Q1 2024 America's Car-Mart Inc Earnings Call
Yeah.
Take it a little bit longer but hold on one second.
Yeah.
Good morning, everyone. Thank you for holding and welcome to Americas.
America's car Mart's first quarter fiscal 'twenty 'twenty four conference call before we begin today's call is being recorded and will be available for replay for the next 12 months during todays call management may make certain statements that are considered forward looking which inherently involve risks and uncertainties that could cause.
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 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-K for the fiscal year ended April 30th 2023 and its current and quarterly quarterly reports furnished to or filed with Securities Exchange Commission on forms 8-K and 10-Q.
Please see the Companys website for the earnings release for the first quarter of fiscal 2024, along with the second news release about a leadership transition.
Participating on the call. This morning are Jeff Williams, CEO , Doug Campbell.
President <unk>.
And Becky Judy CFO I will now turn the call over to Geoff Williams C E O.
You may begin.
Okay, well, thank you for joining us on the call. This morning, and thank you for your interest in America's car Mart.
I'm pleased to report that we delivered strong revenue growth for the quarter, we had solid improvements in many areas of our business.
Near term credit results are a challenge and we'll discuss that in more detail in just a few minutes.
Before we get into the details I'm excited to cover our other news today.
President Doug Campbell will succeed me as CEO effective October one.
Over the last year in his role as President Doug has more than demonstrated his readiness for the new role.
In my role as CEO and a board member there are many responsibilities, but succession planning has been at the very top of the list for me.
Identifying a candidate with a strong cultural fit the skill set to capitalize on opportunities and navigate the challenges ahead. It's why we first engaged with Doug almost two years ago now Doug.
The depreciation of the Companys culture strong industry knowledge and being a change agent is why he is the perfect fit to lead us to the next level or.
Our transition plan will allow for a smooth handoff and I'll be here to fully support Doug as we move forward.
So congratulations and thank you Doug.
I'll now turn it over to Vicki and to Doug to review the quarter results update you on the status of initiatives and provide an outlook on our business.
Thanks, Jeff I want to thank Jeff for all that he's done for the company over his 18 years of service and in particular, the last six years as CEO .
We have continued to source inventory and grow our business. Despite the industry being very constrained and volatile over the last couple of years, while competitors are exiting the business unable to manage capital constraints, we have been investing in our business is in Stark contrast, with how others are managing through the environment.
Testament suggest both leadership and vision for the company and what has been one of the most challenging environments in the history of our industry.
Oh, Jeff a debt of gratitude for the time he spent with me over the last year and during that time, we've cultivated a fantastic working relationship that will serve us in facilitating the transition ahead.
I'm equally appreciative to our chair and our board members, who have been investing in my development and their feedback and guidance has been valuable.
On a personal note I'm deeply humbled and thankful for the opportunity.
As I look forward I'm more enthused EBIT enthusiastic about our future here at America's car Mart than it was a year ago.
We're focused on the long term health and success of our business and are demonstrating our ability to operate in any environment.
Before I transition over the quarterly results I'd like to thank our associates, who work tirelessly to deliver improvements in sales volume gross margin procurement efforts wholesale performance and reductions in repair spin.
Their relentless pursuit to both put and keep our customers on the road continues to be a winning combination.
Let's start with sales performance.
Our sales performance was strong generating 15912 units sold which was up two 4% over the prior year's quarter same store sales basis up eight 2%.
Impact on inventory turns as those moved up from $5 nine to seven two turns.
Growth in online credit applications was up 19% for the quarter, which was mentioned in the press release that accounts for about 70% of all of our applications overall application volume was up eight 1% when including the walk in traffic that we see at our dealerships.
This is especially impressive when you consider that we have now begun to augment our advertising spend because of the power of the LLS and its ability to drive online traffic. The other west continues to be the primary driver for our sales growth. Despite what is a down cycle for many with the remainder of the industry down in sales year over year during the same period.
Credit availability continues to be an issue for the industry and is tighter than previous year. We're looking at Cox automotive dealer track credit availability index. It has shown some market improvement in the last month or two but it's still worse when comparing it to pre pandemic periods. This is a benefit for us as consumers look to us for access to credit.
When I think about average selling prices during the quarter they were up by four 1% year over year.
About half of that was related to the price of the vehicle. The other path was related to the ancillary products that we sell on.
On the last call I discussed that the cars, we were purchasing during the spring market were up about 3%. So it should be no surprise here.
However.
We also mentioned that the cars that we're buying are newer and have lower mileage. This ultimately makes them eligible for longer warranties, which generates more revenue on the selling prices as a reminder.
This is now even more pronounced when you consider the price increase that we made to our service contracts in December of last year.
The industry saw wholesale pricing declined sharply in May and June while prices in July decreased at a more normalized rate during the first quarter, our procurement teams lowered purchase prices sequentially throughout the quarter contributing to a 3% reduction in prices from where we started.
August wholesale pricing is showing price increases, which is abnormal this time of year it could be related to the sales strength, we're seeing in the overall marketplace in August .
Low inventory days supply on the ground and I think some speculation of what will happen between negotiations with the UAW and the big three in Detroit, We're keeping a close eye on that and what's transpiring and working to mitigate.
Any effects and meet some of it's out.
Perfect Sir.
Gross margin came in at 34, 6%, which was up 20 basis points compared to last year and up 120 basis points when I look at it sequentially versus the fourth quarter.
We went into a fair bit of detail in the press release regarding gross margin and articulated what our plan was on the last call. So I don't want to be too redundant.
But to put it simply we are executing it.
Weighted level on the plan that we had laid out.
We are buying newer and lower mileage assets and those are trickling through our ecosystem.
We're improving the performance of our operations teams as it relates to vehicle repairs and we continue to scale, our reconditioning initiative, which has a target savings of 30 to $500 per unit.
We're seeing progress in all three areas, which isn't surprising, but I guess im really encouraged at the rate at which we're seeing in some of this benefit.
We had estimated that we could recover 260 basis points of gross margin to achieve a 36% target that we alluded to on the last call. However, there are other opportunities that we're now exploring I'll give you. An example transportation would be one of these.
Last year, we changed the technology stack that we use to move vehicles throughout our ecosystem by optimizing loads and routes we began to roll this out in the fourth quarter, but Q1 is the first full quarter, we are seeing the benefit.
It represented an improvement of 20 basis points of gross margin when compared to the first quarter of last year and ultimately we're now saving about 16% on the way we move our vehicles.
There are other opportunities with ancillary products wholesale and repairs that we're looking at to drive even further improvements beyond what was initially indicated some of these opportunities can be realized during this fiscal year, others will be more long term in nature I will now turn it over to Vicki <unk>, who will cover our financial results.
Good morning, and thank you Doug for the current quarter, our net charge offs as a percentage of average finance receivables were five 8%.
This compared to five 1% for the first quarter of 2003, and six 3% sequentially.
It is above our five year average of 5% and our 10 year average of five 6% for first quarters.
Both of these include the low credit loss pandemic period.
For some comparison pre pandemic, our first quarter losses, our fiscal year, 18, and 19 or six 1%.
A little over half of the increase in loss of contributed there compared to the first quarter of fiscal 2003 with due to the higher severity of losses and the remainder being an increased frequency in the losses.
Our recovery values were down from historically high levels in the prior year quarter of 32% and held flat sequentially at approximately 27%.
As of July 31, the allowance for loan losses was $23 nine 1% of finance receivable net of deferred revenue and.
And as discussed in the press release, our provision exceeded actual charge offs by $14 8 million.
Have over $125 million of deferred revenue on the balance sheet and in addition, we also collected an additional $12 million in interest income an increase of 27, 3% compared to Q1 of fiscal 'twenty three.
Unknown Attendee: Taking a little bit longer, but I hold on one second.
Unknown Attendee: Good morning, everyone. Thank you for holding and welcome to America's America's Car-Mart's first quarter of fiscal 2024 conference call. Before we begin today's call is being recorded and will be available for replay for the next 12 months. During today's call, management may make certain statements that are considered forward-looking, which inherently involve risk and uncertainties that could cause after results to differ materially from management's present view. These statements are made pursuant to the safe harbor provisions of the private security litigation reform act of 1995.
We also mentioned in the press release the benefit of the yellow adds in attracting additional customers. It's also going to be instrumental in helping us improve deal structures and ultimately the success rate of our customers. Once it is fully implemented across a lot.
Our customer scores during the quarter remained consistent with the prior year.
On the delinquency side, our account 30, plus past due with a four 4% compared to three 6% in the prior year quarter the month ending on a Monday versus a Sunday in the prior year contributed to part of this as well as the continuing negative impact of the inflationary environment on our customers.
Unknown Attendee: 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's annual report on form 10k for the fiscal year ended April 30, 2023, and its current and quarterly report furnished to or filed with Securities Exchange Commission on forms 8k and 10k. Please see the company's website for the earnings release for the first quarter of fiscal 2024, along with the second news release about a leadership transition.
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Total collections were up 12% to 166 million and total collections per active customer karma or $535 compared to $516 in the prior year quarter.
We continue to work with our customers on payment options and modifications in an effort to keep them in the vehicle and successful on their contract.
The average originating contract term for the quarter was $44 seven months compared to 42 eight for the prior year quarter and up slightly from 43 and a half months sequentially.
Unknown Attendee: Participating on the call this morning are Jeff Williams, CEO, Doug Campbell, President, and Bikki Judy, CFO.
We added one nine months today originating contract term compared to the prior year first quarter to assist our customers with an affordable payment.
Jeffrey Williams: I will now turn the call over to Jeff Williams, CEO. You may begin. Okay, well, thank you for joining us on the call this morning, and thank you for your interest in America's car mart. I'm pleased to report that we delivered strong revenue growth for the quarter. We had solid improvements in many areas of our business. Your term credit results are a challenge, and we'll discuss that in more detail in just a few minutes.
Our weighted average contract term for the entire portfolio, including modifications was $46 nine months compared to <unk> 44 for the prior year quarter.
The weighted average age of the portfolio increased to approximately 10 four months.
The percentage of the portfolio held by the highest credit quality customers continues to improve compared to the prior year.
Jeffrey Williams: Before we get into the details, I'm excited to cover our other news today that President Doug Campbell will succeed me as CEO affected October 1st. Over the last year in his role as president, Doug has more than demonstrated his readiness for the new role.
On the SG&A side, we've been focused on identifying efficiencies in the business across the board and as mentioned in the release, we had a savings on our SG&A spend of over 600000 from the fourth quarter, excluding the stock based compensation.
Jeffrey Williams: In my role as CEO and a board member, there are many responsibilities, but succession planning has been at the very top of the list for me. Identifying a candidate with a strong cultural fit, the skill set to capitalize on opportunities and navigate the challenges ahead is why we first engaged with Doug almost two years ago now. Doug's appreciation of the company's culture, strong industry knowledge, and being a change agent is why he's the perfect fit to lead us to the next level. Our transition plan will allow for a smooth handoff, and I'll be here to fully support Doug as we move forward.
A large percentage of the savings was in advertising, we continue to shift more of our advertising dollars to digital spend which is more efficient and also helps supplement our LLS efforts.
Our customer count increased by eight 1% over the prior year to almost 105000 customers our SG&A spend per average customer improved over the prior year first quarter and over the sequential quarter.
Our investments are being made to better serve this growing base, while improving the efficiencies as we move forward.
Jeffrey Williams: So congratulations, and thank you Doug.
And although we continually evaluate our return on investment and allocation of capital and it becomes even more important in this environment of increasing funding costs.
Douglas Campbell: I'll now turn it over to Vicki and to Doug to review the quarter results, update you on the status of initiatives, and provide an outlook on our business. Doug? Thanks Jeff.
With that in mind, we did close to underperform dealerships during the quarter to better allocate our available capital.
Douglas Campbell: I want to thank Jeff for all that he's done for the company over his 18 years of service, and in particular the last six years of CEO. We have continued to source inventory and grow our business despite the industry being very constrained and volatile over the last couple of years. While competitors are exiting the business, unable to manage capital constraints, we have been investing in our business. It's a stark contrast with how others are managing through the environment, and a testament to Jeff's bold leadership and vision for the company in what has been one of the most challenging environments in the history of our industry.
We will continue to review and monitor capital invested in each dealership and other investments to maximize returns.
At quarter end, we had $6 3 million in unrestricted cash and approximately $159 million in additional availability under our revolving credit facilities based on our current borrowing base of receivables and inventory.
Our total securitized non recourse notes payable was $711 8 million with $86 million in restricted cash related to those notes.
Douglas Campbell: I would jump in debt of gratitude for the time he has spent with me over the last year, and during that time we've cultivated a fantastic working relationship that will serve us in facilitating the transition ahead. I'm equally appreciative to our chair and our board members who have been investing in my development and their feedback and guidance has been valuable. On a personal note, I'm deeply humbled and thankful for the opportunity.
We closed on our third securitization in early July with net proceeds of $356 million and a coupon of eight 8%.
This paid off our revolving line of credit.
Our total debt net of cash to finance receivables ratio is at 42, 9%.
Douglas Campbell: As I look forward, I'm more enthusiastic about our future here to America's Car-Mart than it was a year ago. We're focused on the long-term health and success of our business and are demonstrating our ability to operate in any environment.
Up from 41, 5% at April 30th.
Interest expense increased $6 9 million with approximately 60% of that related to the increased rates over the prior year and the remainder a result with the increased borrowings.
Douglas Campbell: For a transition over the quarterly results, I'd like to thank our associates who worked tirelessly to deliver improvements in sales volume, gross margin, procurement efforts, wholesale performance, and reductions in repair spend. Their relentless pursuit to both quit and keep our customers on the road continues to be a winning combination.
I will now let Jack close this out.
Okay, well, thank you Vicky.
The demand for our offering will continue to increase our model is the very best way to serve our high touch customer base and the unique challenges that require a balance between face to face de centralized decisioning and leveraging scale, where it makes sense.
Douglas Campbell: Let's start with sales performance. Our sales performance was strong, generating 15,912 units sold, which was up 2.4% over the previous quarter. On the same store sales basis, up 8.2%. That had a nice impact on inventory turns, as those moved up from 5.9 to 7.2 turns. Growth and online credit applications was up 19% for the quarter, which was mentioned in press release, that accounts for about 70% of all of our applications. Overall, application volume was up 8.1% when including the walk on traffic that we see at our dealerships.
We're striking just the right balance and Thats more apparent as we continue to pick up market share current demand exceeds what we can supply we believe that affordability will improve over time as basic transportation must be available for average consumers. Currently many customers are sitting out of.
Will flow back into the market over time.
Many respects our customers are always in recession, which makes the current environment ideal as we focus on affordability and delivering outstanding service to keep our customers on the road found.
Douglas Campbell: This is especially impressive when you consider that we've now begun to augment our advertising spend because of the power of the LOS and its ability to drive online traffic. The LOS continues to be the primary driver for our sales growth, despite what is the down cycle for many that the remainder of the industry down in sales year over year during the same period. Credit availability continues to be an issue for the industry, and is tighter than previous year when looking at COX Automotive dealer track credit availability index.
Foundational investments are nearing completion and will be leveraged, allowing us to become a more efficient data driven company we.
Not yet seen the benefit that will come.
We're on track to sell between 40, and 50 retail units per dealership per month in the next few years and eventually serve 1000 customers per dealership.
Douglas Campbell: It has shown some modern improvement in the last month or two, but it's still worse when comparing it to pre-pandemic periods. This is a benefit for us as consumers now look to us for access to credit. When I think about average selling prices during the quarter, they were up by 4.1% year over year. About half of that was related to the price of the vehicle, the other half was related to the ancillary products that we sell.
We believe credit results will improve especially as we look at the opportunities with the LLS <unk>.
Creasing car quality and execution levels, we believe gross profit percentages will improve and will leverage SG&A as we move forward and as discussed in the press release.
Douglas Campbell: On the last call, I discussed that the cars we were purchasing during the spring market were up about 3% so there should be no surprise here. However, we also mention that the cars that we are buying are newer and have lower mileage. This ultimately makes them eligible for longer warranties, which generates more revenue with the selling prices. As a reminder, this is now even more pronounced when you consider the price increase that we made to our service contracts in December of last year.
And a unique period in the industry and we have significant opportunities in the acquisitions in areas.
We're talking to several strong operators with highly accretive opportunities very excited about that.
We have great days ahead, and Doug is ready to lead our team forward.
Thank you to all of our passionate associates, who have signed on to our vision to be the best and dreams Big about what we could be taking care of our customers one at a time.
Douglas Campbell: The industry saw wholesale pricing declined sharply in May and June, while prices in July decreased at a more normalized rate. During the first quarter, our procurement teams lowered purchase prices sequentially throughout the quarter, contributing to a 3% reduction in prices from where we started. August wholesale pricing has shown price increases, which is abnormal this time of year. It could be related to the sales strength we are seeing in the overall marketplace in August, or Low Inventory Day Supply on the Ground, and I think some speculation on what will happen between negotiations with the UAW and the Big Three in Detroit. We're keeping a close eye on that and what's transpiring and working to mitigate any effects and mute some of its effects there.
Thank you and we'll now open it up for questions operator.
And thank you.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.
Please standby what we compile the Q&A roster and we do ask that you limit yourself to one question. One follow up again, we ask that you limit yourself to one question one follow up thank you.
And one moment, Bob first question.
Okay.
Okay.
And our first question comes from John Murphy from Bank of America. Your line is now open.
Good morning, everybody and congrats to Jeff and Doug on the next legs of your careers here.
Hey, Justin.
First question when you think about the extension in contract terms.
Douglas Campbell: We're going to release regarding gross margin and articulate what our plan was on the last call, so I don't want to be too redundant. But to put it simply, we're executing it at an elevated level on the plan that we had laid out. We're buying newer and lower mileage assets and those are trickling through our ecosystem. We're improving the performance of our operations teams as it relates to vehicle repairs and we continue to scale our Re-conditioning initiative which has a target savings of $300-$500 per unit.
To help with the monthly affordability.
Equation.
I'm just curious if you think that ever reverses or is this something that is now structurally in place and that will continue to see lengthening or has there been a period of time.
Car Mart's history or over time, we are contract terms of actually shortened once they've been named Atlanta and overtime.
Douglas Campbell: We're seeing progress in all three areas which isn't surprising, but I guess I'm really encouraged at the rate of which we're seeing in some of this benefit. We had estimated that we could recover 260 basis points of gross margin to achieve a 36% target that we alluded to on the last call. However, there are other opportunities that we're now exploring.
Yes, we do see an opportunity in the future to REO.
We go back in and decrease terms as we go forward our customers wages continue to go up and I think the last.
Few months few quarters, we've seen real wage increases for our consumers. So we do feel like eventually we can move that term the other direction.
Douglas Campbell: I'll give you an example. Transportation would be one of these. Last year we changed the technology stack that we use to move vehicles throughout our ecosystem by optimizing loads and routes. We began to roll us out on the fourth quarter, but Q1 is the first full quarter we're seeing to benefit. It represented an improvement of 20 basis points of gross margin when compared to the first quarter of last year and ultimately we're now saving about 15% on the way we move our vehicles.
It's going to be based to a large extent on what happens with car prices and wages as we go forward and other inflationary pressures, but we would certainly like to really in term.
And we do think there is a very realistic and real possibility of moving that direction, especially as we look at the LLS and all of the different features and functions and benefits, we're going to get when that too will get fully rolled in.
Douglas Campbell: There are other opportunities with ancillary products, wholesale, and repairs that we're looking at to drive even further improvements beyond what was initially indicated. Some of these opportunities can be realized during this fiscal year others will be more long-term in nature.
Okay. That's helpful. And then just a follow up on.
Some of the comments that were made in the press release about the changes in purchasing disposition of.
Vickie Judy: I'll now turn it over to Vicki who will cover our financial results. Good morning and thank you, Doug. For the current quarter, our net charge off is a percentage of average financial receivables or 5.8%. This compared to 5.1% for the first quarter of 23 and 6.3% sequentially. It is above our five-year average of 5% and our 10-year average of 5.6% for first quarters. Both of these include the low credit loss pandemic periods.
Our vehicles and I'm just wondering if you could sort of expand on what changes have actually occurred or is it something where we're just looking at slightly newer vehicles there'll be put into inventory that have lower recon costs.
And that is the efficiencies that are gained just what's actually changing there that's making that more efficient over time.
I thought you've been pretty good at that historically, but it sounds like you see room for improvement.
Yes, thanks for the question.
Vickie Judy: For some comparison pre-pandemic, our first quarter losses for fiscal year 18 and 19 were 6.1%. A little over half of the increase in losses contributed or compared to the first quarter of fiscal 23 was due to the higher severity of losses and the remainder being an increased frequency in the losses. Our recovery values were down from historically high levels in the prior year quarter of 32% and held flat sequentially at approximately 27%.
I would say historically, we have been very good at that.
It was I think my very first call on that I spoke about how we should use that as a lever to mitigate some of the cost and we went to a little bit older car with a little bit higher mileage and while it had its benefits upfront. There's the repair costs associated with that downstream, which has been somewhat problematic and so what we're trying to do is get back to our historical norms.
But beyond that we've seen efficiency gains, what I would call that or more.
Closer to pre pandemic levels and so the car we used to sell it might've been nine or 10 years old.
Vickie Judy: As of July 31, the allowance for loan losses was 23.91% of financial receivables, net of deferred revenues. And as discussed in the press release, our provision exceeded actual charge loss by 14.8 million. We have over 125 million of deferred revenue on the balance sheet. In addition, we also collected an additional 12 million in interest income, an increase of 27.3% compared to Q1's a fiscal 23. We also mentioned in the press release the benefit of the L.O.S, and attracting additional customers.
To shave a year off that and improve the overall mileage by 10 to 12000 miles.
What I would call versus pre pandemic sort of car inherently has a lower mileage car, which should generate less and repairs and ultimately I think it gives us a second chance at retailing. The units should we have to go down the repossession route it creates a second chance.
For the inventory to have another purpose.
In our business.
John I would add in the last two years or three years with the pandemic and the chip shortage in the used car issues and all the supply chain issues. We had that there was some real disruption in our historical performance on product procurement.
Vickie Judy: It's also going to be instrumental in helping us improve deal structures and ultimately to success rate of our customers once it is fully implemented across all lots. Our customer scores during the quarter remains consistent with the prior year. On the delinquency side, our account 30 plus past due was at 4.4% compared to 3.6% in the prior year quarter. The month ending on a Monday versus a Sunday in the prior year contributed to part of this as well as the continuing negative impact of the inflationary environment on our customers.
It is kind of working itself out at the same time that we're making some good improvements internally.
Okay.
Alright. Thank you very much guys I'll get back in the queue. That's very interesting. Thank you.
Thank you.
And thank you.
And one moment our next question.
And our next question comes from Kyle Joseph from Jefferies. Your line is now open.
Vickie Judy: Total collections were up 12% to 166 million and total collections per active customer per month were $535 compared to $516 in the prior year quarter. We continue to work with our customers on payment options and modifications in an effort to keep them in the vehicle and success along their contract. The average originating contract term for the quarter was 44.7 months compared to 42.8% for the prior year quarter and that's slightly from 43.5 months sequentially.
Hey, good morning, guys. Congrats Jeff Let me know if I want to go play golf.
Okay.
Anyway, so kind of piggybacking on that last question in terms of gross profit margin. Obviously used car prices have been elevated you might maybe coming back to earth for a while but longer term do you think the gross profit margin has changed.
<unk> or do you think.
Vickie Judy: We added 1.9 months to the originating contract term compared to the prior year first quarter to assist our customers with an affordable payment. Our weighted average contract term for the entire portfolio including modifications was 46.9 months compared to 44 for the prior year quarter. The weighted average age of the portfolio increased to approximately 10.4 months. The percentage of the portfolio held by the highest credit quality customers continues to improve compared to the prior year.
Gradually over time, we get back to airlines.
Yes.
Thanks, Scott for the question.
I think theres, an opportunity to sort of have a middle ground there.
As we sort of called out earlier, maybe we set our expectations a little too low on that 36% and were realizing in real time theres benefits beyond what we initially anticipated, especially when you consider items like transportation that maybe it wasn't sort of initially on the table, but we're looking at any and all things in the business to sort of drive improvements there.
Vickie Judy: On the SDNA side we've been focused on identifying efficiencies in the business across the board and as mentioned in the release we had a savings on our SDNA spend of over 600.000 from the fourth quarter excluding the stock based compensation. A large percentage of the savings was an advertising. We continue to shift more of our advertising dollars to digital spend which is more efficient and also helps supplement our LOS efforts. Our customer count increased by 8.1% over the prior year to almost 105.000 customers.
One thing that I didn't mentioned in the last answer was what we own those cars relative to the book value and if I just go back.
I used to call at this time last year.
Adding to the current time, so over the last 12 or 13 months, how we own those cars relative to the book has improved eight or 9%. So it is a combination of an improvement of how these cars are starting life in our portfolio. There is the improvement in our younger car with lower miles, which all should have benefits downstream in terms of credit loss and fair market value retention.
Alright, it sort of takes some of that risk and exposure off the table.
Vickie Judy: Our SDNA spend per average customer improved over the prior year first quarter and over the sequential quarter. Our investments are being made to better serve this growing base while improving the efficiencies as we move forward. And although we continually evaluate our return on investments in allocation of capital it becomes even more important in this environment of increasing funding costs.
Got it very helpful. And then my follow up would be.
The health of the underlying consumer.
I know you mentioned.
The quarter ended on a different day and.
But at the end of the day, the low end consumer still employed.
Inflation pressures are easing a bit.
Vickie Judy: With that in mind we did close to underperform dealerships during the quarter to better allocate our available capital. We'll continue to review and monitor capital invested in each dealership and other investments to maximize returns. At quarter end we had 6.3 million in unrestricted cash and approximately 159 million in additional availability under our revolving credit facilities based on our current borrowing base of receivables and inventory. Our total Securitage Non-Recourse Notes Fable was $711.8 million, with $86 million and restricted cash related to those notes.
How would you gauge the health of your underlying consumer.
Yes, I don't think we're seeing any large changes yet again to your point unemployment still very low there working wages are still good hours worked are still good.
But there are still a lot of inflationary pressures and just the adjustment to those inflationary pressures and the.
Lack of stimulus that was therefore, a point in time so.
Credit the use of credit has gone back up for our consumers were seeing that kind of across across the board.
But again.
Vickie Judy: We closed on our third Securitization in early July with net proceeds of $356 million and a key bond of $8.8% and this paid off our revolving line of credit. Our total debt net of cash to finance receivables ratio is at $42.8 million. And up from 41.5% at April 30th. Interest increased $6.9 million, which approximately 60% of that related to the increased rates over the prior year and the remainder results of the increased borrowing.
Our consumers are almost typically always in a recession living paycheck to paycheck. So it's really just an adjustment and getting them back east to.
The higher car payments and keeping them in their car.
But overall the health of our consumer is increasing.
Quarter over quarter as we move forward.
We believe thats going to be.
Situation for us.
As we go forward and as Vicki mentioned unemployment rates are historically low and real wages.
Are gaining some steam in the areas, we serve and the customers we serve.
Jeffrey Williams: I'll now let Jack close us out. Okay, well thank you, Vickie. The demand for our offering will continue to increase. Our model is the very best way to serve our high-touch customer base and the unique challenges that require a balance between face-to-face, decentralized decisioning and leveraging scale where it makes sense. Restriving just the right balance and that's more apparent as we continue to pick up market share. Current demand exceeds what we can supply.
And I think a piece of that is as Doug mentioned, the tightening in the lending environment.
We are seeing a different.
Cohort of consumers come down into our market.
You need to see that.
Got it thanks, Vicki Thanks, Todd Thanks, Jeff.
Thanks Kelly.
And thank you.
And one moment our next question.
Jeffrey Williams: We believe that affordability will improve over time as basic transportation must be available for average consumers. Currently, many customers are sitting out. We'll flow back into the market over time. In many respects, our customers are always in recession, which makes the current environment ideal as we focus on affordability and delivering outstanding service to keep our customers on the road. Foundational investments are nearing completion and will be leveraged allowing us to become a more efficient data-driven company.
And our next question comes from John Rowan from Janney Montgomery Scott. Your line is now open.
Good morning, Congrats Jeff and Doug.
Yes.
I guess some of the larger lenders have postulated that with the potential for a strike and you guys mentioned this in your prepared remarks, a little bit.
There would be an increase in dealer inventory guys would take up floor plan loans.
Obviously.
Jeffrey Williams: We've not yet seen the benefits that will come. We're on track to sell between 40 and 50 retail units per dealership per month in the next few years and eventually serve 1,000 customers per dealership. We believe credit results will improve, especially as we look at the opportunities with the LOS, increasing car quality and execution levels. We believe gross profit percentages will improve and will leverage SGNA as we move forward. And as discussed in the press release, we're in a unique period in the industry and we have significant opportunities in the acquisitions areas.
Fiscal 2023 mid year, you were very heavy in inventory are you planning on raising inventory levels at all.
If this strike looks like its going in one direction I'm not sure really.
Obviously everything flows downstream I don't necessarily think there, especially in immediate shortage in used cars, but just curious if you think there'll be a ripple effect that could cause you to raise inventory levels.
Yes.
So I think about it differently. Its a great question and certainly been on our minds I don't know sort of which way, it's going but we're sort of trying to prepare ourselves for any variation of an outcome I think ultimately if you go back to the last strike on record I think it was the GM strike.
Jeffrey Williams: And we're talking to several strong operators with highly accretive opportunities. Very excited about that. We have great days ahead and Doug is ready to lead our team forward. Thank you to all of our passionate associates who have signed on to our vision to be the best and dreams big about what we could be while taking care of our customers one at a time. Thank you and we'll now open it up for questions operator.
And Hugo track overall used car prices, which you saw was upward pressure, especially on those brands I think it was a general motor strike. If you go back and look at those brands you saw a nice increase in pop in pricing of days supply diminishing on the ground. It almost happened in real time, because theres a lot of speculation in and around that and so when you have three auto.
Jeffrey Williams: And thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by where we compile the Q&A roster and we do ask that you limit yourself the one question one follow up. Thank you.
Makers potentially going on strike and the deadline is looming here you have to sort of be ready for that and it's going to be more than just the overall impact on those three automakers that will just be a shortage of supply on the ground. If you looked at absolute supply in our industry. It's still really it's sort of all time lows and so the.
The incidence of something like this happening could drive values up and so for us that is some headwind on the buying side.
John Murphy: And one moment by our first question. And our first question comes from John Murphy from Bank of America. Your line is not open.
We can combat that with being more selective on the cars, we buy but to your point I think what you were alluding to is do we stock up for an event like that I don't think that is necessarily a lever we would pull however, I do think there was some.
John Murphy: Good morning, everybody, and congrats to Jeff and Doug on the next legs of your careers here. I just just a first question. You know, when you think about the extension in contract terms to help with the monthly affordability equation. Yeah, I'm just curious if you think that ever reverses, or is this something that is now structurally in place and that, you know, we'll continue to see lengthening, or is there been a period of time, you know, Car-Mart's history or over time where contract terms have actually shortened once they've been lengthened over time?
<unk> values it becomes a tailwind on the fair market values that we have.
For the cars that were taken back the repo vehicles. So there's good and bad to us being having the lending side to this and we're just trying to make sure. We're ready we don't know which way it's going to go but our job is to be ready for that and we're looking at doses those options available to us now.
Okay, great. Thank you Oh, sorry.
Alright, you mentioned on the you mentioned on the last call to that.
A lot of competition that we have is struggling with capital we had a couple of sizable competitors go out of business in the last six months or so to so there is there is some positive on the supply side. In addition to some potential negatives too so that all balances out and we're pretty nimble on our procurement so.
John Murphy: Yeah, we do see an opportunity in the future to reel back in and decrease terms as we go forward. Our customers' wages continue to go up. And I think the last few months, few quarters, we've seen a real wage increases for our consumers. So we do feel like eventually we can move that term the other direction, but that's going to be based to a large extent on what happens with car prices and wages as we go forward and other inflationary pressures, but we would certainly like to reel in term, and we do think there's a very realistic and real possibility of us moving that direction, especially as we look at the LOS and all the different features and functions and benefits we're going to get when that tool gets fully rolled in.
We'll be able to address and adjust any situation we see.
Great. Thank you.
Thanks, Joe.
And thank you.
And again, if you would like to ask a question that is star one one again, if you would like to ask a question that is star 111 moment for our next question.
And our next question comes from Vincent <unk> from Stephens. Your line is now open.
Hey, good morning, Thanks for taking my questions, Doug Congratulations and look forward to working with you and Jeff It's been a pleasure working with you for the past several years and we will Miss you.
John Murphy: Good, so hopefully, and then there's a follow-up on some of the comments that we're made in the press release about the changes in purchase and disposition of vehicles. And I'm just wondering if you could sort of expand on what changes have actually occurred, and it's something where we're just looking at slightly newer vehicles there being put into inventory that have lower recon costs, and that's the efficiencies that are gained. And it just what's actually changing there that's making that more efficient over time.
Like more.
So first wanted to zoom out just kind of a broad question about the CEO transition and then if you could walk us.
Through that it sounds like this process had been going on for the past few years.
So just wanted to.
Kind of get a sense for why now is a good time for that transition and then.
Doug anything in particular, you'd like to focus on as we start to your tenure.
John Murphy: I thought you've been pretty good at that historically, but it sounds like you see room for improvement. Yeah, thanks for the question. I would say historically we have been very good at that. I think my very first call on that I spoke about how we had used that as a lever to mitigate some of the cost, and we went to a little bit older car with a little bit higher mileage, and while it had its benefits up front, there's the repair costs associated with that downstream, which has been somewhat problematic.
Okay.
As to the timing.
Just a good time in our history.
We've been through some pretty difficult times things are still tough, but getting a little bit better.
And some of these long term highly complex labor intensive investments and initiatives. We've had in place <unk> been able to participate in those for the last year.
And those are all coming into play and with Doug and his experience and his talent level.
John Murphy: And so what we're trying to do is get back to our historical norms, but beyond that, we've seen efficiency gains, what I would call that are more closer to pre-pendemic levels, and so the car we used to sell might have been 9 or 10 years old. We're able to shave a year off that and improve the overall mileage by 10 to 12,000 miles. What I would call versus pre-pendemic, so the car inherently is a lower mileage car, which should generate less in repairs.
It's just it's a perfect time for us as a company, especially.
With the transition being extended there'll be plenty of support plenty of time to transition appropriately as we go forward. So this is just a good time.
For me, Doug and for our company and our associates and shareholders. It's a good time in history to be making this change, especially with the transition plan we have in place.
John Murphy: And ultimately, I think it gives us a second chance at retelling the unit. Should we have to go down the reposition route, it creates a second chance for the inventory to have another purpose in our business.
I would add.
My first obviously opportunity to be a CEO of a company in.
Again, I am humbled, but.
John Murphy: John, I would add, in the last two or three years with the pandemic and the chip shortage and the used car issues and all the supply chain issues we had that there was some real disruption in our historical performance on product and procurement, and it's kind of working itself out at the same time that we're making some good improvements in terms. All right, thank you very much, guys, I'll get back in the queue.
At the end of the day there are a lot of associates, who are relying on a smooth transition will have its shareholders relying on a smooth transition and the more we thought about it on the longer Jeff stayed on to help assist with the transition for the things I Hope no one, especially on the credit side of the business Vincent it's sort of made more sense to accelerate making announcements and then having Jeff.
Stand up for a longer period of time as opposed to postponing it and doing the transit transition to a shorter period of time.
Unknown Attendee: That's very interesting.
Unknown Attendee: Thank you.
And I think.
Leading to your question I'd, probably spend more time on the credit side of the business the underwriting side of the business.
Kyle Joseph: And one moment for our next question. And our next question comes from Kyle Joseph from Jeffries. Your line is not open. Hey, good morning, guys. Good, Jeff. Let me know if you ever want to go play golf. Come. Anyway, so kind of piggybacking on that last question in terms of, you know, gross profit bars. And obviously, you know, use car prices have been elevated. You might think they're maybe coming back to Earth for a while, but, you know, longer term. Do you think the gross profit margin has changed? Stemically, or do you think, you know, gradually over time we get back to where it was?
Okay.
And see what improvements that we have there, especially given credit loss and when I think about some of the improvements we made in other areas of the business I'm excited to sort of eliminate sleeves and see what other opportunities are there as well.
Okay great.
Very helpful. Thank you.
My next question I wanted to touch on the shelf filing that.
That was filed a couple of weeks ago and in some of the comments that were made at the shelf filing, particularly the.
Kind of the unprecedented opportunities you might be seeing if you could talk about that in more detail, what you're seeing and sort of what youre looking for.
That makes you excited about those opportunities. Thank you.
Yes, the industry, obviously has been in turmoil, we've had major competitors going out of business Theres a lot of folks that have been in the business for decades that don't have an exit strategy don't have a succession plan.
Kyle Joseph: Yeah, thanks, Kyle, for the question. I think there's an opportunity to sort of have a middle ground there. But we, as we sort of called out earlier, maybe we said our expectations a little too low on that 36% and we're realizing in real time, there's benefits beyond what we initially anticipated, especially when you consider items like transportation that maybe wasn't sort of initially on the table. But we're looking at any and all things in the business to sort of drag improvements there.
Cost of being in the business continues to go up so there is a lot of very good very strong operators out there.
Of size.
<unk> are looking for.
Accession plan on how to get out of the business.
And so what we do and what we've offered on the acquisition side is appealing to more and more good operators and we've got some good discussions going on very optimistic about being able to continue to pick up productivity and profits from our existing store base and then add this act.
Kyle Joseph: One thing that I didn't mention in the last answer was what we own those cars relative to the book value. And if I just go back, I used this time last year and to the current time. So over the last 12 or 13 months, how we own those cars relative to the book has improved eight or 9%. So there's a combination of an improvement of how these cars are starting life in our portfolio.
<unk> effort on separate and apart from all the other good stuff going on and it could be really a good point a great point.
Kyle Joseph: There's the improvement in a younger car with lower miles, which all should have benefits downstream in terms of credit loss and fair market value retention, right? It sort of takes some of that risk and exposure off the table.
In history for us to be going out and getting more aggressive with acquisitions and we're setting ourselves up to do just that and the shelf registration was just.
Kyle Joseph: Got it very helpful. And then yeah, my follow up would be, you know, the health of the underlying consumer. I know you mentioned the quarter ended on a different day and, but, you know, at the end of the day, the low end consumer still employed inflation pressures are easing a bit. How would you gauge the health of your underlying consumer? Yeah, I don't think we're seeing any large changes yet again to your point.
Another aspect.
To that opportunity and giving us more more options on the financing side, if and when needed.
To support.
Some acquisitions so.
Okay, great. Thank you and if I could maybe sneak one more in for Vicki.
Just on the credit side, the credit reserves have been increasing and understandably so.
It makes sense that the term and so forth.
Yes.
Hey, Thanks stand right now do you foresee that the credit reserves for at that sort of the right level or should we be anticipating determined mix things continue to change. Thank you.
Kyle Joseph: An appointment still very low. They're working, wages are still good, hours worked are still good. But there are still a lot of inflationary pressures and just the adjustment to those inflationary pressures and the lack of stimulus, you know, that was there for a point in time. So credit, the use of credit has gone back up for our consumers. We're seeing that kind of across across the board. But again, our consumers are almost typically always in a recession, living paycheck to paycheck.
Sure well, we continue to look at that quarterly.
Just on historical numbers and what's happening in the current market as well as some forecasting.
For some economic event. So we did increase it slightly in the fourth quarter, we were able to keep that level. This quarter. So it's hard to say quarter over quarter, but.
Kyle Joseph: So it's really just an adjustment and getting them back used to the higher car payments and keeping them in their car. But overall, the health of our consumer is increasing, quarter over quarter. As we move forward, we believe that's going to be a better situation for us as we go forward. And as Vickie mentioned, unemployment rates are historically low and real wages are gaining some steam in the areas we serve and the customers we serve. And I think a piece of that is as Doug mentioned the tightening and the lending environment. We are seeing a different cohort of consumers come down into our market. We continue to see that.
We're working on a lot of things.
As we mentioned in the press release and in a few of my comments in bringing down.
Term working on down payment.
Hopefully, reducing some selling price excellent amount financed as we move forward. So those will all be things that we're working on to hopefully offset the impact of any.
Allowance increases, but thats certainly a possibility as we move forward here.
Pending on what happens over the next few quarters.
Okay. That's super helpful. Thanks again, everyone.
Thank you. Thank you. Thank you Vincent and thank you.
And I am showing no further questions I would now like to turn the call back over to Jeff Williams for closing remarks.
Okay, well once again, thank you for listening to our call and thank you for your interest in America's car Mart.
Kyle Joseph: Got it. Thanks, Vickie. Thanks, Doug. Thanks, Jeff. There's Kyle.
Unknown Attendee: And thank you.
Doug Congratulations again on your promotion to CEO .
John Rowan: And one moment for our next question. And our next question comes from John Rowan from Janie Montgomery, Scott. Your line is not open.
We'll have a smooth transition and we appreciate.
In respect to all of our associates out there that.
That passion for what we do.
And support each other and support our customers at a very high level. So thank.
John Rowan: Good morning. Congrats, Jeff and Doug. I guess, you know, some other, you know, larger lenders have postulated that, you know, with the potential for a strike, and you guys mentioned this and you're prepared to march a little bit, that there would be an increase in dealer inventory, you know, guys would take out floor plan loans. Obviously, you know, fiscal 2023 mid-year, you are very heavy in inventory. Are you planning on, you know, raising inventory levels at all if, you know, this strike looks like it's going in one direction?
Thank you and have a great day.
This.
Today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
John Rowan: And I'm not sure, really, you know, obviously everything flows downstream. I don't necessarily think there's necessarily immediate shortages in use cars, but just curious if you think there'll be a ripple effect that could cause you to raise inventory levels.
Douglas Campbell: So I think about it differently. It's a great question and certainly been on our minds. I don't know sort of which way it's going, but we're sort of trying to prepare ourselves for any variation of an outcome. I think ultimately, if you go back to the last strike on record, I think it was the GM strike, and you go track overall use car prices, which you saw was upward pressure, especially on those brands.
Douglas Campbell: I think it was a general motor strike. If you go back and look at those brands, you saw a nice increase in pop and pricing as Dave supplied diminished on the ground. It almost happened in real time because there's a lot of speculation in and around that. And so when you have three automakers, right, potentially going on strike and the deadline is looming here, you have to sort of be ready for that.
Douglas Campbell: And it's going to be more than just the overall impact on those three automakers. It'll just be a shortage of supply on the ground. If you looked at absolute supply in our industry, it's still really at sort of all time lows. And so the instance of something like this happening could drive values up. And so for us, that is some headwind on the buying side. We can combat that with being more selective on the cars we buy.
Douglas Campbell: But to your point, I think what you were alluding to is do we stock up for an event like that? I don't think that is necessarily a lever we would pull. However, I do think there was some appreciation of values that becomes a tailwind on the fair market values that we have for the cars that were taking back the repo vehicles. So there's good and bad to us being having the lending side to this.
Douglas Campbell: And we're just trying to make sure we're ready. We don't know sort of which way it's going to go, but our job is to be ready for that. And we're looking at those options available to us. We mentioned on the last call too that a lot of competition that we have is struggling with capital. We had a couple of sizable competitors go out of business in the last six months or so too.
Douglas Campbell: So there's some positive on the supply side in addition to some potential negatives too. So that all balances out and we're pretty nimble on our procurements. So we'll be able to address and adjust any situation we see.
John Rowan: Great. Thank you. Thanks, John. And thank you.
Unknown Attendee: And again, if you would like to ask a question that is star 11. Again, if you would like to ask a question that is star 11, one moment for our next question.
Vincent Caintic: And our next question comes from Vincent Caintic. From Steven.
Vincent Caintic: Your line is not open. Thank you. Good morning. Thanks for taking my questions. Doug, congratulations and look forward to working with you. And Jeff, it's been a pleasure working with you for the past several years and we'll miss you.
Jeffrey Williams: I first want to zoom out just kind of a broad question about the CEO transition and if he could walk us through that. It sounds like this process has been going on for the past few years. So just wanted to kind of get a sense for why now is a good time for the transition. And then Doug, anything in particular you'd like to focus on as you start your tenure. Well, yes, to the timing.
Jeffrey Williams: This is just a good time in our history. We've been through some pretty difficult times. Things are still tough, but getting a little bit better. And some of these long-term, highly complex, labor-intensive investments and initiatives we've had in place. Doug's been able to participate in those for the last year. And those are all coming into play with Doug and his experience and his talent level. It's just a perfect time for us as a company, especially with the transition being extended. There'll be plenty of support, plenty of time to transition appropriately as we go forward. So this is just a good time for me, for Doug and for our company and our associates and shareholders.
Douglas Campbell: It's a good time in history to be making this change, especially with the transition plan we had in place. Thanks.
Douglas Campbell: My first, obviously, opportunity to be a CEO of a company. Again, I'm humbled, but at the end of the day, there are a lot of associates who are relying on a smooth transition. A lot of shareholders are relying on a smooth transition. And the more we thought about it, the longer Jeff stayed on to help assist with the transition for the things I owe. No one especially on the credit side of the business, Vincent, that it sort of made more sense to accelerate making the announcement and then having Jeff stand up for a longer period of time as opposed to postponing it and doing the transition to a shorter period of time.
Douglas Campbell: And I think leading to your question now probably spend more time on the credit side of the business, the underwriting side of the business. And see what improvements that we have there, especially given credit loss. And when I think about some of the improvements we made in other areas of the business, I'm excited to sort of roll up my sleeves and see what other opportunities are there as well.
Vincent Caintic: Okay, great. That's super helpful. Thank you.
Douglas Campbell: My next question, I want to touch on the shell filing that was filed a couple of weeks ago, and in some of the comments that were made in the shell filing, particularly the kind of the unprecedented opportunities you might be seeing. If you could talk about that in more detail, what you're seeing and sort of what are you're looking for, that makes you excited about those opportunities. Thank you. Yeah, the industry obviously has been in turmoil.
Douglas Campbell: We've had major competitors going out of business. There's a lot of folks that have been in the business for decades that don't have an exit strategy. Don't have a succession plan. The cost of being in the business continues to go up. So there's a lot of very good, very strong operators out there of size that are looking for a succession plan or how to get out of the business. And so what we do and what we've offered on the acquisition side is appealing to more and more good operators.
Douglas Campbell: And we've got some good discussions going on, very optimistic about being able to continue to pick up productivity and profits from our existing store base. And then add this acquisition's effort on separate and apart from all the other good stuff going on. And it could be really a good point, a great point in history for us to be going out and getting more aggressive with acquisitions. And we're setting ourselves up to do just that. And the shelf registration was just another aspect to that opportunity and giving us more options on the financing side, if and when needed to support some acquisitions.
Vincent Caintic: Okay, great. Thank you.
Vickie Judy: I could maybe sneak one more in for Vicki. Just on the credit side, the credit reserves have been increasing and understandably about the makes and the term and so forth. Just as the way things stand right now, do you foresee that the credit reserves were at that sort of the right level or should we be anticipating just how the term and makes things continue to change? Thank you. Sure. Well, we continue to look at that quarterly based on historical numbers and what's happening in the current market as well as some forecasting for some economic events.
Vickie Judy: So, you know, we did increase it slightly in the fourth quarter. We were able to keep it level this quarter. So, you know, it's hard to say quarter over quarter, but, you know, we're working on a lot of things. As we mentioned in the press release, and in a few of my comments in, you know, bringing down term, working on down payment, hopefully reducing some selling price and amount of finance as we move forward.
Vickie Judy: So, those will all be things that we're working on to hopefully offset the impact of any allowance increases. But that's certainly a possibility, you know, as we move forward here and depending on what happens over the next few quarters.
Vincent Caintic: Okay, that's super helpful. Thanks again, everyone. Thank you. Thank you, Vincent.
Unknown Attendee: And thank you. And I am showing no further questions.
Jeffrey Williams: I would now like to turn the call back over to Jeff Williams for closing remarks. Okay. Well, once again, thank you for listening to our call and thank you for your interest in America's Car-Mart.
Jeffrey Williams: Doug, congratulations again on your promotion to CDO. We'll have a smooth transition and we appreciate and respect all of our associates out there that have passion for what we do and support each other and support our customers at a very high level. So thank you and have a great day.
Unknown Attendee: This concludes today's conference call. Thank you for participating. You may now listen to that.