AMERICAS CARMART INC Q1 FY2025 earnings call

• Sales volume improved sequentially vs prior year, with website traffic increasing year-over-year and sequentially.
• Focused on vehicle affordability, reducing average retail price by ~$100 sequentially (excluding ancillary products), with vehicle procurement prices as a leading indicator.
• Partnership with Cox Automotive to lower vehicle acquisition and transportation costs, optimize repair shop agreements, and consolidate vendors, reducing vehicle vendors from ~400 in FY '23 to under 200 planned in FY '25.
• LOS fully implemented at most dealerships, providing benefits like better deal structures and improved loss rates vs legacy system.
• SG&A expense slightly increased due to technology implementations and acquisitions, but offset by payroll savings; focus on driving cost efficiencies and leveraging new technology for long-term SG&A leverage.
• Actively in the market for acquisitions, with recent acquisition adding to inventory but reducing inventory vs prior-year quarter-end.

Total revenues decreased $19 million, or 5.2%, largely due to a decline in retail units sold. Interest income increased by 7.2% due to higher consumer contract interest rates. Average retail price excluding ancillary products decreased by ~$100 sequentially. Inventory levels at quarter-end were up $7.1 million vs fiscal year-end but down $2.6 million vs prior-year quarter-end. Gross margin up 30 basis points. LOS fully in place at 147 of 156 dealerships, with 40% of total portfolio dollars originated within LOS. Total collections increased 4.3% over last year, monthly average total collected per active customer rose to $562. Net charge-offs 6.4% vs 5.8% prior year, majority from back book originations of FY '22-'23. Delinquencies dropped 90 basis points to 3.5% at quarter-end.

• Fiscal year '25 priorities include continuing operational excellence on sales/collections, improving affordability by reducing average retail price, optimizing LOS, capitalizing on Cox partnership, and focusing on acquisitions.
• Originated contracts in Q1 expected to produce cash-on-cash returns of 72.4%.
• Back book originations from FY '21-'23 account for 33% of portfolio, with LOS originations at 40% and expected to grow; projected back book to be a smaller portion of portfolio in future quarters.

• Industry challenge of ensuring inventory levels and pricing match demand and consumer type.
• Increase in net charge-offs due to back book originations, though trending back to pre-pandemic averages.
• Impact of economic conditions on consumer paychecks and vehicle affordability.
• Challenges during onboarding of new partner Cox Automotive, though mostly behind us.

Q: How much can strategies to reduce car acquisition and refurbishment costs help affordability, and impact of used car prices?

A: Strategies like Cox partnership to repurchase and repair vehicles to drive down average price. Used car price trends impact affordability, with expected price falls to increase addressable market.

Q: Visibility on sales volume and when growth might return?

A: Website traffic is a leading indicator with 5+ months of 25%+ year-over-year growth. Sales volume affected by underwriting selectivity and performance managing locations. CRM upgrade and underwriting changes expected to aid conversion and sales volume.

Q: SG&A breakdown and normalized expenses?

A: SG&A fairly flat, driven by cost cuts. Technology investments and acquisitions impact SG&A, with payroll cuts offsetting some technology expenses. Normalized SG&A expected to benefit from cost efficiencies and acquisition book build-out.