AMERICAS CARMART INC Q2 FY2025 earnings call

• Amended revolving credit facility in September to provide cushion around financial covenants. - Raised ~$74 million via new share issuance to bolster balance sheet. - Completed 5th ABS transaction in October, $300 million, oversubscribed with tight spreads. - Welcomed new Chief Operating Officer, Jamie Fisher. - LOS system showed 21% improvement in cumulative net losses, 15% improvement in down payments. - Service contract accounting adjustment: accelerated $13.2 million revenue recognition, improving gross margin by ~1%. - Pilot of risk-based pricing using LOS system in markets, testing new scorecard for better loss predictability.

Total revenues decreased $12.5 million or 3.5% due to a 9.1% decline in retail units sold, partially offset by a 3.6% increase in interest income and a $13.2 million service contract benefit. Gross margin was 39.4% including the service contract revenue recognition benefit, and 36.5% excluding it. Net charge-offs as a percentage of average finance receivables were 6.6% compared to 7.2% prior. The allowance for credit losses was 24.72% at quarter end, down from 25% previously. Down payments were 5.2%, average originating term was 44.2 months, collections were up 3.3%, and delinquencies were 3.5%. LOS receivables represented approximately 50% of the portfolio dollars.

• Expect continued gross margin improvement targeting 37%-38% range. - Pilot of risk-based pricing to be more comprehensive by fiscal year-end. - Anticipate benefits from tax season with early ad campaigns and inventory setup. - Plan to resume M&A activity once funding is properly set up.

• Macroeconomic uncertainty affecting consumer affordability. - Higher interest rates impacting funding and floor plan costs. - Competition in M&A and challenges in integrating acquired dealerships. - Dependence on ABL partners and market conditions for funding.

Q: Kyle Joseph asked about the service contract adjustment and LOS underwriting.

A: Vickie Judy explained the service contract adjustment and Doug Campbell discussed LOS underwriting progress.

Q: Kyle Joseph inquired about the competitive environment and M&A.

A: Doug Campbell talked about M&A activity, selective approach, and funding setup.

Q: Vincent Caintic asked about credit performance and portfolio evolution.

A: Doug Campbell discussed portfolio evolution and M&A thought process.

Q: Vincent Caintic questioned dealership pruning and adding business.

A: Doug Campbell talked about pruning underperforming dealerships and criteria for adding new ones.

Q: John Murphy asked about credit tightening, consumer confidence, and equity raise.

A: Doug Campbell discussed risk-based pricing, consumer confidence, and equity raise rationale.