Q3 2020 Earnings Call
Good morning, everyone. Thank you for holding and welcome to America's car March 3rd quarter fiscal 2020 conference call.
The topic of this call will be the earnings and operating results for the company's third quarter for fiscal 2020 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 dial in number and access information are included in last Night's press release.
Which can be found on America's car Mart website at Www Dot Com Dash Mark Dot com.
As you all know some of our 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 present you.
These statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Company cannot guarantee the accuracy of any forecasts or estimates nor does it undertake any obligation to update such forward looking statements for more information regarding forward looking information. Please see part one of the company's annual report on form 10 dashed K for the fiscal year ended April Thirtyth 2009.
Team.
And its current and quarterly reports furnished to or filed with the Securities Exchange Commission on forms 8-K intend dash Q.
Participating on this call. This morning, our Jeff Williams, the company's President and Chief Executive Officer, and Vicki 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.
It is good to see as pick up market fear and serve more customers with our continuing efforts to leverage our existing footprint.
With that many talented smart and hardworking associates that we have at all levels in our company.
We will continue to invest in our business.
And especially in our people as we move forward.
To provide outstanding advancement opportunities for our hardworking associates.
Our general managers and their staffs are really upping our game in the field I suppose focusing on the customer experience starting with the vehicle.
And then by providing outstanding service after the sale.
Keep our customers on the road.
Peace of mind that only car Mart can do.
Our vision is to be America's best Auto sales in finance company in the eyes of our associates and customers, while improving the communities we serve.
There is tremendous demand for our offering.
We have an obligation to serve more customers at the highest level.
Because we believe that their lives are better when they're part of our car Mart family.
I'll now turn it over to Vicki to go over some numbers Vicki.
Good morning.
We were pleased to see a revenue increased 15.9% up to 187 million. This resulted from a 16.8% increase in sales.
I believe in percent increased volumes and 5% average sales price increase.
Also had a 10.5% increase in interest income.
We're very happy to see same store revenues up 15.1%.
Revenues from stores and over 10 years of age category was up 14%.
Doors in the five to 10 year category was up 19% and revenues for stores and the less than five years of age category was up about 47% to about 17 million.
At quarter end, 18, or 12% of our dealerships were from zero to five years old 41, or 28% were from five to 10 years old and the remaining 86 were 10 years old or older. Our overall productivity was 30.6 units are lot per month up almost 10.
First there from 27.9 compared to the prior year quarter.
Our 10 year plus slot produced 33.1 units per month per lot for the quarter compared to 30.4 for the prior year quarter.
Lots in the five to 10 year category produced 28.6 compared to 26.9.
And a lot less than five years of age had productivity of 23.4 compared to 20.7 for the third quarter last year.
Our downpayment percentage was basically flat compared to the prior year quarter and collections as a percentage of average finance receivables was flat at 13.2%.
But on a relative basis due to the increase in term.
Our term increase was primarily due to the increasing average selling price to the car. The average originating contract term for the quarter was 30.8 months compared to 29.4 for the prior year quarter and up from 30.4 months sequentially.
Average selling price was up $604 with that 1.4 month increase and the term.
Our weighted average contract term for the entire portfolio, including modifications with 32.5 months compared to 32 months for the prior year.
And the weighted average age of the portfolio was flat at nine months.
Interest income increased 2.2 million or 10.5% compared to the prior year, primarily due to 55.9 million increase in finance receivables.
The 10.4% increase.
The weighted average interest rate for all finance receivables at the ended the quarter was approximately 16.4% flat from the prior year quarter.
Gross profit per retail unit sold increased by $84 to 40, 938, a 1.7% increase compared to the prior year quarter.
The gross profit percentage was 40.3% compared to 41 and a half for sat for the prior year quarter and down just slightly from the sequential quarter again, the average selling price increased $604 over the prior year quarter and gross margin percentages are lower at higher selling prices.
The majority of the selling price increase relates to the overall strength of the used car values in our market and the continuing effort to buy high quality vehicle.
We did see a slight increase in the number of asked you be sold over the prior year quarter.
We have increased our quality and our selection of vehicles to meet customers' needs during the upcoming tax refund season, with an additional 6 million dollar investment and inventory most of which relates to increased quantities.
With these increased investments in inventory, both volume and quality, it's essential that we stay very efficient in operational processes.
S. DNA for the quarter was up 3.8 million, 18.6% of sales compared to 18.9% for the prior year quarter and 61.9% of total revenues less cost of sales and provision for credit losses compared to 60.5% for the prior year quarter.
Most of the increase is due to payroll costs for additional associate count as well as continued investments in pay benefits and training. The current quarter did have approximately 357000 of additional stock compensation expense compared to the prior year quarter.
These investments are being made to ensure that we can serve as a growing customer base at the highest level and earn their repeat business. We believe the investments that we're making in our associates our system and the infrastructure are central to continuing operational improvements and being prepared to take care of our customers.
We added over 5100 customers since this time last year and over 1300 this quarter.
We will always continue to stay focused on efficiencies and cost control, while continuing to invest for the long term.
For the current quarter net charge offs as a percentage of average finance receivables was 5.9% down from 6.2% in the prior year third quarter.
We continued to see improvement in both the frequency and severity of losses compared to the prior year as a result at the higher quality vehicle improved deal structures and our focus on the operational non negotiables related to collection.
Recovery rights for the quarter were slightly lower than the third quarter of 19, and approximately flat compared to the sequential quarter.
Our effective income tax rate was 19% for the third quarter compared to 23.7% for the prior year quarter.
The income tax expense did include an income tax benefit 922040, 1000 related to share based compensation for the current quarter.
And the prior year quarter, respectively, or about 13 cents per diluted share.
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 884 million and we had over 56 million in additional availability under our revolving credit facilities.
Our debt to equity ratio is 63.2% and our debt to finance receivables ratio was 30.3%. This was compared to 31.4% at this time last year.
We did repurchased 12384 shares of our company during the quarter for $1.1 million at an average of $91 per share.
Since 2010, we've repurchased approximately 54% other company.
For 240 million at an average price of $38 per share.
We continue to have very strong cash flows for the first nine month, we've added 64.2 million and finance receivables repurchased 15.8 million up common stock.
Funded 3.2 million in net capital expenditures and increased inventory by 16, and a half million a total of 99.7 million with only a 31.3 million increase in debt.
Thank you and I'll turn it back to Jeff now.
Okay. Thank you Vicki.
As you saw in the press release, we're close to finishing our Taylor Motors acquisition.
Oh opening our Cabot, Arkansas dealership during the fourth quarter.
This will give us six new dealerships for fiscal 2020.
We are progressing on our new dealership locations in Hedman, Oklahoma and in Chattanooga, Tennessee, and we recently signed a lease for a new location and Norman Oklahoma.
New dealership openings will be part of our growth plan going forward.
We're also hoping to other opportunities like the Taylor motors opportunity as we move forward.
As we've said over the last few years most of our existing general managers have the ability.
And our in towns in locations that have the potential to serve a thousand customers are more overtime.
We will continue to look to leverage that opportunity.
We have such a strong culture, and our associates give 100% everyday help each other and to help our customers succeed.
There is real purpose in our work and we're very proud of the difference were making.
And we're very excited to be in a position to expand what we do to more customers.
And lastly, thank you to all of our hardworking passionate associates, who come to work everyday to make a difference.
You made car more great. Thank you.
We will now open it up for questions operator.
Thank you at this time participants will now.
Answer questions from the callers I would like to reiterate that my earlier comments regarding forward looking statements apply both to the participants prepared remarks into anything that may come off during the Q anyway.
As a reminder to ask a question you want me to press Star one of your telephone to withdraw your question. Please press the pound key.
Our first question comes from the line of John Murphy with Bank of America. Your line is open.
Good morning, guys your debt I'm, sorry, I'm on for John.
I'm sorry last question good morning, [laughter] on your topline watch what's true I can give very strong same store sales increased you I mean can you maybe point showed the key why don't you factor than what you say was more driven by on your store or older more legacy stores.
I would say, it's a combination of things it starts with inventory, we're doing a better job with inventory procurement, we're carrying more cars better quality cars.
Also spent a lot of time training our field.
Sales reps.
So it's it's an investment in a in training it's the inventory.
Our digital efforts online are also contributing to the to the sales improvements.
Yeah, I would say, it's pretty much across the board as far as a volume improvements in productivity improvements all of our dealerships.
Our see more traffic more interest.
And and we're closing more safe.
Hi, I'm thinking so it just a follow up on Dod you. Your first they talked about your investment can you tell platform and online capabilities in marketing can you maybe share more color on these efforts and what kind of traction or you're getting from your consumers.
Well, we've had a you know we've had our online created application in place are just beginning this fiscal year.
And we're getting a lot of traffic online, we're getting a lot of applications online and we're doing of fear job of converting those applications to physical visits to the dealerships and and then the close rate for those sales is pretty high.
So.
Really fairly new into that effort at this point.
But we're optimistic that overtime, we're gonna be Uh huh.
Good now that we're going to get better as far as our digital efforts, but they certainly have increased our traffic.
And Oh, we we've seen some good result, so far.
We've also just tried to have that a bigger and a better presence I'm on just several of the social media channels with customer reviews and customer testimonials and.
Some of that Google reviews, and that type of thing and I think that's helped them as well.
Excellent. Thank you.
And I guess lastly, how should we think about gross margins of 40 calls going forward I know you did they like the deterioration at these partly driven by higher average selling prices, but I'm just curious to hear if you guys think it should keep coming under pressure next year or maybe how can it ever go back towards that 42%.
Level.
Yeah, the 42% level, probably you know becomes a bit of the challenge I don't think we'll see that big of a change to get back to that.
Percentage, what the used vehicle market, where it's at especially with the quality that we're trying to carry and the increased demand for would be as she bees in trucks.
It also so I think they'll continue to be some pressure there I think there will continue to be some pressure. There you know as we try to expand our customer experience and step into some different areas. There. So the way we do have some room to continue to look at Oh productivity improvements and efficiencies in the fee.
Old and.
The repair cost there are things that we're working on to maintain those gross profit.
Percentages, but.
<unk> dollar gross margin is going up but the percentage is a little more of a challenge but.
We know that we're trying to do all weekend to Vicki.
To keep that gross margin percentage up yeah.
Okay. Thank you very much that's it for mine.
Thank you.
Thank you and our next question comes on the line of Kyle Joseph with Jefferies. Your line is open.
Hey, good morning, guys and thanks for taking my questions I just wanted to pick your brain on the competitive environment. Obviously, given your your same store sales trends, we can kinda surmise, what's going on in the competitive environment, just but just wanted to hear what you guys are seeing there.
Oh competition is still very strong I don't think that we've seen any decrease there, but what we're trying to do is make sure. We've got the quality vehicle and then we're trying to stress our value.
And what we offer compared to our competitors out there.
Just trying to get better and what we're doing.
And we'd we'd do emphasize our lower interest rates are shorter term the total cost of ownership with the car Mart and then the peace of mind, it's so important to the quality of lives apart or customers.
When you put all that together.
Well, we offer is superior to other offerings in the market, but there are a lot of other our offerings in the market.
Yeah and competition is.
It's a very high but we're doing good in a market just because of our efforts.
Really block and tackle run the play.
And and treat these these customers.
At the highest level.
Got it and then given that weren't in February now could you guys give us a sense for expectations for tax refunds. This year, you know in terms of size and timing.
Yeah. So the timing it's been pushed back a little bit again this year refunds actually haven't started been released yet so ill probably all going to happen here in just a very short period of time.
Got it Okay and then just just lastly in terms of credit obviously things have been then stable in terms of your down payments in collections.
You know going forward with with the revamps growth here can you give us kinda your outlook for.
Oh charge offs as well is right at the provision going forward and in any impact the sort of renewed growth would have there.
Yeah. So of course with increased selling price and the term going out a little bit you know the severity becomes a little bit stressed when you do take something back and then you know if prices change in your M NVS and that puts some pressure there as well so well.
We're gonna be focused on the customer experience and making sure that we keep our frequency of the units that were repossessing down and that we're taking care of all of those customers, but there will certainly be some pressure I'm from the severity side as we move forward, but [noise].
We are convinced they were putting a better product out a higher quality core.
And that our service levels have improved immensely in our collections efforts are are solid and strong.
And we expect continuing good improvements or <unk>.
Results in the in the credit loss line as we go forward, even with the M increased.
Volumes.
Yeah, our audit writing is very solid we we still like we've kept the good to handle on our underwriting there.
Got it that's it for me thanks, very much for answering my questions. Thank you.
Thank you and our next question comes from Vincent.
Came check with Stephens Your line is open.
Hey, Thank you good morning wanted to touch on two things. So following up on calls question like competition just.
Heard from some other lenders like for example, pretty said Mr kind of facing.
Difficulties on the competitive environment, but nice to see that you've been growing quite well when you I guess your growth has it been have you seen market share that you're taking more.
Just a addressing a customers that weren't sure before sort of whats your limit there in terms of maybe addressing you opportunities versus taking share.
I just I think we've done a good job again with our digital efforts as Vicki mentioned in on the advertising side in the the brand reputation in the community involvement and then when you combine that with a.
With a more cars in a broader mixes cars a nicer cars on the dealership and then and then you educate our associates in the communities on the true cost of ownership.
Our transaction looks more and more appealing to customers that have choices in the markets.
What's nice about our model is we've added.
About three units per month.
Oh on the sale side.
So it's it's you know in each community, it's hard to know exactly where those three units of market share came from but I think it's a combination of all the good things we're doing.
And we were convinced that we have more room.
To educate a market about the true value proposition that we that we put out there.
In the peace of mind, we give customers and a in helping them keep those cars on road. So it's a combination of things, but the market is very competitive.
But I think the good work that we're doing is obviously more than offsetting the competitive pressures.
Okay, Great used car prices what are you seeing there have you been getting some benefit there or is it.
Yes, the savings some pressure from higher used car prices.
It's there's really been not a lot of change recently no. We're trying to expand some of the markets that were buying in im looking at different purchasing options, but we really haven't seen a big change and the cost of the cars were buying yeah. This time a car.
And ER this time of year around tax time is generally higher anyway.
But but not a big change.
Okay, and maybe just one more for me the initiative for keeping cars on the road just kind of wondering how that rollout has gone it's there's a.
[noise] awards, the needs to be done or anymore investments I need to be done. Thank you.
We continue to look for a creative value added ways to to help our customers stay on the road.
Those cars and good operating shape. So we would we continue to work on on a on things that are going to set us apart from the competition, even more than we have already.
And the anything that we come up with will will be directed at that consumer helping that consumer out a keeping keeping them in the car keeping that car on the road and a we've we feel like we've got a room to continue to look for a creative ways.
To improve our already.
Outstanding offer.
Okay, great. Thanks very much.
Thank you and once again, ladies and gentlemen that of Star one to ask a question. Our next question comes from John Rowan with Janney. Your line is open.
Good morning.
Good morning, Vicki you mentioned increased loss severity is a couple of questions ago <unk> I didn't get down why there's increased loss severity is that stratton used car pricing pushing up youre.
You know the cost of the cars or is it a duration issue what's driving that yeah. So currently we are still thing a decrease in the severity. So we.
Quarter over quarter here recently, we've seen decreases in both frequency and severity, but as we look forward and ours selling price continues to rise at where we sell more of these are higher quality or the mix of S.T.V.'s anymore, and if that sells price continues to rise that does put pressure on that severity.
Okay. And then you also talked about tax refunds season, and you know I guess just to dig in a little bit more.
Yeah, we start we've obviously seen some the initial data coming out of the IRS, but I remember last year. There was a policy shift around earned income tax credits and of course, the additional childcare tax credits that really pushed around significantly the timing of tax refunds are you aware of any similar change an IRS policy that would have a structural shift.
And the timing of certain large.
Tax refund cohorts similar what happened last year.
No and our customers.
We're largely unaffected last year too I mean, they actually got back a little more last year and we're expecting about the same same top from refunds. This year as they got last year. So no real changes this year other than just the timing has been pushed out a little bit.
Okay alright, thank you.
Thank you.
Thank you and I'm not showing any further questions at this time.
Okay well. Thank you for listening in again, thank you for your interest in Americas Cormark tend to have a great day. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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