accounts, 30 plus past due were at 3.3% compared to 2.6% in the prior year first quarter and 3.8% at 07/31/19 pre-pandemic. Although our portfolio continues to perform well and our focus is to support and serve our customers at the highest levels there's still much uncertainty as the enhanced unemployment and stimulus payments end and the Delta variant continues to impact businesses and our customers' lives.

The effective income tax rate was 21.4% for the first quarter of fiscal '22 compared to 23.4% for the prior year quarter. Income tax expense included an income tax benefit of $644,000 and $91,000 related to share-based compensation for the current quarter and the prior year quarter respectively. We expect our base effective tax rate to be approximately 24% going forward prior to any excess tax benefits from stock option exercises. At quarter end, our total debt was approximately $272 million. We had $2.7 million in cash and approximately $53 million in additional availability under our revolving credit facilities.

Our current debt net of cash to finance receivables ratio is 30.2% compared to 25.4% at this time last year. A large part of this increase relates to the increase in our inventory investment compared to this time last year, which was historically low due to the pandemic, an additional $40.8 million and also due to our repurchases of our common stock. During this last quarter, we added $80.9 million in receivables, increased inventory by $14.8 million, repurchased $11.6 million of our common stock and funded $1.7 million in capital expenditures, a total of $109 million with only a $46.1 million increase in debt net of cash. We are well positioned to serve more customers and grow our market share.

Thank you. And now, I'll turn it back to Jeff.

Jeffrey A. Williams - President & Chief Executive Officer

Okay. Well, thank you, Vickie. Again, we're pleased with our growth, especially our productivity progress and ending the quarter with 33.6 units sold per dealership per month. And we believe we have significant opportunity to continue to grow the business from the locations we currently have. We did reach an agreement to purchase the retail finance business of The Carman in El Reno, Oklahoma from Jake Haller. Jake is one of our best preferred vendors and we're excited to have a new Car-Mart location in El Reno, which will open very soon and have Jake shift over and focus his efforts on expanding our preferred vendor relationship.

Additionally, we expect to open our Norman, Oklahoma dealership in the second quarter and we will continue to open new dealerships and look for acquisition opportunities, alongside and in conjunction with our investments aimed at increasing our market share and existing dealerships. We have a lot of room to grow from our existing dealership base and that will be a focus of ours and we'll see the continuing productivity improvements that we've seen in the recent history.

This past 18 months has been difficult with the pandemic, social and political unrest, now the Delta variant, the extreme shortage of used cars, difficulty with staffing and finding associates, you for us, and more so with our vendor partners has put additional strain and stress on our entire team but we have resilient people here at Car-Mart who are committed to our mission, our vision and our values and truly love the purpose in our work.

Also, we have a lot of very smart people here who see the potential we have, the window of opportunity that we have to make these foundational investments in key areas with the sense of urgency. We're getting better each day. This is a hard work, the work we do is hard, and it takes a very special group of people to do what we've done over the last few years and we're even more optimistic about our future.

So, we'll now open it up for questions. Operator?

Question & Answers

Operator

Thank you. [Operator Instructions] And our first question coming from the line of Kyle Joseph with Jefferies. Your line is open.

Kyle Joseph - Jefferies LLC - Analyst

Hey. Good morning, Jeff and Vickie. Hope you guys are well. Thanks for taking my questions.

Vickie D. Judy - Chief Financial Officer

Good morning.

Kyle Joseph - Jefferies LLC - Analyst

Just a quick question in terms of the Child Tax Credit changes. Did you see any impacts to the distribution in July and August and kind of give us your expectations for how that impacts the seasonality of the business going forward?

Jeffrey A. Williams - President & Chief Executive Officer

It's a little early to see the effect. We are seeing some improvements in collections in and around the 15th but it's a little early to tell. But we do expect a good percentage of our customers to benefit from those payments for the rest of this fall.

Kyle Joseph - Jefferies LLC - Analyst

Got it. And then on the margin side, totally understand pressure there. Frankly, surprised we hadn't seen it really yet. But just wondering if you think this is kind of a good run rate. Was there any kind of one-time things in the quarter? In my head it was kind of you were selling inventory you sourced at kind of peak Manheim levels and since then we've kind of seen the Manheim come down. So have you seen any easing in terms of the tight supply?

Jeffrey A. Williams - President & Chief Executive Officer

Yeah. It's getting a little better at certain price points. The car that we're looking for, the wholesale car under $10,000 is still pretty tight supply and we think it's going to stay that way for an extended period of time. But we are starting to see a little more availability and we do expect that gross margin dollar amount to continue to increase with the sales price increases. The percentage itself may be a little challenged, just a little bit. But we are seeing the market share gains, so the pricing of our product and the sourcing of our product is being well-received by consumers with the market share improvements we've seen.

So we're thinking that the used car market for the product we offer is going to stay pretty tight for an extended period of time. The car we're looking for is in high demand and we think it's going to stay that way, but our volumes are improving significantly. The quality of the car, the quality of the customer and the credit results have all been good. And we're going to leverage our SG&A investments as we go forward. But that gross margin percentage is certainly going to stay a little lower. It may go a little bit lower as we go forward depending on the sales price of the car. But again, we're picking up good market share, good customers, good cars and leveraging the SG&A costs.

Kyle Joseph - Jefferies LLC - Analyst

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

Jeffrey A. Williams - President & Chief Executive Officer

Thanks Kyle.

Operator

Our next question coming from the line of Vincent Caintic with Stephens. Your line is open.

Vincent Caintic - Stephens, Inc. - Analyst

Good morning. Thanks for taking my questions. I guess, the first question to your sales productivity was better than expected this quarter, kind of continues what you've done last quarter. But when you think about that versus the affordability discussion, I'm sort of wondering how you're thinking about productivity and sales volumes going forward and some of the levers that you've been able to pull for example, the higher loan terms like how much longer of a term could you go or are there other things that you could do to sustain sales productivity with still affordability being a challenge?

Jeffrey A. Williams - President & Chief Executive Officer

Yeah, that is a challenge for us. But even at that 38 to 39-month term, we're still significantly below the competition. So we've got a little room to go there. We do think that many of our customers do appreciate getting their car paid for quicker, and shorter terms are viewed as a positive, but it does have to be affordable. We know we have competition on the payment amount. So, we'll continue to try to balance the attractiveness of our offering to those customers that did have choices that do focus on term and also offer a shorter term with our lower interest rate to those folks that are more focused on getting their car paid for.

It's a balance for us. It always has been. It always will be. And we look to the market and the competition and the choices our consumers have and try to strike that balance with our efforts. So, we'll stay focused on that. Affordability is very important and we do feel like we're way below competition on that term. And we do have some room there if consumer demand pushes us in that direction.

Vincent Caintic - Stephens, Inc. - Analyst

Okay, got it. Thanks, Jeff. And then second question just actually a follow-up to Kyle's gross margin question that I think the gross margin has kind of been what's driving the stock this morning. But is it simply - so gross margin percentages, is that going to simply be just following what used car prices are doing or are there actions that you can take or other things that can be done in order to improve the margins since I remember in the past you talk about different ways of sourcing inventory and other ways. But I was just wondering is this something where we should just be just looking at used car prices and building that in from the 38% you did this quarter or is there something else that you can do to improve that? Thank you

Jeffrey A. Williams - President & Chief Executive Officer

Well, yeah, the price of the car was a significant increase in the price of used cars. It's just mathematically and the way we priced cars based on what we pay for the car, it's just a factor and resulting from a higher dollar gross profit. But the percentage itself is going to be lower as you go up that price chain. We are working on efficiencies and expense management and everything that is underneath the cost of the car, the purchase cost, and we'll continue to squeeze out some efficiencies there. But the retail sales price of that car and the competition in the markets and the overall ability to pass on the full percentages that we've had in the past with a higher dollar is going to be a challenge for us, if you want to call it a challenge.

But again, we're picking up market share. Our pricing at the retail side is matching up very nicely. And I think that's a big reason that we're seeing our volume improvements in a pretty difficult market with higher prices is that folks that had choices are looking at our offering and look at our pricing and deciding that that's a good choice. And with everything we're doing after the sales, service contract, oil changes, roadside assistance, everything we do here to keep those customers on the road, I think that is the reason that we're seeing increased market share and expect to continue to see productivity improvements as we go forward.

But again, those gross margin percentages are probably going to stay in that 38% range and maybe even go a little lower as we go up on sales price. We're doing our best to level off that sales price. But some of that is dictated by the market, what's out there for us to buy. But we'll adjust accordingly. We'd love to see a steadier, more consistent flow of product at the lower price points to allow even more customers to come into our family. We do think that pricing has left some folks out of the market just based on [Indecipherable]. We'd love to see more availability at the lower price points. We try to be at higher gross margin percentages, but that's a little bit out of our control at this point with what's going on with the used car market.

Vincent Caintic - Stephens, Inc. - Analyst

Understood and very helpful. Thanks so much, Jeff.

Jeffrey A. Williams - President & Chief Executive Officer

Thank you, Vincent.

Operator

[Operator Instructions] And our next question is coming from the line of John Rowan with Janney Montgomery Scott. Your line is open.

John Rowan - Janney Montgomery Scott LLC - Analyst

Good afternoon, everyone.

Jeffrey A. Williams - President & Chief Executive Officer

Good morning.

John Rowan - Janney Montgomery Scott LLC - Analyst

Just want to make sure I heard this right. You have 38.8 months of duration currently, correct, versus 32.4 last year?

Jeffrey A. Williams - President & Chief Executive Officer

Yes.

John Rowan - Janney Montgomery Scott LLC - Analyst

And then how much of the decrease in the cash conversion cycle there, the collections relative to finance receivables was a function of duration versus reduced down payment?

Vickie D. Judy - Chief Financial Officer

It was all a reduction in the - due to the term increase.

John Rowan - Janney Montgomery Scott LLC - Analyst

Okay.

Vickie D. Judy - Chief Financial Officer

We actually had some positives that offset it. So the term increase was a contributing factor to the lower collection.

John Rowan - Janney Montgomery Scott LLC - Analyst

Okay. And I only look back over the last few years. I mean at this cash collection rate, have you ever hit this rate before? I don't see a number this low over the past few years and looking for a longer look back as to whether or not there's a precedent relative to history of the company for close to the 11%, 11.5%. Thank you.

Jeffrey A. Williams - President & Chief Executive Officer

Yeah. It's - this is the longest average term we've had and it all relates to the supply demand imbalance for used cars. So we're doing our best to find a good solid mechanically sound car at a low price. And we're doing a good job there. But there's a commodity aspect to the business and that term is going to have to go out. But again, we think we're buying a better car. Putting it under a better customer. Collection results have been good and good customers do have choices and some make choices based on that payment amount. So we have to be in the game. And again, our term is a lot shorter than others. And we love to see it to be even shorter than it is. But that plays into the consumer demand, affordability and good customers with choices have to recognize that that term does play into those decisions on the retail side.

John Rowan - Janney Montgomery Scott LLC - Analyst

Okay. Thank you very much.

Jeffrey A. Williams - President & Chief Executive Officer

Thank you, John.

Operator

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

Vincent Caintic - Stephens, Inc. - Analyst

Hey, thanks for taking my follow up. Separate question about credit. So you talked about getting better quality cars and having - and also attracting different customers higher up. Just wondering, when you think about the credit reserve ratio, the 24% that you've booking and your net loss rate has been improving as well. Just wondering if that 24% is the right range or how you're thinking about it going forward this year as your cars are improving?

Vickie D. Judy - Chief Financial Officer

Yeah. Sure, Vincent. We look at that each quarter based on our historical knowledge. And then of course taking into account our current portfolio as well. We did see a slight uptick in delinquencies. We know there's again a lot of uncertainty with COVID. And then we don't have a lot of history with these longer term contracts as well. So again, we think everything we're doing to support the customer, the vehicle we're putting them in, the customer that we have on our books. We feel very good about our portfolio. But there are - there is a lot of uncertainty out there. But we'll continue to look at that each quarter and evaluate that and adjust accordingly.

Vincent Caintic - Stephens, Inc. - Analyst

Understood. Thanks, Vickie.

Operator

I am showing no further questions at this time. I would now like to turn the call back over to Mr. Jeff Williams for any closing remarks.

Jeffrey A. Williams - President & Chief Executive Officer

Okay. Well, again, thank you for joining us on this morning's call. We are very optimistic about our business. We are convinced that most of our dealerships could and should be supporting a thousand customers or more, the productivity improvements we saw in the quarter is outstanding. We have a very solid balance sheet and are excited about funding our individual General Managers as they grow their business and improve market share in their local markets.

We did buy back $12 million of stock during the quarter. We're very well stocked on inventory. And we've got a lot of good things going on, on these operational, foundational investments we're making to allow us to serve an increasing number of customers. So, very excited about the business, where we're at, the people we have in place, and very much enthusiastic about our future and our place in the world. So, thank you. Have a great day.

Operator

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AMERICAS CARMART INC

Q1 2022

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