Okay. Well, good morning and thank you for joining us.

As we mentioned in our press release, our disciplined focused approach is getting us through the many challenges of 2020. Our business is moving forward at an accelerating pace, improving the resiliency of -- and the value of our model when you have 2,000 dedicated associates all pulling in the same direction.

We're making significant investments in the key areas of the business and laying the groundwork for our future growth. The supply/demand imbalance in the used vehicle market especially at the lower price points is real and has resulted in some volume challenges, but has also led to meaningful increases in revenue.

Our procurement initiatives are targeted to give us some relief and to be able to better control our own destiny on the supply side. The market we serve is large and fragmented.

Consumer shopping preferences and expectations are changing. And the rate of change is accelerating and we're committed to reinventing and reinvesting in the business in order to adapt and prepare us for the long-term.

Our business continues to both generate significant cash flow and increase borrowing capacity and at the same time maintaining a very conservative balance sheet, which will enable us to continue to solidify our place in the world and prepare us to serve a much larger customer base. Again we're making significant investments in the areas of customer experience, inventory procurement and recruiting and training.

Improvements in these key areas will help us drive increased traffic and productivity. Our technology and systems upgrades will also be invested in to support these initiatives and provide a solid foundation for future growth.

We continued to look to possibilities of centralizing certain noncore functions that will not take away any advantages of our localized community based structure and the ability to make key customer decisions locally is extremely important to our success. We're aggressively addressing changes in consumer buying preferences and building out an efficient seamless digital and customer friendly sales process that will compare favorably with alternatives.

As our infrastructure strengthens, we will aggressively market our lower total cost of ownership advantage and we'll more heavily promote the real, but intangible benefit that customers realize when they're part of the Car-Mart family. We give customers peace of mind by keeping them on the road.

We take the stress out of one area of our customers' lives and we believe strongly that we have an obligation to serve significantly more customers over time. I'll now turn it over to Vickie to go over some numbers.

Vickie?

Thank you Jeff. Good morning, everyone.

We had another record quarter in terms of revenues and net income. Our total revenue increased 17.4%, up to $223 million.

The increased revenues resulted primarily from an increase in sales due to a 15.3% increase in the average sales price and a 1.9% increase in retail units sold. Interest income also increased by 18.2% and same-store revenues were up 12.8%.

Revenues from the stores, in our over 10 years of age, were up 13%, stores in the five to 10 year category were up 16% and revenues for stores less than five years of age were up to about $21 million. Although, we did have improving sales volumes during the quarter, volumes continue to be impacted by the tight supply of inventory, particularly at the lower price points.

At quarter end, 17 or 11% of our dealerships were from zero to five years old 42 or 28% were from five to 10 years old and the remaining 91 were 10 years of age or older. Our overall productivity was 31.2 units per lot per month compared to 31.6 for the prior year quarter.

The 10 year plus lots produced 33 units per month per lot compared to 33.9 for the prior year quarter. Lots in the five to 10 year age category produced 28.8% compared to 29.2 and lots less than five years of age had productivity of 27 compared to 23.3 for the quarter -- second quarter of last year.

Our down payment percentage improved, was up 6.2 -- 6.4% compared to 6% for the prior year quarter. Collections as a percentage of average finance receivables were at 12.9% compared to 13.3% for the prior year quarter.

This was primarily due to the extension in the average contract term and partially offset by improved collections on our delinquent accounts. The average originating contracts term was 33.8 months compared to 30.4 months for the prior year quarter, and up also from 32.4 months sequentially.

The average selling price was up $1,776 with only a 3.4 month increase in the term compared to the prior year second quarter. Our average monthly payment is approximately $432.

Our weighted average contract term for the entire portfolio, including modifications, was 34.7 months compared to 32.3 months for the prior year. And the weighted average age of the portfolio was basically flat at approximately nine months.

Interest income increased $4.1 million or 18.2% compared to the prior year quarter, primarily due to the $92.8 million increase in average finance receivables, a 16% increase. The weighted average interest rate, for all finance receivables at the end of the quarter, was approximately 16.4%, flat from the prior year quarter.

Gross profit per retail unit sold increased $770, up to $5,705. This was 15.6% compared to the prior year quarter.

The gross profit percentage was 40.7% compared to 40.5% for the prior year quarter, but down from the sequential quarter at 41.7%. The improvement in gross profit resulted from improved wholesale margins, which was due to the strong demand and the low supply of the lower priced units is partially offset by the lower margin on the retail units.

An increasing average selling price results in a lower gross margin percentage, but higher gross margin dollars per unit. Our gross margin percentages are lower at a higher selling price.

The mix of the type of vehicle sold was fairly consistent. SUV sales increased approximately 3% over the prior year quarter.

Our inventory volumes are back up to pre-pandemic levels to support higher sales volumes as we move toward tax time. SG&A for the quarter was up $4.2 million compared to the prior year quarter, but down as a percentage of sales to 16.5% compared to 16.9% for the prior year quarter.

SG&A as a percentage of total revenues, less cost of sales in the provision for credit losses was 51.8% compared to 57.4% for the prior year quarter. This metric is very important for us, as an integrated auto sales and finance business is a large part of our efforts and SG&A spend are focused on keeping good customers on the road and driving down credit losses.

We're making good progress on our initiatives of revamped procurement efforts with preferred vendors, purchases from rental car companies and reconditioning efforts, and our customer service efforts in the digital area and improved service contracts along with the continued investments in recruiting and training of our associates, all of these with the goal of great customer service and increasing the number of customers that we can serve at each dealership. For the current quarter, net charge-offs, as a percentage of average finance receivables was 4.7%, down from 6.1% in the prior year second quarter.

We saw improvements in delinquent accounts and our accounts 30-plus past due was at 2.5% compared to 3.5% in the prior year quarter. At the end of the fourth quarter, we did increase our allowance for credit losses to 26.5% related to the uncertainty of COVID and the macroeconomic environment.

Although our portfolio is solid and our credit loss results are positive, there continues to be much uncertainty caused by COVID-19 and its potential impact on our customers, our collections, repossessions and the overall economic environment as we move forward. The effective income tax rate was 23.6% for the second quarter compared to 22.7% for the prior year quarter.

Income tax expense included an income tax benefit of $240,000 and $140,000 related to share-based compensation for the current quarter and the prior year quarter respectively. We expect our base effective tax rate to be approximately 23.5% going forward prior to any excess tax benefits from stock option exercises.

We continue to have strong cash flows and a solid balance sheet. At quarter end, our total debt was approximately $214 million.

We had $19.5 million in cash and over $27 million in additional availability under our revolving credit facilities. Our current debt net of cash to finance receivables ratio is 28% compared to 29.7% at this time last year.

During the quarter we added $49.4 million in finance receivables. We funded $2.2 million in net capital expenditures.

We increased inventory by $11.2 million or a total of $62.8 million with only a $30.3 million increase in debt net of cash. Now I'll turn it back to Jeff.

Okay. Well thank you, Vickie.

As we've said repeatedly, our offering to the markets we serve is unique and our 150 existing dealerships have significant room to grow. During the last couple of quarters, we consciously decided not to fully participate in the buying frenzy at the lower cost end of the used vehicle market, as we did not think there was value there from the consumer standpoint.

This decision may have caused us a little sales volume in the short term. But again our procurement efforts and a return to a more normal flow of products in the market will help us going forward.

We're going to prioritize the allocation of capital to gaining market share in the areas we currently serve, as we have proven management talent and a long history with our customer base. We also believe our offering is superior to other offerings in the market.

We've opened two new dealerships this fiscal year and we have two more in process in Edmond, Oklahoma and Norman, Oklahoma. We're proud to be growing.

And at the same time building an infrastructure that will support a much larger business. This is possible largely because of the commitment of our associates and the power of our business model.

There's real consumer enthusiasm for our offering, driven by a superior proposition, local presence and genuine and authentic commitment to our customers. Coupled with the advantages of our captive lending arrangement and our focus on costs, we believe that our future is very bright.

We currently have about 84,000 customers and we're investing to serve many, many more. I thank you to our associates who are focused on taking care of each other and our customers, especially as we see a rise in COVID cases in our trade areas and thank you for making our communities better.

We will now turn it over to the operator for questions. Operator?

Good morning, everybody. Just a number of questions.

Vickie, just first on the ramp-up in credit loss reserves for your expectation around some potential unfortunate trouble around COVID. I was just curious what your experience has been so far because I didn't think you'd seen too much disruption and how you're thinking about that go forward because the reality is you're seeing increased demand for vehicles as in areas where COVID has hit in the past and people will be more willing to pay their loans.

I'm just curious how you're coming up with that thought process and maybe what the accounting rules are that are driving those increase in reserves?

Sure. Well, like you said right now both from the sales side and the credit loss side, we are seeing an increased demand and people are staying in their vehicles, but I think as we look out here and we're a little unsure of the political environment, we're unsure of any additional stimulus payment we know there are several deferments and rent moratoriums that are all coming to an end.

I think there's still a lot of questions around businesses and small businesses. I mean, I've seen a lot of statistics regarding how many businesses may be expected to be following bankruptcy over the next few months as their BCP -- used up and their additional cash they've had stuck back used back or used up.

So I'd just say, -- macroeconomic uncertainty out there and how it impacts our customers especially under CECL that is one of the things that you need to consider when you look at your credit losses. And so I think until there's a little more clarity in what happens over the next coming months and tax time and those related collections we just felt it was prudent to leave that additional reserve on books at this time.

Okay. And then just maybe a quick follow-up on that.

I mean how important do you think stimulus checks have been to your consumers directly and then there's a layer cake of stimulus as you mentioned on PPP behind that to the small businesses. Do you think that PPP has been equally as important as these individual stimulus checks?

And how do you think about that going forward? It sounds like you have some concern?

Yes. I do think that that obviously has had to help both our consumers and then the small businesses and keeping people employed.

So I do think that's had a good impact. I also think that we've certainly made an effort within our company too though to continue to work with consumers.

So we continue to make improvements internally I think that are helping too. So it's hard to weigh what we're doing internally versus what's happening out there in the marketplace.

As you know in our business a lot of this is what other options are out there for consumers. And to Jeff's point we feel like we've got a value proposition, and as long as we're working with consumers that we'll be able to keep them on the road and in their cars.

And I would just add John that most of the stimulus kind of ran out toward the end of July. So the entire quarter basically was without any consumer stimulus out there and our collections were -- other than the term our collections were actually better this quarter than last year's second quarter even though the stimulus had pretty much run out.

Yes, very interesting dynamic. And then just on supply relief.

I mean, obviously, the vehicles are out there but it did sound like supply at a reasonable price is really what you're getting at Jeff. I mean when do you think that eases?

I mean, it sounds like you're saying your inventory is relatively normalized at the moment? So maybe it's eased as we speak.

Did you need to stretch a little bit to restock that inventory on acquisition costs? And I'm just curious how you think about this supply normalizing either right now or overtime?

Yes. It's hard to say.

There's been again a real frenzy at the lower price points. A lot of smaller dealers are facing a low dollar car.

So we kind of chose to step out of that frenzy if you will. And now we're getting closer to tax time.

So we're not really expecting a huge relief on the cost of cars or the supply of cars going up above demand until maybe at the point where we get through tax time, even though repossessions are flowing a little bit and new car sales are up a little more than they were. We're not really expecting much of a change in the pricing of used cars availability for us until maybe after tax time closer to the summer months.

Got it. Okay.

That's very helpful. And then just lastly when you're talking about focus on growth.

I mean, Jeff, what kind of parameters are you thinking at about overtime? Is this really accelerating store openings it's maybe doing a little bit more online although -- I mean your consumer probably hasn't lend quite to a significant acceleration here just yet, but maybe overtime yours or maybe productivity per store?

I mean, how are you thinking about sort of growth parameters and any drive growth in the future?

Yes. I'll back up a little bit to all the investments we've been making in the last several years, starting with the inventory management and procurement.

We have seen enough and we know enough at this point to be pretty confident that our company and the talented people we have, we're going to be able to find a large number of very good mechanically sound cars for a good price as we move forward. So we have a lot of comfort in what we're doing on the procurement side.

At the same time, we're building an infrastructure on the recruiting and training side to make sure we're getting the right people in the company and keeping them trained. And then on the customer experience side, as far as online sales making some huge progress there.

And then as Vickie mentioned, we've got some new service contracts just around the corner. So we're really gearing the company up to handle a lot more volume and we feel like when we move beyond the pandemic and move back to a point where things are more normal and the economy comes back around we're going to be in a fantastic spot to really pick up some market share in our existing markets.

And then also add several good new locations each year and continue to look for acquisition opportunities. We think that the fact that we're -- our balance sheet is actually less levered today than it was a year ago with the significant growth we've seen is just another key indicator how powerful what we have is.

We're just -- we're in a spot where we're feeling better and better about all the areas of the business and we're ready to keep pushing volumes up and get more market share in the markets we currently serve.

Okay. Great.

That’s very helpful. Thank you so much guys.

Thank you.

Thank you.

Good morning, guys. Congrats on a nice quarter.

And thanks for taking my questions. Obviously, you guys commented a lot about used car prices.

The good thing for your business is obviously that benefits credit. Can you walk us through trends you've been seeing in terms of losses from a frequency and severity perspective?

Well, obviously, from a frequency perspective, losses are much lower. Again, coming back to this is a real need for the people in our markets.

We're doing a nice job of helping them through these situations and the COVID situations and job changes that's going on right now. So frequency is much improved.

The severity was improved at a lower -- much lower level. We will continue to experience some severity challenges as we move forward when you're selling a higher-priced car and the selling price continues to increase.

But that car is also a much better vehicle with lower miles and we think that, that's going to be a positive for credit losses for the consumer both in terms of the repair and the car is worth more when you do have to take it back. So there's really a lot of positives going in this area once we kind of get through some of these market uncertainties that we're in right now.

Got it. Very helpful.

And then in terms of competition when the pandemic started we heard anecdotally that a lot of traditional providers of credit in the space were pulling back. Have you guys seen that?

Or have you seen any loosening of credit?

Certainly have not seen any loosening and competition is -- there's still some competition out there, but we have -- again a very healthy balance sheet. We're investing in the areas we know, aggressively going after market share and feel like what we do is unique in the fact that we can fund the businesses -- or keep funding the businesses that makes sense that have the appropriate returns for us.

We're going to continue to pick up market share and gain advantages over the competition as we move forward.

Got it. And last one for me.

This one might be a difficult one given all the uncertainty out there, but from a seasonality perspective obviously 2020 was very unique and seasonality was thrown out the door. But as you're thinking about the business over the next call it, year or further out would you anticipate kind of normal seasonality going forward?

Well it's kind of hard to say with the stimulus kind of still up in the air and then whether that's the timing of that if anything might be the same as the tax time. We're kind of -- we're preparing for a normal tax time, understanding that it probably won't be normal.

And then -- if jobs come back and the economy gets humming and the vaccines are out there by the summer, we might expect to see some good solid demand in the summer months. And so it's a little hard for us to tell right now.

Got it, totally understand. Thanks very much for answering my questions.

Thank you, Kyle.

Good morning.

Good morning.

Jeff, how comfortable are you with the nearly 35 months portfolio duration, given that we are starting to see -- I mean we're still at high levels but softening of the peak used car prices from the summer?

Well I think looking back historically on our business, we maybe didn't have as much confidence in our product historically that we do now. So I think we were ultra conservative on the term just not having confidence in the quality and the mechanical stability of our car as much as we do now.

So we're still significantly below competitors on the term and we feel like we're putting a good solid mechanically sound car out there. And we don't believe that adding term for the right customers is a negative.

In fact it's a positive to keep that monthly payment down and keep us competitive with some folks that just look at payment as far as marketing. So I think it all goes back to the quality of our product how confident we are in our supplier network, how we are really focusing at the lot level, making sure we don't let a car leave that has any issues at all that that customer is set up for success.

And then again with our new service contracts, we believe we're going to be able to keep even a closer eye on maintenance of cars after sale, staying in contact better with our customers after sale keeping them on the road. And so we're not concerned with stretching that term out.

It's the right car and the right customer and we're going to have the right support after the sale to keep them on the road.

Okay. I just want to stay with duration for one more minute.

I guess I struggle to understand if the duration is mostly a function of higher prices because I think that's what you said last quarter that the higher-priced vehicles are coming in and you have to extend duration in order to keep the payments affordable, or if it's you proactively going after your best customers and giving them a better monthly payment, because at the end of the day trying to figure out, if the duration and the cash conversion cycle continue to move in the current direction, which is slower cash conversion on more duration, or if along with a paring back of the wholesale market do we actually start to claw back and pull that duration down a little bit and speed up the cash conversion cycle?

Well, yeah, I would think, if the great part – one great part about our business is we adapt and adjust to the market. And there's a commodity aspect to the used car market.

So we're kind of – we're subject to the quantity and the quality and the pricing of what's out there to a large extent. So we've got to adjust and be pretty flexible on what we do and how quickly we do it.

And so yeah, if conditions change, and we do have an opportunity to shorten that term, we would certainly take advantage of that. And it's always a balance for us.

John, I will add that, as we try to grow customer count and keep customers in the family and to Jeff's point, we're trying to keep some of these better customers and they're looking for a little better vehicle, and they have more options out there that, we will continue to support those customers probably with some term. But to Jeff's point, we want to be flexible in that area.

Okay. So, I mean, what I basically take from this is that, if we do see a cooling off of record used car prices that, we could see the duration come down, but it's not – and I'm paraphrasing here, but it's not going to come down quite as much as you may think simply, because you are offering more term to good customers who you want to keep within the Car-Mart business.

Correct?

Yeah. And that – as far as cash conversion that means more customers are successful.

So you could have a situation where the term is actually out, but our cash flows are actually improved, because we're having less defaults, better paying customers, and higher recovery rates, when we do have to take a car back. So it's not a one-for-one equation here.

Okay. All right.

Thank you very much.

Thank you, John.

Thank you.

Okay. Well, thank you once again for listening in.

Thank you for your interest in America's Car-Mart. And once again, thanks to all of our great associates out there that are taking care of each other, taking care of our communities, and taking care of our customers at the highest level.

So thank you and have a great day.