Q3 2025 America's Car-Mart Inc Earnings Call
Speaker Change: Thank you for standing by and welcome to America's Car Mart's third quarter fiscal 2025 earnings conference call.
Speaker Change: At this time, all participants aren't a listen-only mode. After the speaker presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you will need to press star 1-1 on your telephone To remove yourself from the queue, you may press star 1-1 again I would now like to hand the call over to Vickie Judy Chief Financial Officer, please go ahead
Speaker Change: Good morning. I'm Vickie Judy, the company's chief financial officer. Welcome to America's Car Mart's third quarter fiscal year 2025 earnings call for the period ending January 31st, 2025. Joining me on the call today is Doug Campbell, our company's president and CEO and Jamie Fisher, our COO.
Speaker Change: We issued Arning's release earlier this morning, and it is available on our website along with supplemental slides detailing our cash on cash returns and our loan origination system performance improvements.
Speaker Change: We will post the transcript of our prepared remarks following this call and the Q&A session will be available through the webcast.
Speaker Change: During today's call, certain statements we make may be considered forward looking and inherently involved risk and uncertainties that could cause actual results to differ materially from management's present view.
Speaker Change: These statements are made pursuant to the Safe Harbor provision of the Private Security's 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.
Speaker Change: For more information, including important cautionary notes, please see part one of the company's annual report on Form 10K for the fiscal year-ended April 30, 2024.
Speaker Change: Doug will start off with highlights of the quarter and share updates on our progress toward our strategic goals. Doug, I'll turn it over to you now.
Thank you, Vickie.
Speaker Change: Over the past 18 months we've been hard at work improving our operations and strengthening our foundation and this only happens when you have the right talent.
and we've continued to invest in this area.
Speaker Change: Speaking of talent, I'm joined by Jamie for the first time here on the call.
Speaker Change: The environment for our customers is challenging, highlighted by persistent inflationary trends, higher use car prices and elevated interest rates.
Speaker Change: Throughout this period, we have maintained our position on the importance of originating better quality credit, while never losing focus of the poor values we provide.
Our employees, customers, and communities [inaudible]
Speaker Change: As mentioned on the last call, our recent focus has been to improve and diversify our balance sheet by adding new capital and lenders as well as improving our highly successful securitization program.
Speaker Change: Our ABL facility has been a core source of funding for over four decades.
Speaker Change: And I'm pleased to report that on February 28, 2025, we completed an extension and upsizing the facility to $350 million, which now matures in March of 2027.
The transaction represents an important milestone for the company.
Speaker Change: And we deeply appreciate the support of our existing and new relationships with our ABO partners.
We also completed our sixth ABS transaction in January.
Speaker Change: This transaction was $200 million in size and was more than 10 times over subscribed.
Speaker Change: We believe the capital markets are recognizing the success of the contracts underwritten Byron
Speaker Change: This enabled us to have the tightest spread that we've had to date and resulted in an overall weighted average life-adjusted coupon of 6.49%, a 95-basis-point improvement from our October transaction.
Speaker Change: The ABS market is an important source for us given its material improvement in the advanced race relative to the ABL and access to additional capital.
Speaker Change: Combined, our new ABL facility and recently closed ABS transaction have further improved our capital position, allowing us to turn our attention to other capital sources that will make our capital structure more competitive and efficient.
Speaker Change: We are focused on the next steps of our funding toolkit and eager to pass on these savings to our customers and shareholders.
Speaker Change: In January , we hired Sam Smith as our Vice President of Capital Markets and Treasury to help support our Green ABS platform and Capital Markets strategy.
Speaker Change: Sam is a proven leader with over 20 years of experience in investment banking and the
Speaker Change: Additionally, during the quarter, Josh Smith joined our team as Chief Technology Officer and brings a wealth of knowledge and technical skills to our leadership team, having served embarrassed technology-focused leadership roles over the last 27 years.
Speaker Change: I've continually talked about the importance of developing and attracting proven leaders to the Car Mart and I'm pleased with the progress that we're making.
Speaker Change: Thanks, Doug, and good morning, everyone. I am pleased to report on the progress we are making, including the successful actions we have taken to strengthen our operations.
Speaker Change: Before I begin, I just want to take a moment to express my gratitude [inaudible]
Speaker Change: I joined the team approximately five months ago and I'm incredibly thankful to work alongside such an amazing leadership team and dedicated associate.
Speaker Change: I'm thrilled to be part of the Car Mart family, not only because there are great people here, but also because there is so much potential to better help a customer base that needs it most
Speaker Change: I look forward to all that we will accomplish together. Now let's dive into the details of this quarter's operational results.
I will start off with Revenue.
Speaker Change: Total revenue increased by 8.7%, despite average selling prices declining by 90 basis points.
Speaker Change: The primary driver with higher sales volume, which I will cover in more detail in a moment.
Speaker Change: Secondly, a 5.1 percent increase in interest income was driven by overall receivable growth of $31 million dollars year over year, and the portfolio's weighted average interest rate was approximately 50 basis points higher.
Speaker Change: Finally, we made a price increase to our service contract product suite during the quarter.
Switching over to Sales .
Speaker Change: Sales volumes were up 13.2% for the quarter. The operations team does an incredible job executing on the plan this quarter.
Speaker Change: This was due in part to utilization of our new customer relationship management tool that rolled out late summer of last year and helped improve lead management.
Speaker Change: We also proactively increased the volume of inventory as we expanded our frontlines much earlier than last year, putting us in a better inventory position as we head into our spring selling and tax season.
Speaker Change: Additionally, the underperformance in the prior year quarter was driven by intentionally tightened lending policies established during the rollout and implementation of the company's LOS that appropriately reduce risk but negatively impacted volumes.
Speaker Change: Vickie will speak more in a little bit about how those lending policies have continually contributed to improved portfolio performance.
Speaker Change: Looking at Gross Margin, Gross Margin was 35.7% compared to 34.2%.
Speaker Change: The initiatives around vehicle procurement and vehicle disposal continue to drive improvements on affordability, wholesale retention, and the resulting gross margin percentage.
Speaker Change: These improvements were partially offset by increased accident protection plan claims primarily related to recent weather events.
Speaker Change: We are pleased with the continuing progress in improving the gross margin percentage and will continue to be focused on driving to the 37 to 38% annualized gross margin that we've mentioned in prior quarters.
Speaker Change: I'll now turn it over to Vickie to cover our financial results.
Vickie Judy: Thanks, Jamie. As mentioned in the press release, we had improved net charge off of a percentage of average finance receivables for the quarter at 6.1% compared to 6.8% in the prior year quarter and 6.6% sequentially.
Vickie Judy: On a relative basis, we saw overall improvements in the frequency of losses as well as a slight improvement in severity.
Vickie Judy: In the Finance Receivable Pools originated in fiscal year 2022 and 2023, we continue to experience increases in the frequency of losses as can be seen in the cash on cash return table included in the release.
Vickie Judy: The fiscal year 2024 pool performance, while improved over the fiscal 2022 and 2023 pools also experienced a higher frequency of losses particularly related to contracts originated prior to the rollout of the LOS system and the tightened underwriting.
Vickie Judy: Receivables originated in fiscal 2023 and prior account for approximately 21% of the total portfolio at January 31, 2025.
Vickie Judy: The allowance for credit losses as a percentage of finance receivables net of deferred revenue in Accident Protection Plan Claim.
Vickie Judy: with 24.31% at quarter end, improved from 24.72% at October 31st, 2024, and 25.74% at January 31st, 2024.
Vickie Judy: This reduction in the allowance is primarily a result of the continued performance of the receivables originated under the LLS, which now accounts for 58% of the total portfolio balance, excluding acquisition receivables.
Our average originating term was 44.6 months [inaudible]
Vickie Judy: Up from 43.3, compared to the prior year quarter and up slightly from 44.2 sequentially. We continue to optimize the distribution of the term by customer score, shortening term for our highest credit risk customers, and allowing additional term for our best credit scoring customers.
Vickie Judy: At the end of the quarter, the weighted average total contract term for the portfolio was 48.3 months, the weighted average age was 12.6 months, a 7% improvement over the prior year quarter.
Vickie Judy: We continue to make progress on boosting overall collections, which are up 5.2% over last year.
Vickie Judy: This was also a sequential improvement from the second quarter. The monthly average total collected per active customer was $568 compared to $540 at the same period last fiscal year.
Vickie Judy: The Lynquencies, or accounts over 30 days past due, increased 40 basis points to 3.7% at quarter end and were 20 basis points higher than the second quarter of fiscal 2025.
Vickie Judy: Winter weather laid in the month of January contributed to the delinquencies as our customers work was impacted. However, delinquencies have improved since quarter-end.
Vickie Judy: Recent C was 81.3% for the quarter compared to 80.4% for the same period's last physical year.
Vickie Judy: SGNA expense was up $2.9 million, an increase of 6.7%. This was primarily driven by $1.8 million dollar increase related to the two acquisitions completed since last year and higher stock compensation.
Vickie Judy: In the short term, these two acquisitions create headwinds in our ability to leverage SGNA on a per customer basis while they build out a portfolio of customers.
Vickie Judy: These acquisitions are expected to add 5,000 or more accounts over the next 18 to 24 months
Vickie Judy: Sequentially, SGNA decreased $947,000. We continue to stay focused on the efficiencies we can find in the business while continuing to build a foundation of people and technology to support a growing customer base.
Vickie Judy: Interest expense increased by $192,000 or 1.1%, but, quenchally, we had a decrease of $1.1 million in interest expense as we began to benefit from the improvement in benchmark rates, as well as the positive impacts from our recent improvements in securization rates.
Thank you for joining us. Have a great day.
Vickie Judy: With the amended and extended ABL facility now in place, our priority will be to continue to further diversify our capital structure. Now turn the call back to Doug.
Vickie Judy: Thanks, Vickie. Before moving on to Q&A, I want to provide more color on the health of our consumer, our perspective on macro factors impacting our industry and how Car Mart is uniquely positioned to serve customers in this type of environment.
Vickie Judy: Use car affordability is a major concern for both our customers and our industry and has been for some time.
Vickie Judy: In addition, recent developments out of Washington relates to tariffs and other potential impacts has created further uncertainties for how consumers might navigate a new environment.
Our business is focused on taking care of working people.
Vickie Judy: who finds themselves in financial hardship by providing them with basic quality transportation.
Vickie Judy: The work that we've done as a company by centralizing certain functions, finding new sources of inventory and tightening underwriting standards will help us navigate the environment more effectively should some of these changes come to fruition.
I don't know what you're doing. I don't know what you're doing. I don't know what you're doing.
Vickie Judy: We've been focused on improved deal structures that add a margin of safety into our customers' households with the LOS.
Vickie Judy: In addition, we would expect to have a larger, adjustable market as consumers that could get credit easily in the past will now be at the top of our sales funnel.
Vickie Judy: Our company has weathered many cycles over our 43-year history which gives us confidence we can help customers navigate this uncertainty.
Vickie Judy: We are laser focused on what we can control, which is providing affordable financial solutions for vehicle ownership and exceptional service to customers who typically feel the greatest pressure in difficult and uncertain economic environments.
Vickie Judy: This is especially true as we enter the seasonally strong fourth quarter and spring
Vickie Judy: We've had inventory fine tuned our marketing strategy and feel good about our position heading into this important time of year.
Vickie Judy: We continue to pursue opportunities to improve deal structures with risk-based pricing and now have 34 stores who are actively utilizing our new scorecard and testing price elasticity on both ends of our customer ranks.
Vickie Judy: We'll share more into what we're learning and the opportunities it's creating for the company after the text season.
Vickie Judy: One of the items that we can't control are continual investments in our platform.
Vickie Judy: This includes ongoing investments we're making to improve our collections infrastructure to make the process easier for our customers and associates.
Vickie Judy: Achieving this critical operational improvement this year sets us up to scale the business, enhance funding, and improve earnings with less risk as we move forward.
Vickie Judy: While we're pleased with the progress that we've made during the third quarter, we remain cautious about the macro-environment
Vickie Judy: By focusing on the fundamentals of our business, we are positioning ourselves for continued success and future growth.
Vickie Judy: Rest assured that these challenges have made and will make your company better and will serve us in good stead going forward. So with this overview, we'll move on to the Q&A session now. Operator, please provide instructions to ask questions.
Thank you for tuning in.
Vickie Judy: Thank you, as a reminder, to ask a question you will need to press star 1-1 on your telephone.
Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Kyle Joseph of Stevens, a question please Kyle.
Thank you. We appreciate it. Thank you.
Hey, good morning, everyone. Thanks for taking my questions.
Speaker Change: A couple here, but just wanted to dive into the unit recovery. I know you guys mentioned.
Speaker Change: There were some impacts from underwriting last year and then kind of a new program, get it moving up.
Speaker Change: Kind of tax refund sales, but just, you know, in terms of underwriting, can you tell us where we are? Where you guys are year over year? I know you guys mentioned, you know, wrist-based pricing and everything, but in terms of tightening versus loosening, I know you guys highlighted that you're still cautious overall, but, you know, it gives a sense of where underwriting is trended over the past year.
Speaker Change: Hey, good morning, Kyle. Thanks for the question. Yeah, if you remember last year, we had just rolled out the LOS.
Speaker Change: We were down 19.9% in the third quarter and admittedly we had said hey we probably are too tight and so we're going to work on releasing a relaxing some of that over time and trying to be really thoughtful and smart about that.
Speaker Change: The run rate that we currently have sort of implies that [inaudible]
Douglas Campbell, CFP®, Financial Planner & Investment Advisor
Speaker Change: Yeah, very helpful thanks, Doug. And then, Vickie, I know you talked about the impacts of weather on delinquencies. I know it's probably tough to isolate or quantify exactly.
Speaker Change: What that was, but can you give us a sense, you know, if there's any way to isolate the impact of the weather what the cues were done or what they've done kind of in or what they didn't February , I guess.
Speaker Change: Yeah, I mean, like you said, it's hard to isolate that in particular, but we did see them and trend back down pretty quickly and in line with our expectations.
Speaker Change: Got it, okay. And then last one from me, Vickie on the acquisitions, can you just remind us of the timing of when those clothes and how quickly you expect them to ramp towards? I think you talked about 5,000 new accounts just to help us with modeling on the G&A side.
Sure.
Speaker Change: So, we closed on the one dealership in Hot Springs Arkansas last December . So, there would have been, you know, half of the prior year quarter had some impact from that acquisition. The more impactful when is the Texas Auto Center dealerships, two large dealerships that we closed on in June of this year? [inaudible] No, no, no, no, no, no, no, no
Speaker Change: And those are the ones that we've talked about, you know, that are large dealerships selling higher volumes than our stores, our legacy stores are. And that's where most of the impact is coming from, and there was no S-DNA obviously from those two locations in the prior quarter.
Speaker Change: Got it. Very helpful. Thanks for answering my questions. Problem. Thank you.
Speaker Change: Thank you. Our next question comes from John Murphy, Bank of America. Please go ahead, John .
Speaker Change: versus the benefits of the, you know, of the LOS. And you know, you know, it's really kind of a complicated question. I'm just trying to understand how negative the base it, the base case would have been and how much benefit you're getting from, you know, the good efforts on LOS.
John Murphy: Yeah, it's difficult to parse that out as well, but I think most of the benefits we believe are coming from how we're originating the paper.
John Murphy: We're really dialed into looking at our different customer cohorts, what we're doing in terms of Down's term and amount financed and then when we add this risk-based pricing aspect on top of all of that, we believe that most of it is coming from
John Murphy: The underwriting versus the consumer just being in a much better place because we don't believe that's the case.
Speaker Change: Yeah, I'd add additionally to John , it's sort of a difficult question to answer but the back book that we referred to, which was the paper we under wrote in fiscal year 21 through 23, that only represents a little over 20% of our portfolio at this point.
Almost 60% of the portfolio is this new L.O.S.
Speaker Change: And that's under these new controls I said, now we're sort of substantially
Speaker Change: More than half of the encounter really under this, that's really sort of our focal point and the piece of the portfolio that like we've really been focused on Toronto Cure.
Speaker Change: If you go back a year ago, we were worried about it.
Hire for Longer, and we felt like we needed to build in that margin of safety, and we've been very, very reluctant to relax that, just given the uncertainty looking forward and
Douglas Campbell, CFP®, Financial Planner & Investment Advisor
Speaker Change: That's awful. And maybe I should follow up for Jamie. It's great to hear you on the call and welcome to the team. You know, I'm just curious, you know, and you were making the shift from one...
Speaker Change: Good company to another good company. Obviously, Doug and Vickie and the team are leading a really good company here. I'm just curious what your take is, though, why you made the switch? You know, what you're new to?
Speaker Change: to America's Car Mart and what sort of opportunities you see is the COL in your early days.
Speaker Change: Yeah, great. Thank you so much. Appreciate it. Very happy to be here. Thank you for the question. We you know, I've been here about five months or so and I mentioned earlier just
Speaker Change: Super Impressed and excited about the people of this organization, but I'd say a main driver. I keep the company that I came from as much bigger. Same segment of the subprime part of the industry, but much bigger. I'd say, call it probably twice the size.
Speaker Change: And so at a company that big, it's really difficult to sort of move the needle and so you heard Doug alluded to earlier some investments in our ability to change how we collect and so it's really interesting projects like that for me that I think will give us the opportunity to really...
Speaker Change: Put my thumbprint on the success story of the organization and I think that there's a lot of opportunities like that out there some really excited to be a part of that [inaudible]
Great. Thank you very much guys. Appreciate it.
Thank you, John .
Speaker Change: Thank you as a reminder to ask a question, you may press star 11 on your telephone. Our next question comes from the line of Vincent Caintic of BTIG. Please go ahead, Vincent.
Vincent Nekancic: Hey, good morning. Thanks for taking my questions. First, just wanted to get an update on what you're seeing so far in terms of the application pool. We talked about tax refund season, tax season. So maybe if you could give us an update if you're seeing anything so far in terms of both.
Vincent Nekancic: Customers coming in as well as credit performance from tax refunds.
Vincent Nekancic: on Credit. Just wondering what you're seeing so far, and if the application funnel is seeing some increase in volume and if that volume is higher quality customers. Thank you.
Vickie Judy, Douglas Campbell
Speaker Change: Good morning, Vincent. Good to hear you, man. So tax season started off a little bit slower start. I think we all saw that cumulative overall refunds now are sort of flat to last year. Still down materially from like 2019 or sort of pre-COVID time. So we're still waiting on I feel like a good chunk of that money and so we should hope to realize those sales here in the month of March here.
Speaker Change: Reef funds were up on a per customer basis just slightly. We saw stronger demand than we saw last year from consumers.
I think that's a part and parcel with our advertising campaign so...
Speaker Change: from Our Consumers, but we're also seeing that from some of the tax
Speaker Change: that prepares that we work with, that there's more demand from the consumers, and so when consumers are coming to you with their last paycheck in December instead of waiting under $10.99, that's usually a good indication that they're a strong demand from the consumer side, that they need to get a hold of that money, and we're trying to make sure that we capitalize on that, if there's a sales opportunity, and then also obviously we schedule a bunch of seasonal tax payments, and so what we've seen there is really great execution, and sort of outperforming year over year. So we're really liking-
Douglas Campbell, Founder & General Partner, Vickie Judy
for us.
Speaker Change: It's also an opportunity for us to elongate the tax season. We have thought about that historically
Speaker Change: as these really sort of consumers that really need this money, but for the broader market, the tax season is generally longer.
Douglas Campbell, CFP®, Financial Planner & Investment Advisor
Speaker Change: And so that was good. I think more importantly there to know was the overall application volume sequentially that we're seeing was improved month over month and we were coming out of January and what was like the strongest application volume in January that we've seen in a really long time so all positive signs.
Speaker Change: The second question you have was around the opportunity in the sales funnel, I think, Vincent
Speaker Change: You know, that to me sort of speaks to this broader trends and our business was built for this sort of environment and it's sort of counterintuitive maybe to most that like in this sort of environment where there's a lot of uncertainty that maybe we could drive but historically if you go back and look over time, we've seen a lot of positivity in these sort of environments.
It doesn't mean we're immune to the effects but certainly this is one of the value propositions of the company and so we're seeing strong volume, strong website visits.
Douglas Campbell, CFP®, Financial Planner & Investment Advisor
. . . .
Speaker Change: Okay, perfect. That's a very helpful detail. Thank you. And then my second follow-up question just
It seems like the process improvements you've had.
Speaker Change: Operational changes and then a loan origination system and all the other things you've done have had.
Speaker Change: had a meaningful impact, and I'm just wondering how much more we can go, of Car Mart can go in terms of the benefits that we should continue to see from the low origination system as well, some of the centralization and process improvements that you made. Thank you.
Yeah, there's more to get from the process improvements.
on the underwriting piece.
Speaker Change: I think there's an opportunity to go back, obviously, to maybe more relaxed standards but more importantly in this environment, we're looking at risk-based pricing and the opportunity that it might present for us. I think the last time we spoke, we might have had...
Speaker Change: 10 Stores Live, we're up to 34 Stores Live, we didn't want to sort of interrupt the taxis but the learnings that we're getting there from over a fifth of the organization on the platform now with this new scorecard are really promising.
Speaker Change: And so, you know, we'll have to see what that really means. I said I would...
Speaker Change: I said I would bite my tongue and hold some more remarks around that till after the tax season I have more to share about the strategy that will employ, but certainly given the broader macro factors, we're accelerating our learnings there and the efforts and how we might anchor our strategy and for the balance of the calendar year.
Great, super helpful. Thanks so much.
You got it.
Thank you. Thank you. Thank you.
Speaker Change: Thank you. I would now like to turn the conference back to Campbell for closing remarks, sir.
Thank you.
Speaker Change: It's an interesting time in automotive. I mentioned earlier that times like this, we've learned a lot the companies in a different position and the whole marketplace there's a lot of uncertainty around that but our business is built in this season. We help our customers navigate environments like this every day.
Speaker Change: So, you know, we are being more mindful, more diligent about some of the moves that we're making here and we expect those to pay dividends for both our consumers and our shareholders. We look forward to the next update. Thank you very much for joining the call.
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.