Q3 2021 America's CAR-MART Inc Earnings Call
Okay.
Good morning, everyone. Thank you for holding and welcome to America's car Mart third quarter fiscal 2021 conference call.
Topic of this call will be the earnings and operating results of the company third quarter fiscal 2021 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 number and access information are included in last Night's press release, which can be found on them.
America's car Mart's website at Www Dot car cash part dotcom.
As you all know some of managements 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.
The statements are made pursuant of the safe Harbor provisions of the private Security 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 one of the company.
And we'll report on form 10-K for the fiscal year ended April 32020.
And its current and quarterly reports furnished to or filed with the security 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 and good morning, we appreciate you joining us this morning and for your interest and America's car Mart.
We are pleased with our results and the progress we're seeing with our various operational initiatives.
We have a lot of work to do but we're optimistic that the improvements and the investments, we're making will solidify our unique place and the market.
We give our customers peace of mind by keeping them on the road we.
We tried to eliminate the strength of car ownership.
Which can be one of the more stressful areas of life.
We have an obligation to serve more customers.
And as our customers' lives and the communities we serve are better because we're there.
We currently serve close to 86000 customers or about 570 customers per dealership.
And we're building a platform to increase that number significantly over time.
We believe that a large majority of our dealerships conserve 1000 or more customers at some point and the future.
Our balance sheet.
And our historical focus on cash flows has put us and a great position to continue to deploy capital and grow market share and the areas we already serve as.
And as well as looking to new markets through new lot openings.
And acquisition opportunities.
Like the Taylor acquisition, which is going very well our.
Our business model is strong and getting stronger our people are difference makers and the amount of capital required to operate effectively in our market continues to increase giving us a distinct competitive advantage.
We are transitioning from a collections based company.
And to more of a sales company that can collect.
Our bricks and mortar structure, along with an outstanding digital presence will put US ahead of the pack and solidify our place.
Better cars and better support infrastructure give us confidence to move forward more aggressively.
Yeah.
And our improvements and the inventory management and procurement area of the business, which is preferred vendors reconditioning logistics and.
And overall inventory and replenishment flow.
Are progressing and our it investments will most certainly help us in this area.
And specifically the Microsoft dynamics 365 project that we mentioned in our press release.
We have tremendous opportunities and the procurement area.
And we're very excited about the team we have in place to maximize our efforts here and to continue to provide our valuable customers with quality affordable vehicles.
We must be excellent with our inventory management as its maker break to the overall customer experience.
Once again above all else our customers demand and mechanically sound core that is affordable.
And they need us to help keep them on the road.
We're making good progress and our efforts to streamline our sales process and seamlessly support our customers physically and or digitally and whatever manner. They want to be served.
We understand that the car buying experience is not high on anyone's list of things they enjoy and we're devoting significant efforts to continue to improve our online digital experience, including online credit approval.
And enhanced home delivery and curbside options.
We're investing significant resources in our corporate customer experience team as we continue to centralize certain functions that can be better more consistently more efficiently and effectively provided centrally leaving key customer face to face engagement touch points to the field too.
Allow our field associates to focus on growing their businesses.
Our recruiting training and retention efforts are extremely important and we continue to see very good progress and enthusiastic engagement as we support our associates and they take advantage of individual growth opportunities with our growing company.
With that I'll now turn it over to Vicki to go over some numbers Vickie.
Good morning, everyone.
Our total revenues increased 22.2% after 228 million.
We were happy to see and $5 six per cent increase and retail units sold and the improvement and productivity by dealer share.
The average retail selling price per unit also increased up to 13688, Inc.
Interest income increased by 25 per cent and same store revenues were up 16, 9%.
Revenues from stores and the over 10 years of age category were up 15%.
Doors and the five to 10 year category with 25 per cent and revenues for stores and the less than five years of age category, we're up to about $20 million.
The supply of units at the lower price points continued to be tight, but as Jeff mentioned, we continue to invest in and improve our chemical processes and we feel confident with our inventory as we move and the tax time.
At quarter, and 16 or 11% of our dealerships were from zero to five years old 42, or 28% from five to 10 years old and the remaining 93 were 10 years old or older.
Our overall productivity was 31.2 units per lot per month compared to $30 six for the prior year quarter.
Our 10 year plus lots per day 32 units per month per lot for the quarter compared to $32 seven for the prior year.
Lots and the five to 10 year category produced 32 compared to $28 three for the prior year quarter lots less than five years of age had productivity of 27.4 compared to $20 nine and set a third quarter of last year.
Our down payment percentage was five and a half per cent compared to $5 four per cent for the prior year quarter and collections as a percentage of average finance receivables.
What was it 12.1 per cent compared to 13.2 per cent for the prior year quarter. However.
However, absent the increase and the average contract term election percentages would have improved over the prior year quarter.
The average originating contract term was 35 months compared to $30 eight for the prior year quarter and up from 33 eight months sequentially.
Average selling price was up 1900, and $38 with a 4.2 month increase and the term compared to the prior year third quarter. Our average monthly payment is approximately $440.
Our weighted average contract term for the entire portfolio.
Clothing modifications with $35 seven months compared to 32.5 months for the prior year quarter.
And average age of the portfolio was basically flat at nine months.
Interest income increased $4.8 million or 25%.
Paired to the prior year quarter, primarily due to a $116 3 million increase and average finance receivables at a $19 five per cent 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.
Gross profit per retail unit increased $836 to $5774.
That's up $16 nine per cent compared to the prior year third quarter.
The gross profit percentage was $40 six per cent compared to 43 per cent for the prior year quarter and down just slightly from the sequential quarter. It was at 47 per cent.
The improvements in gross margin over the prior year resulted from improved wholesale margins again, and do the strong demand and low supply of low pass Gina.
And lower repair cost.
But that was partially offset by the lower margin on the retail again ex.
As you recall, increasing average selling prices result, and lower gross profit margins, but higher gross profit dollars as our gross margin percentages are lower at a higher selling price.
The mix of the type of vehicles sold was fairly consistent with S. E V sales, increasing approximately 3% over the prior year quarter.
Pick up sales decrease due to the high price and the tight supply of trucks.
SG&A for the quarter was up $3 $1 million compared to the prior year quarter, but down as a percentage of sales to $16 seven per cent compared to $18 six per cent for the prior year quarter.
SG&A as a percentage of total revenues less cost of sales and provision for credit losses.
$54, one per cent compared to 61 nine per cent for the prior year quarter again. This metric is important for our integrated sales and finance business is a large part of our efforts are focused on keeping good customers and.
And their cars and driving down credit losses.
Our investments continue to be primarily payroll focus as we build our customer experience team and invest and procurement combined with increased commissions as a result of the higher net income and increased stock compensation.
For the current quarter net charge offs as a percentage of average finance receivables was four 9% down from five 9% and the prior year third quarter, we saw improvements and delinquent accounts and our accounts 30 days past due was at two eight per cent compared to three 6% and the prior year.
Third quarter.
The cares act and enhanced unemployment benefits and stimulus payment.
Possibly still contributed to some of this improvement along with our efforts at working with our customers to keep them and their car and on the road.
We have continued to provision at 26, and a half person and although our portfolio continued to perform well and the current quarter. There still remains much uncertainty caused by COVID-19, and its potential impact on our customers' collections repossessions and the overall economic environment ethylene moving forward.
The effective income tax rate was 22 eight per cent for the third quarter of fiscal 'twenty, one compared to 19% for the prior year quarter.
Income tax expense included an income tax benefit of 341000, and 922000 and related to share based compensation for the current quarter and the prior year quarter respectively.
Expect our base effective tax rate to be approximately 24% going forward.
And any excess tax benefits from stock option exercises.
Okay.
We were pleased to increase our credit facility by $85 million during the quarter and also added in and lender to give us more headroom as we grow our portfolio portfolio and customer accounts.
At quarter, and our total debt was approximately $210 million and we had 4 million and cash and approximately 115 million and additional availability under our revolving credit facilities.
Our current debt net of cash to finance receivables ratio is 27 seven per cent.
And that's compared to 30% at this time last year just prior to the pandemic.
During the quarter, we added $51 7 million and finance receivables funded $10 million and net capital expenditures increased inventories by $1 1 million and repurchased $3 7 million of our common stock.
A total of $58 5 million with only a $12 3 million increase and debt net of cash.
As a point of reference from the last 12 months, most of which were during a pandemic, we added $137 million and receivables increased inventory about 14, and a half million repurchased $10 million of our common stock and funded $9 3 million and capital expenditures and <unk>.
Total of 178 million with only a $24 1 million increase and debt net of cash.
And we're well positioned to serve more customers and grow market share.
Now I'll turn it back to Jeff.
Okay, well, thank you Vicky.
We have recently rolled out our new logo and tagline keeping you on the road and our associates and the market have received the changes very favorably.
I present, a new beginning and a fresh look at the business.
And there are another foundational piece to our future growth prospects.
We wanted to keep every customer for life and never had a bad customer experience and.
And we believe we can do this.
And the process of rolling out our new service contracts the whole locations and these contracts will have oil changes and roadside assistance and longer terms and they've been very favorably received again, it's all about keeping customers on the road.
And we're working on a new advertising and marketing strategy and expect to see positive positive results from this effort.
As the collections company we.
We have not had to invest a lot and advertising and marketing, but as we focus more on productivity and market share and growing customer count we will be devoting more resources to this very important area of the business.
Again, we believe we have created a unique position and the market by anticipating investing and staying ahead of changes and the last few years as the industry has changed significantly.
It's all about improving the customer experience from top to bottom.
We are prepared for and have the ability and the passion to keep investing and the key areas and to reach excellence and everything we do.
We will continue to gain market share had new locations and look for additional acquisition opportunities and.
And the future is bright and once again and.
And we're in a position with our bricks and mortar structure and the digital efforts to secure and leverage our place in the market as we go forward.
And lastly, the.
As stated in our press release, we have over 2000 associates, we have close to 86000 customers and thousands of vendor partners and collectively we have a responsibility to help make the world a better place and.
And we take this responsibility very seriously.
Thank you and we will now turn it over for questions operator.
Okay.
At this time to participants will now answer questions from the collars and I would like to reiterate that my earlier comments regarding forward looking statements are pipe both to the participants' prepared remarks and to anything that may come up during the question and answer session.
And if you have a question at this time, ladies and gentlemen, Please press Star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key to prevent any background noise. We ask that you. Please place your line on mute. Once your question has been stated our first question comes from the line of Kyle Joseph with Jefferies. Your line is open please.
Go ahead.
Hey, good morning, congratulations on another another very strong quarter.
And just wanted to get into I know you guys and I don't give guidance, but for the fourth quarter a lot of moving parts. Obviously, it's it's tax refund season, and then on top of that there's we have some stimulus what kind of walk us through and remind us of how last year's fourth quarter was impacted by the pandemic and kind of your.
Patients going into this fourth quarter and given all those moving pieces.
Oh, well for last year.
We had a good start to the quarter and in February.
And then the pandemic hit the first part of March.
And there's a good start to the year to the quarter.
But the paint and it kind of through that too.
And and a tailspin.
From the first of March through the end of April.
We did perform very well even in light of the pandemic, but our volumes.
We're much lower than anticipated prior to the pandemic this year.
Are.
Strong results during the third quarter inventories in good shape going into the fourth quarter.
And there was the stimulus check out and the market in January.
And some delays with the income tax.
Refunds this year.
Are going to be more of a negative net net against the stimulus payments and the January month.
But all that money and maybe even some additional stimulus.
Is expected to come through during our fourth quarter. So.
Inventories in good shape and.
And there should be tax refunds and stimulus coming in the fourth quarter. So it's hard to know exactly how all this settles out but.
I think that we are.
We expect sales volumes to be to be strong.
And our inventories in good shape, our personnel with the dealerships are.
Sure.
And ready for increased volumes, and and we feel like and a good spot going into the fourth quarter of this year.
And that's very helpful. Thanks, and then and in terms of the retail sales prices, obviously its a tight these government.
And those have been trending up although you know kit quarter on quarter. They were barely stable can you just give us a sense for.
If you anticipate further upward pressure on that given your outlook for the east car market.
Yeah, I think I think we do believe that.
Prices are going to stay up for awhile, and maybe even drift up just a little bit more.
Is the stimulus money gets out there and tax refund money is out and and.
And new car production is.
Has been limited since the pandemic started and and more recently with some micro chip shortages.
There is a.
There is a continuing shortage of good affordable mechanically sound good cars out there. So we expect our prices.
And to stay here for the foreseeable future.
Although our increases like we've seen in the last 12 months or are not expected and we did we do see and are seeing some level leveling off of prices, but we do expect on a go forward basis to see some.
And increasing prices, especially as we roll in our new service contracts theres going to be a few.
Percentage point increases and the sales price is just.
By Us rolling out the new service contracts, though.
But we do expect a continuing shortage of good used cars and as a result of that we expect prices to stay up and and maybe even continue to drift up just a little bit.
Got it very helpful and then Oh, sorry go ahead and sticky.
I was just go and say I will add debt you know even with the selling price being up we do feel like the quality of the car that is out there is much better and overall does have fewer miles.
So the quality is better.
And it lead to.
Better customer experience.
And lower credit losses too.
From a unit perspective.
Understood. Thank you and then just one last one from me on the competitive environment, obviously, it's been a pretty unique environment to last year, but but walk us through what you're seeing both from other buy here pay your operators and it.
As well as from our indirect lenders and the overall availability of credit.
Well the cost of the car is certainly having an effect on competition in terms of the quantity and and the quality of cars that they can.
Can have and inventory so with our balance sheet and cash flows.
We are able to carry more cars and had a better presentation and more of a mix for our customers to choose from.
But.
So we feel like some of our volume increases.
Related to our investments in inventory.
And the competition is going to be and in many cases more limited on the capital that they can allocate to inventory. So we've got a good advantage there.
By serving a deep sub prime to subprime consumer.
And we feel like we're in a good spot from a market perspective, and we offer some unique and <unk>.
<unk> to consumers.
And our competition doesn't especially with the new service contracts, but we.
And we feel like we're picking up good market share, we do feel like if prices.
And we're a little lower on the used car side that we would even be seeing more volumes at this point, but the prices have gone up and stayed up and.
And so there probably are some customers that haven't been back and the market yet.
And if prices do level off or come down even a little bit.
And in the income.
In conjunction with some efforts we had internally.
To recondition and.
And recon cars at the lower price points.
Feel like we're trying to create manufacturer.
And some better flow of product at the lower price points, which is much harder for our competition to replicate so.
Competition is still out there theres a lot of money to land, but we feel like we've been nimble and can be nimble and provide extra services on the customer experience side.
But we feel like we are picking up some some real market share and are pretty optimistic about.
Where we land against the competition going forward.
Got it thanks very much for answering my questions and congrats again on a good quarter, despite an uncertain market backdrop.
Thank you Kyle.
Thank you and our next question comes from the line of sensor and can't take with Stephens. Your line is open. Please go ahead.
Thanks, and thanks for taking my questions.
First question so.
So it sounds like Youre, making a lot of investments and growing the business.
Croissant dynamics and and the marketing.
I'm just wondering if you could give us a sense.
How much maybe additional expenses, we should be modeling going forward from these investments one other things I noticed actually just reviewing.
Reviewing the February 10th.
And amendment is that you increased your capex limit to $25 million.
And maybe if that's the right number or any help you can give us on how how much.
Additional.
Investment expenses, we should be expecting.
Yeah.
Share count.
Yeah, we did just increase our capex and one that under our debt agreement and has been 10 million for many years.
And as we look to boats and dealerships.
New dealerships and remodel and improve some of the facilities that we're currently and especially for larger volumes and we could see that that wasn't going to be enough on and on a run rate basis and again, that's just capex that.
And we did make that change to our lending agreement.
We are investing and other things just in the SG&A like Jeff talked about we will be spending some more on marketing as we look to grow market share.
R and Vance and advancement and the I T side with our new ERP project is really going and make us.
A very good at customer experience, that's one other big regions that where we're doing that and so there is gonna be some increasing of SG&A spend as we go here and we're gonna be very thoughtful and mindful of the timing of that.
And without missing out on any market share as we move forward, though.
Okay. That's helpful. Thanks Ricky.
Second on us and all the used car prices and your average selling price increasing.
And you've been you've been talking about the and efforts to get different procurement sources like rental cars ex rental cars and so on and I'm. Just wondering so even if we are seeing used car prices, increasing and that seems to be dimmed.
Demand issue as well as the supply issue.
But are you able to hold the line on on.
The cost of goods sold on the.
On the cars that you're sourcing.
Yeah, I feel like we're doing a pretty good job by our holding costs day, one and being efficient with our.
With our operational efforts and in that area.
It is some market forces going on that are outside of our control, there's a high demand and a low supply of cars out there overall, especially and the price points. We're looking forward, but I do feel like some other partnerships that we formed and are working on.
Some of these additional efforts and.
And the procurement area are certainly providing some benefits to us and.
And we feel very good about.
About all of our efforts in that area.
And we are controlling costs as best we can.
Some of that is out of our hands in terms of just market forces and supply and demand imbalances, but we're going to continue to get better and all of those areas.
And we.
We are we feel like we are doing hard part to hold down cost and and.
And keeping these prices just as low as we can.
Okay, great. Thank you and last one from me.
It's a broader question, but I thought your comment was interesting for going from being a collections company to being a sales company they can't collect.
And you talked about higher marketing spend but I guess is there a philosophical.
Philosophical difference from.
And that statement.
The branding is changed from you logo and so forth, but I was just wondering if you can talk about maybe the.
And any philosophical or different operational way that you're thinking about.
Running the company. Thank you.
I think it just it starts with us having more and more confidence and the product, we're putting out there Goodman mechanically sound affordable car.
Cars.
I'm more confident more confidence and our infrastructure.
Especially when you talk about the customer experience investments that we're making the.
The additional efforts, we're making and the procurement.
Area, the it investments and all these investments.
Are giving us a very solid.
Foundation and.
And as we look up and we look at our cash flows and cash on cash returns and the performance.
Of our credit the credit side.
Just.
And it's opening our eyes, a little bit more.
Two the opportunities.
To increase productivity and.
At the lot level.
You know historically, maybe we didn't have as much confidence in the infrastructure and the support network and the quality of the car, but we are moving to a point where.
And we're having a lot of confidence and all the areas of our business again as we stated we've got a lot of work to do.
But we feel like we're sitting really solid foundational Hank.
<unk> and all these areas and we're seeing a tremendous consumer demand.
What we do is unique consumers are enthusiastic about what we do.
And so we have an obligation.
And to serve more customers, we feel very strongly about that.
And as we get our infrastructure more solid and can support more customers at the highest level than we have an obligation to go out there and <unk>.
And those customers and keep those customers for life. So yeah. There is some philosophe philosophical differences.
We are continuing to look at things that can be better done here and corporate centrally.
And freeing up time valuable time, and the field to focus on customer experience and.
And and.
And serving more customers and west time on.
The back office and and non value added functions that historically have eaten up a lot of time in the field. So we've got some real opportunities.
To do some things from a central.
Office standpoint to really benefit the seal as they try to grow their individual businesses.
Okay very helpful. Thanks, so much.
<unk>.
Thank you and our next question comes from the line of John Rowan with Jenny. Your line is open. Please go ahead and.
Good morning.
And then.
And what percentage of your.
Of your.
<unk> current customer base already has a service contract in place.
And it's about.
And just a little less than half its 12, historically, it's been a 12 month product.
Okay. So I guess there are two ways to ask this question.
You know as you roll it out and you know penetrate the other half of customers with service contracts, presumably that's what you'll do how much duration is that add on to the portfolio or Conversely, how much of the portfolio the duration increase over the past year was car price and competition versus.
Is.
You know the and you're.
Using the service contracts and having that and the upfront price of the car.
Yeah. So most most of it is just inflation on the core itself. There has been a little bit related to the service contract rollout so far.
And as we look forward I think we're looking maybe at another.
Four to 500 dollar overall ASP increase as we look at the entire.
And portfolio, having service contract.
The higher rates, we can expect another maybe another month of term and another $500 of ASP.
Specifically related to the rollout of the new service contracts.
Okay. I did you always wanted to understand you know you're at 35 months you were at basically 31 last year and there's four months and little over four months of duration increase and so you know how.
Half of the portfolio would equate to about one month out of that for I mean does that sound like him and the right ballpark of.
Framing out what's causing it.
John what's out there now the deep Porsche and specific to the rollout of the new service contract very minimal it is almost entirely because of the increased selling price.
We just started piloting this these new service contracts this past year and they just got rolled out in February.
And we're not going back to any existing customers and offering these extended contracts. It is just on new contracts.
Okay does that help.
And I just wanted to also check on the are you guys, having any weather impacts.
Yes, we are we've had a lot of snow and ice and freezing temperatures and we've had.
The scramble around to keep lots, Oakland and associates getting to and from work. So it fits and it's been a little bit of a mess for last week and.
And how long do we you know.
Oddly enough everything gets warmer and new Jersey than it is and some parts of the country and please where it supposed to be hot.
Are you guys, having power outages do we see this impacting and you know that.
The next quarter's results.
No I mean, we are having some power issues and some rolling rope black.
Blackouts or brown outs and and <unk>.
Some of that but the Sun is supposed to come back out at some point soon and.
And so we don't expect anything more than a temporary blip.
Blip from the weather for the fourth quarter.
Okay. Thank you very much.
<unk>.
Thank you and again, ladies and gentlemen, if you have a question at this time. Please press Star then one.
I'm showing no further questions at this time and I would like to turn the conference back over to Mr. Jeff Williams for any further remarks.
Okay, well once again, thanks for joining us this morning, and as always we want to thank our associates.
And and the great work that they're doing out in the field and keep our customers on the road and to give them real peace of mind.
And that's been part of our core Mark family. So.
Thank you and have a great day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a great day.
Okay.
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