America's Car-Mart Aktie

Good day, and thank you for standing by. Welcome to the America's Car-Mart Third Quarter Fiscal 2026 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Jonathan Collins, Chief Financial Officer. Please go ahead.

Good morning. I'm Jonathan Collins, the company's Chief Financial Officer. Welcome to America's Car-Mart's Third Quarter Fiscal Year 2026 Earnings Call for the period ended January 31, 2026. Joining me on the call today is Doug Campbell, our President and CEO; and Jamie Fischer, our COO. We issued our earnings release earlier this morning, and a supplemental presentation is available on our website. We will post the transcript of our prepared remarks following this call, and the Q&A session will be available through the webcast.

During today's call, certain statements we make may be considered forward-looking and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the Private Securities 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.

For more information, including important cautionary notes, please see Part 1 of the company's annual report on Form 10-K for the fiscal year ended April 30, 2025, and our current and quarterly reports furnished to or filed with the Securities and Exchange Commission on Forms 8-K and 10-Q. As a note, the comparisons we will make will be for the third quarter of fiscal 2026 versus the third quarter of fiscal 2025, unless otherwise stated. Doug, I'll turn it over to you now.

Thank you, Jonathan, and good morning, everyone, and thank you for joining us today. I want to start by being direct about what happened in the third quarter. Our retail volume declined 22.1% year-over-year. That's a significant number, and I want to address it head on. This was not a demand story. It was a capital structure story. Let me explain what that means. Throughout the third quarter, our ability to purchase inventory at full capacity was constrained by the ongoing transition of our financing platform. Specifically, as I mentioned last quarter, we need a revolving warehouse facility to bridge originations to securitizations.

Without that facility, our purchasing had to be managed against available cash rather than a rotating credit line, and that limited how much inventory that we could put on our lots. Top-of-funnel demand tells the real story here. Website traffic was up 4% year-over-year. Credit applications remain elevated. Our customers are there. Our team is there. The constraint is capital deployment, and we're actively working to resolve that. I also want to note an incremental headwind unique to the third quarter.

Winter Storm Fern struck in the final week of January and directly impacted our entire South Central operating footprint. The timing of the final days of the quarter compressed what was already a volume challenged period. Jamie will speak to how Pay Your Way platform performed through the storm and the performance that gave us real confidence in the resilience of the collections infrastructure we're building.

The subprime auto capital markets have been operating in a more measured environment since last fall. The industry absorbed significant disruption following the failures of several subprime lenders, events that raise serious questions and legitimate questions among warehouse providers, rating agencies, ABS investors about collateral integrity, loan tape accuracy and the controls governing these businesses. In the midst of that negative industry noise, we completed our 25-4 ABS transaction, a $161.3 million asset-backed note rated and successfully placed in a turbulent market.

This was our first ABS transaction incorporating a residual cash flow structure, a non-turbo deal. For those less familiar with the ABS mechanics in jargon, a turbo structure accelerates principal payment from investors as a form of credit protection. We call that overcollateralization. The turbo structure is structurally simpler to rate and easier to sell because the collections on the assets remaining after paying service provider fees and interest on the notes and topping up liquidity reserve accounts are used to repay principal to investors.

As a result, the investors get their money back faster as the level of over collateralization increases during the life of the deal, a residual cash flow structure does quite the opposite. Rather than using all the collections remaining to repay principal on notes, the issuer repays principal on the notes only in an amount necessary to achieve a targeted level of over collateralization. Once that level is met, the funds remaining each month after paying the provider fees and interest and principal on the notes and topping up liquidity reserves is released back to the issuer, the company.

The company's ability to complete this 25-4 transaction with residual cash flow structure can be viewed as a sign of investor and rating agency confidence in the company and its asset-backed securitization program, which is particularly noteworthy in light of the heightened sensitivity and the market stress plaguing the securitization markets in the end of 2025. We've made meaningful progress on the transformation of our capital structure this fiscal year, and I want to recognize that even as I acknowledge there's more to do.

In October, we closed a $300 million term loan, which fully retired our revolving line of credit and removed the income state covenants that had previously limited our operating flexibility. In December, we completed this 25-4 ABS transaction with a residual cash flow structure that delivers monthly cash flows to the company, improving capital efficiency and reducing our long-term cost of capital. These are real milestones. The ABS markets remain a viable and productive funding source for us throughout this period, and we intend to continue accessing it on a regular cadence.

However, the capital markets is not without their challenges, elevated rates, a complex macro backdrop and the heightened scrutiny that followed the industry disruptions I mentioned. But we have demonstrated that we can execute in that market. The critical remaining step is securing a revolving warehouse facility. That is the bridge financing that connects the origination to securitizations and will allow us to fully serve the demand that we're seeing. We're actively working on this, and we will update you when we have something definitive to share. Until that facility is in place, volumes will remain below what our demand and team are capable of producing.

While we have been working on our capital transition, we've also been executing on the operational side. We've executed Phase 1 and Phase 2 of our SG&A cost control plan, which included a reduction in workforce and store consolidations, which are now complete. 18 total locations have been rationalized, and our active store count now stands at 136. These consolidations are not just about reducing cost. They're about concentrating resources and inventory to our strongest performing locations so that when volume recovers, we can recover into more productive and efficient footprint. The financial benefits of these consolidations are expected to be reflected in the fourth quarter as full run rate savings flow through the P&L.

And with that, I'll turn it over to Jamie for the operational detail.

Thanks, Doug. You've outlined the capital structure context and its impact on volumes. Let me now provide the operational detail behind those results as there are a few dynamics worth separating clearly. I'll start by sharing about Winter Storm Fern and its ripple effects on the operations of the business. To provide some context on the scale of that disruption, Winter Storm Fern was a significant weather event, not a routine weather day. The storm was an ice and snow event concentrated in the South Central U.S., which is precisely where our entire dealership network operates, meaning there was no part of our business that was insulated from its impact.

Our entire operating footprint was closed, including our corporate office for a period of 3 days. However, the effects extended well beyond these days. The residual impact of excessively cold temperatures, infrastructure damage and supply chain disruptions in the aftermath meant partial closures, delayed reopenings and operational constraints, which included closed wholesale auctions in our markets, helping our ability to dispose of inventory, disruptions to vehicle transportation preventing us from moving vehicles, repair and reconditioning time lines extended well after we reopened as parts supply chains experienced storm-related delays.

And critically, our customers' ability to make payments and our associates' ability to collect them were both meaningfully impacted during and after the storm. We will speak to those specific impacts as we move through the operational discussion, but we wanted to frame the magnitude of the event so the results can be viewed in the proper context. As Doug noted in his remarks, retail units sold decreased 22.1% to 10,275 units. The decline in sales volume was driven by 3 primary factors: lower inventory availability across the quarter, a 12% smaller footprint versus prior year and Winter Storm Fern.

Total revenue was $286.8 million, down 12% year-over-year, while average retail sales price increased 7.1% year-over-year to $20,634. The revenue was partially offset by improved gross margin and interest income. Interest income was $64.2 million, up 3.1% year-over-year, supported by the continued strong performance of the existing portfolio. Despite lower volumes, gross profit per retail unit sold was up 8.8%, outpacing the vehicle sales price increase, indicating that we also achieved a 1.9% improvement in underlying unit cost. That cost discipline was driven by continued progress in vehicle quality as reflected in lower service contract repair costs.

Inventory levels bottomed in December, which corresponded with our lowest sales volume of the quarter. We began rebuilding inventory in January in preparation for tax season and that investment began to show. Sales volumes were improving throughout the month before Winter Storm Fern tempered the recovery right at quarter end. By the time tax season kicked off in February, inventory had increased 44% from the December bottom, providing a meaningfully stronger foundation than our quarter end numbers alone would suggest. That said, sustaining the inventory build trajectory is dependent upon the completion of our warehouse facility, which will enable us to normalize the pace and scale of ongoing inventory purchases going forward.

Pay Your Way adoption continues to expand in ways that matter for the long-term economics of the business. Since launch in quarter 1, we've seen more than a 250% increase in customers enrolled in automatic recurring payments and approximately 65% of payment transactions are now consistently made remotely, a level that has stabilized since Q2. One highlight worth calling out is how the platform performed during Winter Storm Fern. In response to storm-related disruptions, we temporarily suspended remote payment fees to assist our customers and saw a significant increase in remote payment activity as a result.

Historically, a weather event of this magnitude would have required us to wait for normal store operations to resume before we could meaningfully reengage collections. Pay Your Way fundamentally changed that dynamic, giving us the ability to maintain business continuity while simultaneously giving our customers the convenience and peace of mind to make payments on their own terms during an otherwise disruptive period. That is a direct proof point for what our upgraded digital payment infrastructure means for our business resilience, and it gives us confidence in the platform's long-term value.

On the Salesforce collection CRM, we scaled significantly during Q3, moving from a 3-store pilot at the end of Q2 to approximately 15% of our store base live on the platform by quarter end. Achieving full chain-wide adoption remains the prerequisite to entering Phase 3 of our SG&A cost control strategy as we expect rapid expansion as we moved into the new fiscal year. Finally, on our SG&A cost control strategy, the consolidation operation was a deliberate and carefully managed process, integrating thousands of customer accounts into nearby locations while ensuring our associates have the support needed to maintain continuity of service throughout the transition.

That level of intentionality is reflected in early results. Collections performance at Phase 1 inheriting locations is tracking in line with the rest of the company, which we view as meaningful proof that the integration was executed well. It is too early to draw similar conclusions from Phase 2 as those consolidations occurred midway through January, but we're encouraged by the Phase 1 trajectory, and we'll continue to monitor Phase 2 performance closely as those locations mature into their new footprint.

Jonathan, I'll now turn it over to you.

Thank you, Jamie. SG&A totaled $51.5 million for the quarter or 23.1% of reported sales. The current quarter included approximately $2.8 million of nonrecurring impairment and restructuring charges related to the Phase 2 store consolidations. Excluding these items, adjusted SG&A was $48.7 million or 21.9% of sales. To put that 21.9% in context, the gap versus our 16.5% of long-term target is almost entirely a volume denominator issue. We've taken significant fixed cost out, but those savings become most visible at normalized origination levels.

As Doug and Jamie mentioned, Phase 1 and Phase 2 together eliminated 18 locations from our footprint. These consolidations also removed meaningful costs from both our field and corporate structure and the associated savings are expected to be reflected beginning in the fourth quarter. Our guiding principle is straightforward. Our cost structure must match our volume and receivables base. We will not wait passively for volume to recover. If our top line requires a different expense profile, we will take the necessary actions to align accordingly.

We continue to evaluate opportunities for further efficiency across the business.

Turning to credit performance. Underlying credit performance remained stable throughout the quarter. Net charge-offs as a percentage of average finance receivables were 6.5% compared to 6.1% in the prior quarter. Two dynamics explain the headline increase. First, a denominator effect. slower origination growth has reduced the average finance receivables, which mechanically puts upward pressure on the charge-off rate even without a change in underlying loss behavior.

Second is portfolio mix. Acquired locations purchased over the last few years now represent approximately 13% of our portfolio and are maturing into their expected loss curves. The modest year-over-year increase in loss frequency was driven almost entirely by these locations. Core legacy locations were essentially flat. Loss severity also remained flat and losses per dollar of principal were slightly improved. This is consistent with our underwriting expectation and does not reflect credit deterioration. These dynamics, combined with Winter Storm Fern influenced the quarter's headline metrics.

What matters most is whether the underlying portfolio is getting healthier, and it is. Our highest credit tier customers now represent 66.7% of accounts receivable, up from 62.8% a year ago. Contracts originated under LOS continue to represent a growing share of the portfolio, and those vintages are performing as expected. On current origination quality this quarter, our highest quality tier, rank 7 customers, maintained its share at 18.4%, essentially flat from Q2.

In a volume-constrained environment, we focused on retaining the strongest deal structures, appropriate down payments, affordable monthly payments and customer equity rather than stretching to close weaker deals. This was true across all customer segments. The volume decline was concentrated in transactions with less favorable financial terms regardless of the customer's credit profile. Our LOSV2 platform enabled this discipline by helping field teams identify and prioritize the strongest deal structures available.

On delinquencies, our 30-day-plus metric was elevated at quarter end due to the timing of Winter Storm Fern, which struck in the final week of January. Accounts over 30 days past due increased to 4.4% from 3.7%, but the storm's impact extended beyond customers who were already delinquent. It affected payment behavior across the portfolio. Our recency percentage, excluding 1- to 2-day grace period accounts, declined to 71.4% from 81.3%, reflecting the broad disruption to the customers' ability to make timely payments during the storm.

As Jamie mentioned, in response, we temporarily suspended remote payment fees while scores were closed, and our Pay Your Way platform allowed customers to continue making payments. Since the quarter end, we've seen meaningful normalization in both metrics. By mid-February, accounts over 30 days past due had improved to the 3.7% to 3.8% range.

Despite the disruption, total collections were $179 million, up 1.5% year-over-year. Cash collected as a percentage of average finance receivables improved 11 basis points year-over-year. That improvement reflects both the quality of the portfolio and our team's execution. Average collected per active customer account per month was $581 compared to $568 in the prior year quarter, a 2.3% improvement that reflects continued portfolio health and the effectiveness of our Pay Your Way platform.

Our allowance for credit losses as a percentage of finance receivables increased to 25.53% at January 31, 2026, compared to 24.31% at January 31, 2025. Importantly, this increase occurred while realized credit performance actually improved sequentially. Net charge-offs declined from $106 million to $96 million, units charged off fell roughly from 10,300 to 9,200. The reserve increase reflects the portfolio dynamics I described earlier as well as the macroeconomic pressures that our customers face. As the receivable base contracts and the LOS portfolio seasons into expected loss curve, the ratio -- the allowance ratio rises even without deterioration in expected losses.

At current levels, our reserve represents approximately 3.6x quarterly charge-offs, and we believe this appropriately reflects the risk profile of the portfolio. Doug covered our capital structure transformation in detail, including the strategic importance of the December ABS transaction and the residual cash flow structure. Let me add the financial specifics. On the term loan, we closed $300 million in October, which we fully retired our revolving line of credit.

On the ABS side, the 2025-4 transaction resulted in $161.3 million in asset-backed notes at a weighted average coupon rate of 7.02%. Turning to the balance sheet. Total cash, including restricted cash, was $237 million at January 31, 2026, compared to $124.5 million at April 30, 2025. Total debt was $892.2 million debt, net of total cash to finance receivables was 44.7% compared to 43.2% at April 30, 2025, a modest increase reflecting the full quarter impact of the term loan.

As Doug emphasized, securing an additional financing source such as a revolving warehouse facility remains our critical next step in our capital structure transition. Interest expense for the quarter was $21.8 million or 9.8% of sales compared to $16.9 million and 6.4% in the prior year quarter. The increase reflects the full quarter impact of the $300 million term loan. On a 9-month basis, interest expense was $54.5 million compared to $53.3 million in the prior year period. That's a much more modest increase, reflecting favorable ABS coupon improvements we've realized this fiscal year.

As origination volumes recover and a larger share of our funding comes through residual structure ABS transactions, we expect the blended cost of our capital to decline and interest expense as a percentage of revenue to improve. Turning to taxes. During the quarter, we recognized a noncash income tax charge of $47 million. This charge establishes a full valuation allowance against our deferred tax asset associated with the net operating losses at Colonial Auto Finance. Under GAAP, we are required to assess all available evidence when making this determination, and that evidence includes 3 years of cumulative pretax losses at Colonial Auto Finance.

I want to be clear about what this does and does not mean. This allowance has no impact on our cash tax position. It also does not affect our ability to utilize net operating loss carryforwards in an event of a return to profitability. It's an accounting adjustment, not an economic change. And finally, on earnings per share, loss per share for the quarter was $9.25 on a GAAP basis. The loss included 3 significant noncash and nonrecurring items. First, the $47 million tax asset valuation allowance I just described; second, $18.2 million in credit loss allowance adjustments reflecting the reserve build; and third, $2.8 million in asset impairment charges reflecting -- related to our Phase 2 store consolidations. Adjusted for these items, adjusted loss per share was $1.53.

With that, I'll turn it back to Doug.

Thank you, Jonathan. Let me close with a few points that I want to leave with investors this morning. The story of this quarter was straightforward. Volume was constrained by our capital structure transition, not by demand. That matters because it tells us the path forward. We're not rebuilding demand. We're not re-underwriting the portfolio. We don't have a broken business model. We're closing the final gap on our financing platform so that the demand that we already have can be served by operational infrastructure that we've already built and can generate the volumes that we're capable of.

And I want to return briefly to the point I made in my opening because I think it's underappreciated. We executed a nonturbo residual cash flow ABS deal in December in one of the most difficult subprime capital market environments in recent memory, and the market priced our paper. The market accepted our structure. That doesn't happen unless people on the other side of the trade trust what's in the portfolio. That trust has been earned over time, and it's the foundation on which we'll build the rest of the capital structure. Let me be direct on where we stand with the warehouse facility and what makes it genuinely difficult to predict timing.

We've identified partners. The conversations are very active and substantive. But completing a warehouse facility in the working -- in the current environment requires aligning multiple stakeholders, each with their own view of risk, their own obligations, their own time lines. In a normal market, that alignment moves quickly. In this market, it moves deliberately, and we respect that because the parties that we're working with are being appropriately careful. Our job is to give them every reason to say yes, through our credit performance, through our leadership, our transparency and our operational discipline, and we're doing that work. But I want to be radically transparent with our investors.

The path to closing is not determined by us alone. It requires simultaneous agreement across parties whose cooperation we're actively cultivating but cannot unilaterally compel. That is honest description of where we are. We are managing this business with clear eyes about our options. If market conditions and counterparty timing require us to operate more conservatively, concentrating our resources for collections or deferring origination growth or making structural decisions about our footprint that further reduce our cash obligations, we have the framework and the willingness to do that. Some of those decisions, if required, are reversible when conditions improve. Some are not.

We'll make the irreversible ones carefully and only when necessary, but I want investors to understand we're not waiting passively for a solution. We're actively managing our resource base to preserve optionality and ensure this business has the runway it needs to reach the outcome that we believe is achievable. Our near-term priorities are clear. First and foremost, close the warehouse facility. That is the singular focus. Everything else matters, normalized origination capacity, volume recovery, managing our SG&A, but it all flows from that.

Second, volume recovery for inventory has already begun building, as Jamie mentioned earlier, ahead of the tax season and from our December low point. The tax season demand is real from our customers, and we intend to serve it as well as our capital position allows. The third is cost structure. We're a leaner organization today than we were 12 months ago. The Phase 1 and Phase 2 consolidations and the SG&A reductions that we've already taken, those benefits are starting to flow through. And we'll not be passive about our cost structure. We have the willingness to align our expense base to our revenue environment whatever that environment requires, and we will use those levers decisively if we need to.

Fourth is continued quality of credit. The underlying credit story is a good one, and it's getting better. I also want to acknowledge the broader environment our customers are navigating. And I want to be honest that focus on our execution within our existing capital structure, not on tailwinds. Inflation remains elevated. The geopolitical backdrop, including the ongoing conflict abroad, carries the risk of additional pricing and supply shocks that could affect vehicle costs, fuel prices, household budgets of our customers. We're not oblivious to that. A persistent conflict doesn't resolve these pressures. It compounds them.

And we're building a business that can perform in this very difficult environment, not one that requires conditions to improve in order to succeed. Every decision we're making on cost, inventory, collections is calibrated on that reality. Our customers are resilient. The need for reliable, affordable transportation doesn't diminish in a difficult economy. It tends to become more acute. Our markets are durable, and we're managing this business to serve it well across a range of different outcomes.

Before I open the line for questions, I want to take a moment to thank our associates across the country who show up every single day for our customers and for each other, especially those who navigated Winter Storm Fern with professionalism and care.

I also want to thank our customers who trusted us with their transportation needs and their payments, often in very difficult personal circumstances. And I want to thank our investors and analysts for their continued engagement and patience as we work through this transition.

We believe in what we're building. We have the team, the platform and once the warehouse facility is in place, our capital structure to execute. We're not done, but we're clear on what needs to happen next.

And with that, I'll hand it back to the operator to open the line for questions.

[Operator Instructions] And our first question comes from John Hecht of Jefferies.

Doug, you did talk about -- you gave us a very deliberate update on the warehouse negotiations. I'm wondering, can you give us like what are the sticking points? Are they environmental? Or is it just negotiating factors tied to the mechanics of the deal? I'm just kind of wondering if there's any other details you can provide us around that.

John, good to be with you. As I said before, I get the frustration with the lack of a specific time line, but I want to be direct without creating a sense of false certainty. We have identified partners. These conversations that we're in are very active and substantive. And that level of specificity does give us confidence that we're working towards a close, but it's difficult to predict timing, and that timing is structural. It's not motivational. All parties at the table want to move forward.

Completing this kind of financing arrangement requires like simultaneous agreement across multiple stakeholders. Each of them have complicated credit committee processes, their own view of risk in the market, as you mentioned, and then their own obligations. But we can't close until we get all parties aligned. And as I mentioned, in a normal environment, that happens pretty quick. In this sort of environment, it takes what it takes, especially what's given and happened in the subprime auto market over the last 6 months.

And candidly, we respect that. And we want partners who have been appropriately rigorous. We think the testament of us entering the market and executing our 25-4 transaction. They understand they're partnered with the right type of company and the right quality of receivables, but there are other factors that they're trying to measure and calculate for.

Okay. That's helpful. And then we're, I guess, in the early innings, but we're in the innings of tax refunds and the expectations are they're generally larger this year. How -- are you seeing the effects of that at this point? Or I guess, is weather still a constraint? And how do you think about how that affects the sales in the coming months?

Sure. So as you reported and others, the tax refund per consumer is up about 10%. The question is like what does that mean to us? Are we able to capitalize that? And the early indicators, John, are that we are -- deal structures are better. We have more down payments that we're collecting and we've seen throughout the month of February. And the tax seasonal payments that we schedule here annually, we're at a high rate of collections.

And so those are all indicators that, that additional cash flow that the consumers have, which is an incremental $300 or $400 that we're getting a piece of that and that for the tax seasonal payments that they're able to make those payments even more timely given that the macro environment certainly hasn't improved since last year. And so one could argue that there is more risk going into this year. And I think that buffer helps create and insulate us a bit just based on the collection rates we're seeing. So those are favorable. In terms of the stores, all stores are back online since the storm and have been since February 1.

And our next question comes from Kyle Joseph of Stephens.

Just wanted to get a little more color on the unit decline. I know you guys -- it was 22%, and there were 3 primary factors. Between the factors, call it, weather, inventory and the smaller footprint, like how would you allocate that 22%? Is it fairly ratably across all 3 of those? Or did one have a disproportionately large impact on sales in the quarter? Yes, just following up on John and trying to get a better sense for how sales are trending in the fourth quarter.

Yes. First of all, good to be with you. The inventory level -- the inventory levels are the single biggest driving force there. With more inventory, we certainly would have sold more cars. And so just given what we know, we'd expect that to be sort of the #1 driver. Number two, as Jamie mentioned, was Winter Storm Fern. And for us, that hit right in the heart of our organization. And from Alabama, Mississippi, bursted pipes, stores out of commission, like we sort of went through it all. And then the persistent cold weather following that where schools were shut down for more than a week and the ice, et cetera, just meant consumers there really sort of -- when people think about that, they think people can get to us and shop.

But we also have to worry about the portfolio management, right, and how they can get to us and make payments. And so Winter Storm Fern, certainly, if you just sort of break down the impact for us, it was like an 8- or 9-day event. And so that might be one looking at 8% or 9% of the quarter. And so if you're thinking about that as sort of 8% or 9% with no sales and then you have what we would call a 12% smaller footprint, you could argue that, that makes up for most of it and that the performance we saw with the inventory that we did have was exceptional. And so I'm really proud of the team and sort of what they've done. But to me, the inventory piece is the largest opportunity there. And that's just based on the credit apps. We certainly could have served more customers with more inventory.

Got it. Very helpful. And then on a similar question, Jonathan, I think I picked up on it, but just kind of ex the storm, how you think delinquencies would have trended? I get the dynamics going on with charge-offs, but specifically on delinquencies, is there any way you could quantify the impact of the storm on DQs? And I know the timing was right at the end of the quarter as well.

Kyle, -- difficult to say with precision. I think there's -- I would call out 2 things. One is by mid-February, delinquencies had pretty significantly come down. That was a very positive sign. It is true that coming out of the holidays, our customers are slightly more stressed than they are at any other time. And so we typically see a little bit elevated delinquencies. But adjusting for kind of seasonality, the winter storm definitely had an impact. And like I said, by mid-February, those have come down into what we would have normally expected the ranges to be.

The other thing, Jonathan, I'd add to that. Jonathan called out this decline from our recency metric from 81% down to 71% or thereabouts, that sort of showed you that, that wasn't related to just a 30-day. That was portfolio-wide. And as he mentioned, those operating metrics have come well within line just a couple of weeks later. And so like that's what we look at. The other side to that question and for our more savvy investors, they would go, did that get flushed out in charge-offs? And the answer is no. Like we didn't see any elevated charge-offs in the month of February because you can certainly clean that up with write-offs, but that's not what happened either. So...

Got it. Very helpful. One last one for me. I think on G&A, you guys ex the onetime items were running a little below $49 million for the quarter. And then how much more is left to take out of that factoring in the incremental store closures and the RIF in the third quarter?

Yes. We'll start to see the full impact of that starting this quarter. I mean, just as a reminder, we closed Phase 2 stores in mid-January. And so from a quarterly perspective, you're not seeing really the savings -- you're seeing the impact of kind of the impairment, but you're not seeing the savings flow through. So we'll see that flow through starting in Q4.

Yes. The important thing there also, Jonathan, when we did these phased closures and consolidations, -- we did one in November, and we did the other one, it was the week of January 13, so the week right before the storm. And so we largely didn't see the benefits of that. So the $48.7 million, I wouldn't look at as the run rate. If I just sort of isolated January's alone, we're more in that $15 million, $16 million range. And so like our expectation would be somewhere between $45 million and $46 million where we sit today. And there's still some things there that we were cleaning up and that we should see flow through the fourth quarter as well.

And our next question comes from Vincent Caintic of BTIG.

I do appreciate all the detail and directness with the transparency here. On the inventories, so I see they're down 30% year-over-year in this quarter. I guess if you could maybe talk about where we are now. So in February and March, how have those trended? Have you been able to get that? It sounds like you've been able to get some inventories back. So maybe if you can talk about that in more detail. And maybe if you can put into context the inventories being down 30% this past quarter year-over-year versus where you'd want to be now just to kind of frame the sales impact.

Vincent, good to hear from you. So if I think about this, if you're tying sort of our financial transactions and trying to understand inventory flow, we closed our securitization of the week, I think it was December 17. And so that was right in the midst of the holidays. We largely did not really start to build back inventory until the turn of the year. Obviously, a bunch of the options, et cetera, are closed for the holidays. And so there wasn't a ton of ground that could be made there, but we were off to the races in the beginning of January.

We had been purchasing vehicles right up through the end of January and still right into what I would call the third week into February building for the tax season. And so I don't think the January 1 exit rate is representative of sort of where we sit and our setup for the tax season. And then that's not what February's results would indicate. The question there would be like can we sustain what we're seeing in February, which I would consider largely positive through the remainder of the quarter, and that's a function of the closing the warehouse and the capital structure, and we just need to make sure we're mindful of that.

But the inventory levels out there, the affordability crisis that's out in the auto market, there is a ton of demand for these inexpensive cars. It's that category, the 6-, 7-, 8-, 9-year-old vehicle that is sort of really on fire. And so we've seen pronounced pricing in those assets, December, January, really just all year. And of course, that's on the back of the inflationary environment that we saw coming out of Q2. And so there's incredible demand. I would say we've gotten our fair share for January and into February, and I feel really good about that. The question will be, do we have the structure to continue to support that through the remainder of the quarter.

Got it. That's helpful. And then talking about the tax refund season, if you can maybe describe what's been going on so far. Have you been seeing an increase in maybe some cash inflow as a result of hopefully people paying down their loans?

Yes. So that's a great question. For those who understand our business, the tax seasonal payments we set up are usually scheduled the tail end of January and then throughout February and March just based on when people file their refunds. And so it's a really great question in terms of like are we getting those refunds? Are those -- are people coming to show up? Obviously, the storm disruption was a huge issue and drove a lot of concern for us here internally. What was interesting, and as we mentioned, overall collections were still up despite the storm for the quarter.

So if you just sort of think about this sort of 8% or 9% of the quarter that was disrupted from the storm, it was such a godsend to have our Pay Your Way platform stood up. And what we did tactically is remove the fee structures around all the ways that a consumer could pay. And we were really, really pleased at how much cash inflow we saw when people didn't need to come into the store. And so we've seen the largest amount of remote payments that we've ever had on these tax seasonal payments.

And as you mentioned, these tax seasonal payments per customer, they're up. We feel like we're getting our fair share and throughout the month of February is really positive as well. And so I feel good about that. On the deal structure side, we're getting some more money down relative to prior year for what we're seeing here in February. And so that's positive. We had started to see that in January as well as people who are using their last paychecks up for December, getting early advance refunds and tax refund loans. We're starting to see that as well. So we have improved deal structures in both January and December that we started to see there as well.

Okay. Great. And then last one for me, just on the capital structure discussion again. And I understand you can't talk much about the warehouse line. But -- so is that process the -- I guess, the floor plan for your inventory? Is that what's -- if you could talk about that, what that's supporting specifically? Or is it beyond just a floor plan for inventory? And then are there other things you can do? I mean you had a successful December ABS issuance to your point about the non-turbo. Just wondering if there's other sort of transactions that might work out in the meantime.

Yes. So I'll answer the second question first and then go back. On the ABS transaction structure, yes, we had a successful issuance -- we're always both working with our partners who run the deals and the rating agencies as well. There is a lot we can do. Obviously, we talked about the new sort of finance team between Jonathan and Marie and others on the leadership team there, and they're really doing fantastic work, not only on the execution of the structures, but the iterative nature of the improvements to remove our single A ratings cap and working alongside the rating agencies.

And so there is always ongoing work there. And obviously, it's more important now than ever to make sure that we have touch points with these investors so that when we need to go execute a deal, we can. And so we sort of always leave that proverbial pump primed. In terms of the financing, we talked about this broader language in terms of is an ABS deal or a warehouse facility or an inventory line. That broad language is just prudent disclosure practice. We need a warehouse. That is going to be the main thing that seasons the receivables. A warehouse line is something that we've looked at as well. But what's going to -- what we're going to need to host and season the receivables is a warehouse line and a revolving facility. So that is sort of the thing that we're focused on.

Thank you. This concludes our question-and-answer session and today's conference call. Thank you for participating, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the America's Car-Mart Second Quarter Fiscal 2026 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Jonathan Collins, Chief Financial Officer. Please go ahead.

Good morning. I'm Jonathan Collins, the company's Chief Financial Officer. Welcome to America's Car-Mart's Second Quarter Fiscal Year 2026 Earnings Call for the period ending October 31, 2025. Joining me on the call today is Doug Campbell, our President and CEO; and Jamie Fisher, our COO. We issued our earnings release earlier this morning and a supplemental presentation is on our website. We will post the transcript of our prepared remarks following this call and the Q&A session will be available through the webcast.

During today's call, certain statements we make may be considered forward-looking and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the Private Securities 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. For more information, including important cautionary notes, please see Part 1 of the company's annual report on Form 10-K for the fiscal year ended April 30, 2025, and our current and quarterly reports furnished to or filed with the Securities and Exchange Commission on Forms 8-K and 10-Q. As a note, the comparisons that we will make today will be the second quarter of fiscal 2026 versus the second quarter of fiscal 2025, unless otherwise stated, and we will make several references to our supplemental materials posted on our website.

Doug, I'll turn it over to you now.

Thank you, Jonathan, and thank you, everyone, for your interest in Americas Car-Mart and for joining to hear more about our quarterly results. Let me start by addressing what's in the numbers and what the numbers don't fully capture. Our reported results reflect a net loss of $22.5 million, which includes approximately $20 million in noncash reserve adjustments and onetime charges related to the strategic actions we're taking to reposition this business.

More details are on Page 4 in the supplemental presentation on this. These are deliberate investments in our future, and the underlying trends in our business are moving in the right direction. Let me highlight several developments from the quarter that are notable. First, consumer demand remained strong. Credit applications grew substantially year-over-year, clear evidence that despite economic uncertainty, the need for affordable, reliable transportation is robust and Car-Mart remains a trusted solution for working families. The effects in the broader wholesale market have subsided since the update in Q1, and while elevated relative to prior year, continue to decline in alignment with what we would see seasonally.

In October, we closed a transformative $300 million term loan that removes the capital constraints that have limited our flexibility we referenced last quarter. For example, under our legacy structure, certain covenants limited actions tied to optimizing our store footprint and organizational structure. Now with more flexibility, we're moving more decisively on a multiphase plan to optimize our footprint, cost structure and strengthen capital efficiency. These are hypothetical savings. We've already executed on Phase 1 in early November, which included the consolidation of 5 underperforming stores and the elimination of approximately 10% of our head count as a company. The second phase will be completed in Q3 and and when combined, the results generate more than $20 million in annualized SG&A savings. Between these 2 initial phases, we estimate a 10% reduction in our store footprint.

More details here can be found on Page 7 in the presentation. I'll let Jonathan elaborate on additional efforts on the term loan and additional actions, which will enhance our capital structure. But at a high level, this represents a fundamental step in removing constraints, unlocking flexibility and aligning our funding model with the needs of a more modern, scalable platform. Our enhanced underwriting platform, LOS V2, which launched in May, continues to deliver measurably better results. During the quarter, we continued to see a shift of our mix towards booking higher-quality customers. We are prioritizing value over volume to build a portfolio that delivers stronger returns. More importantly, this higher quality underwriting is needed to navigate uncertain environments.

As we continue to see customer behavior shift with our [ Pay Your Way ] platform, which we relaunched late last quarter, customers continue to migrate from making payments in-store to online which is an important trend as we look to leverage our new collection CRM. We're also seeing an increase in the accounts with auto recurring payments, which reduces the effort needed to collect. Lastly, customers are utilizing new payment channels like Apple Pay and PayPal. While these do add a level of convenience for our customers, it's also driving more consistent payment behavior, reducing in-store payment-related traffic and associated costs while improving the overall collection efficiency. As adoption continues to grow, we expect these benefits to compound when combined with our collection CRM powered by Salesforce. Jamie will expand more on this in a minute.

With this infrastructure now in place or nearing completion, it's creating competitive advantages that will translate into better unit economics and stronger returns. The work we've done positions us to execute from a position of strength, clarity and discipline. And while there's more to do, the building blocks are in place. These efforts are creating a platform that will enable higher-quality growth and improve our financial performance.

And with that context, I'd like to turn the call over to Jamie to review our operational performance for the quarter. Jamie?

Thanks, Doug. Good morning, everyone. Historically, when the macro environment softens on consumers, our business gets more robust. This quarter was another proof point of that with credit application volume up 14.6% from prior year. This is notable for 2 reasons. The first of which is that the company continued to navigate lower-than-normal inventory levels throughout the quarter. This is particularly evident and reflected on the balance sheet when observing the 6.8% variance between the periods. .

The second is the fact that this has a knock-on effect of reducing website traffic when less vehicles are advertised. Despite those headwinds, the team was able to deliver a sales volume result with an approximately 1% of prior year. This performance reflects the resilience of the team and a vote of confidence from consumers in our offering. The launch of LOS V2 at the start of Q1 gave our store teams the ability to take advantage of the increased customer applications by prioritizing the highest rank customers more effectively. Customers in these higher ranks demonstrate lower loss frequency and severity, faster time to breakeven and stronger returns on invested capital.

In fact, as highlighted in our supplemental presentation on Page 10, you can see that 76.5% of our volume came from our highest ranked customers, ranked 4 through 7, a 12% improvement in higher-quality bookings compared to prior year since the system went live in May. Revenue increased 0.8% year-over-year, primarily driven by higher interest income and a nominal increase in the average retail sales price. It's important to note that the company had a onetime benefit of $13.2 million related to a change in service contract revenue recognition in the prior year. Absent that benefit, revenues would have been up 4.8%, primarily driven by an increase in vehicle price due to increased procurement costs related to tariffs outlined in the prior quarter. Gross profit margin was 37.5% compared to 39.4% in the prior year. Adjusting for the aforementioned onetime benefit, margins improved by approximately 100 basis points year-over-year and 90 basis points sequentially, driven by reduced repair frequency and severity and improved wholesale retention values.

Turning to the operational progress from our enhanced payment infrastructure. The benefits of [ Pay Your Way ] program are becoming increasingly clear. We're seeing measurable improvements in both the customer experience and payment behavior across the portfolio. Over the past 4 months, we've shown significant momentum in customers enrolled in and utilizing our updated digital payment options. These trends are driving improved collections efficiency, reducing in-store payment traffic and increasing overall payment consistency.

During the second quarter, we also exceeded 5% of our portfolio on auto pay recurring payments, which represents a 3x improvement to when compared to our legacy platform. This is partially driven by our customers opting to utilize our incremental payment types for recurring payments like debit card, [ Venmo ] and PayPal as compared to our previous offering of only [ ACH ]. We are encouraged by the early success of the [ Pay Your Way ] strategy and expect adoption and efficiency gains to continue as the program matures.

As Doug mentioned, we're advancing efforts to enhance collections performance through the rollout of a new Salesforce-based collection CRM. Development is complete and the tool has begun testing in a live environment in one of our stores. We expect to begin piloting in the second half of the fiscal year. This next-generation platform will deliver immediate benefits, including streamlined workflows, improved account management tools, enhanced data collection, virtual payment modification capabilities and a better customer contact experience. Looking ahead, we plan to introduce additional features such as advanced account routing AI-driven customer engagement strategies and self-service options. These enhancements will create a scalable solution capable of supporting a larger portfolio without a proportional increase in headcount. With the investments we are making to support our [ Pay Your Way ] program and the upgrade of our collection CRM, we believe this data-driven collections platform will generate meaningful results.

In Doug's remarks, he mentioned a multiphase plan to optimize operations and reduce SG&A. The process for this plan included an exhaustive review of our footprint and talent to ensure our resources are generating the appropriate returns. We evaluated underperforming stores, mapped customer concentrations and geographical overlapping and assessed market coverage and service levels. From this, we established a phased approach to improve operational efficiency and performance.

In November, we executed on Phase 1 by consolidating 5 locations into nearby better-performing stores. The intention with this first phase of consolidations was to specifically solve for underperforming locations that were sharing the same geographical footprint as that of a better performing store. Early results confirm that this approach was sound. Our existing and new customers continue to be served seamlessly from one location in the same geographical area with a larger staff, more inventory selection and the same great service they have become accustomed to at Car-Mart. We also conducted a comprehensive review of both field and corporate headcount where technology, automation and process improvements have eliminated manual tasks, we made targeted reduction. These changes were implemented smoothly and operational continuity has been fully maintained. Importantly, these initiatives provide valuable insights that will inform decisions for future phases as we continue to optimize our footprint, cost structure and enhanced scalability over the next several phases. As you can see, we are taking meaningful steps to improve the efficiency of our operations with urgency.

With this overview, I'll now turn it to Jonathan to cover our financial results.

Thank you, Jamie. For the quarter, SG&A totaled $57.2 million, including $3.5 million in onetime expenses, primarily related to store impairment costs from the 5 closures Jamie discussed. On a reported basis, SG&A as a percentage of sales was 20.0% and 18.8%, excluding the onetime charges. Last quarter, I shared that the growth in our SG&A was driven by investments in our people and technology. At that time, I said our goal was to reverse about half of this growth in the second half of the year. I also mentioned that a modernized collections infrastructure would eventually deliver around 5% annualized cost savings, and I outlined that our target to reduce SG&A was to 16.5% of sales. .

The structured multiphase plan we're announcing today clearly demonstrates that we're making strong and urgent progress toward these commitments. Our first phase covered 4 components: IT spend reduction through contractor and legacy software rationalization, consolidation of 5 underperforming stores, reorganization of headquarters and field roles and optimizing marketing spend. Combined, these actions are expected to generate $4.9 million in savings this fiscal year and $10.1 million annualized. The store consolidations alone, moving customers in a nearby better-performing locations, as Jamie described, are expected to contribute approximately $1 million this fiscal year and $2 million annualized. We've also identified additional opportunities in subsequent phases, estimating to deliver another $3.5 million in this fiscal year and $21.3 million on an annualized basis. Upon completion of all phases, our cost reduction initiatives are expected to generate $31.4 million in annualized savings. This is outlined on Page 7 of our supplemental presentation.

Building on Jamie's update on our [ Pay Your Way ] program, average collections per active customer increased to $582 this quarter compared to $561 in the same period last year. The strength in collections underscores the quality of the portfolio and the effectiveness of our [ Pay Your Way ] platform. I want to frame our credit results around a simple theme, Charge-offs were elevated due to normal seasoning and some macroeconomic pressures, but the leading indicators are improving. Net charge-offs increased to 7.0% from 6.6% in the prior year reflecting the expected seasoning of the loans originated over the past 18 months. This is not surprising. As new originations mature, they build loss history. What matters is whether the newer vintages are performing better than the older ones and they are as shown on Page 8 of our supplemental presentation.

The leading indicators support this view. Delinquencies over 30 days improved 62 basis points to 3.14%, modification activity declined to 6.19% from 6.91%, loss severity declined from $10,677 to $10,325 per unit sequentially and and collections grew 4.6%, outpacing portfolio growth of 2.8%. These metrics tell us the portfolio is getting healthier even as the seasoning [ amount ] works its way through the P&L. Contracts originated under our enhanced LOS platform now represent over 76% of the portfolio, excluding the nonintegrated acquisition lots, up from 72% last quarter. As legacy originations continue to run off, we expect portfolio quality to improve further. Our allowance increased to 24.19% of finance receivables, up sequentially from 23.35%, but down from 24.72% a year ago. The CECL reserve reflects observed loss history and includes a prudent overlay for macroeconomic uncertainty.

While underlying credit quality is improving, we believe it's appropriate to maintain this level of reserve until we see further stabilization. The provision for credit loss was $119.1 million compared to $99.5 million last year. The increase was driven by the 40 basis point rise in charge-offs, reserve builds for macro factors, and continued seasoning such as at our acquired locations. As Doug outlined, we made significant progress transforming our capital structure this quarter. On October 30, we closed a new $300 million term loan facility with [ Silver Point Capital ]. The loan is 5 years, matures in October 2030 and bears interest at SOFR plus 750 basis points. Importantly, this transition allowed us to fully repay and retire our revolving line of credit.

Additionally, we retired a $150 million uncommitted amortizing warehouse facility. As disclosed in our 8-K, the term loan included warrants issued to Silver Point to purchase up to 10% of our fully diluted shares at the market price at closing with a 6-year expiration. While dilutive, we believe this was the right path forward, striking a balance between deal economics and ensuring stakeholder alignment. Our securitization platform continues to perform well. Since the start of the fiscal year, we've completed 2 ABS transactions, 2025-2 and 2025-3 and called our 2023-1 deal in July. In our most recent securitization offering, our Class A notes were almost 8x oversubscribed and our Class B notes nearly 16x oversubscribed. In light of the turbulence in the bond market related to several subprime auto finance companies, we are proactively engaged with our current and prospective bondholders as well as ratings agencies.

To highlight our differentiated business model, the controls we have in place and to maintain confidence in our financial position. We believe this positive engagement reinforces the continued strength of our platform as evidenced by the strong demand on our credit and our ability to attract capital in a challenging environment. The weighted average life of our ABS structures and the maturation of receivables are also important components of our strategy. As ABS notes are retired, the residual collateral becomes available to fund our business in a way that is distinct from our legacy [ revolving ] structure.

Total cash, including restricted cash, increased to $251 million at October 31 from $125 million at April 30. Debt net of total cash decreased from $652 million to $646 million despite the increase in gross debt related to the term loan. Debt to finance receivables and debt net of cash to finance receivables were 59.2% and 42.6% at quarter end compared to 51.8% and 43.0% a year ago and 51.5% and 43.2% at the start of the fiscal year. Loss per share for the quarter was $2.71. Our net income loss of $22.5 million included approximately $20 million of noncash and onetime charges $11.8 million from CECL reserve adjustments related to portfolio seasoning and economic factors, $4.5 million from the retirement of our revolving line of credit and $3.5 million from store closures and impairment costs. Adjusted EPS loss, excluding these items was $0.79 per share.

With that, I'll turn it back over to Doug.

Thank you, Jonathan. I want to address what I believe is a significant disconnect between how the market is valuing this business. Our stock is trading at roughly 1/3 of book value. The market sees challenges. Our capital structure evolution, macroeconomic pressure on customers and broader sector concerns. Those are legitimate issues for the industry and for Car-Mart. But here's what I believe the market is missing.

In the middle of all of this turbulence, there's been a validation point. Our term loan provider has provided and committed $300 million into this business. They conducted an extensive due diligence on our platform our locations and the quality of our assets and our path forward. It's not theoretical, that sophisticated capital validators putting real money behind what we've been telling you. We have substantial residual equity in our ABS structures, improving credit performance and strong operational fundamentals. At current valuations, I believe the market is significantly undervaluing what we're building here.

Looking ahead, our priorities are straightforward, complete our capital structure transformation with another ABS transaction and our revolving warehouse facility in the second half of the year. Normalized inventory levels to meet strong demand we're seeing and to set ourselves up for the tax season. Execute Phase 2 of our cost reduction initiatives here in the third quarter and continue demonstrating improving credit performance as higher-quality LOS originations mature. As these initiatives progress, we expect to return to positive GAAP earnings and demonstrate the earnings power of this improved model. We've built the foundation, the path is clear the demand is there. Now it's about execution. We look forward to updating you on our progress in subsequent quarters.

Thank you for your interest in America's Car-Mart, and we look forward to your questions. Operator, please provide instructions for the Q&A session.

[Operator Instructions] Our first question comes from the line of John Hecht with Jefferies.

Definitely looks like you're positioning yourself to deal with the ongoing challenges but also to be better positioned when things actually light up a little bit. I'm just wondering it looks like just looking at the loss curves, the newer vintages are performing pretty well. Maybe can you -- is there a way to quantify that, like [ cube ] maybe expectations for [ cube ] losses and newer vintages versus the COVID vintages versus prepandemic vintages or any sort of directional way to quantify how the newer -- the new book, I guess, is performing relative to the, you call it, the legacy stuff?

Yes, John. Thank you for your question. Good to chat. If you recall in prior quarters, we had a chart in there about a specific static pool. At the time we did the conversion over to LOS. We originated a set of loans, a significant set of loans under ALIS, our old underwriting system and LOS, and we track those over a period of time. And generally, those were in the 18% to 20% differential in terms of improvement. That continues to hold up for those -- that particular pool. What makes the kind of comparison, if you go back, you mentioned a couple of periods like pre-COVID and et cetera, is the significant change in what's happening with customers or offer, et cetera, the price of the car has almost doubled, term loans have -- a term on the loans have extended. And so the curves look a little bit different from that perspective.

Some of them in some years were influenced by government subsidies. Some of them were influenced by the dynamic of car prices, et cetera. And so how we're measuring ourselves is really against what we presented in the supplemental presentation, which is we feel like the best comparison is our FY '24 vintages, which is most of that fiscal year, which is just before we converted over to LOS. And so both of those pieces are sitting in there. But broadly holding up broadly we're still seeing that good differential between specific vintages.

Okay. That's helpful. And then, I mean, it feels like, to some degree, like you said, everybody is going through the same challenges, but you're spending time on improving your positioning relative to those environmental headwinds. Given that, I got to believe the competitors, particularly the smaller ones are under intense pressure. Maybe can you give us an update the competitive environment? And does that -- how that affects your thinking about strategy going forward?

Sure. The sector, obviously, we plan there are not a lot of public comps, John, as you know. What gives us insight and a little bit of confidence into keeping our pulse on the market is, obviously, we had built out and still have an acquisitions team. And so we feel a lot of calls from operators who are interested in either selling their business or partnering, et cetera. And we get a lot of feedback as it relates to that. And the sector is under a lot of pressure. It is really, really difficult for operators to both procure capital, to find inventory. And so these are some of the things that are differentiating us from our peers. And then obviously, in markets where there was prior competition. Some of those have eased up for us.

And so there's this push and pull dynamic where we're seeing some benefits on supply, you have pricing that had been elevated. And so that's providing a tailwind on recoveries, which flowed through to gross margin, which is nice. But obviously, showed itself as a headwind on the procurement. What's interesting about our business is that 5 short years ago, we used [indiscernible] for $10,000 or $11,000 and now average retail sales price has doubled. And despite that, we're finding homes for these vehicles and customers. And so we don't believe that, that dynamic is going to change, right? We're going to have to adjust.

And what we're trying to do is set ourselves up for the future, set ourselves up and this model to be able to serve customers up and down the credit spectrum so that we can continue to grow through that. And that requires technology. We believe our foresight and trying to make sure that we get these things done and that we've been working on for the last 18 months are really important and differentiate us from our competitors. Especially when you consider things like AI and how that will change our business and trying to make sure we stay in front of that.

Okay. That's super helpful. And then I guess, one more question, if that's okay. you mentioned that the ongoing industry challenges, you guys have spent a lot of time managing what you can in terms of execution, the things you can control, expenses and underwriting factors and so forth. Doug, in your mind, though, what -- I think affordability is probably one of the biggest constraints to improving industry, but maybe give us your thoughts on what other factors are you looking for that present, call it, good signals on the horizon? What -- how long does it take to get there? What are the, call it, junctures in the road that we're looking for to just tell us that the environment is starting to become more constructive?

Yes. I think -- so a great question, John. For us, we have to sort of prepare ourselves to navigate any environment. And obviously, with these changes to our cost structure and optimizing our footprint with this new flexibility that we have, we're preparing to make sure we can weather anything. And I think that's important just given as you look across the industry, sort of what's transpiring.

To your point, we have to create our own green shoots in this business. And for us, that means like going after higher-quality customers, that means making sure we have optionality on the type of car we procure and not being so narrow as to the type of vehicle that we're going after, things like that are going to create optionality within the business. In addition to that, how we collect from our customers, there's a lot of transformation going on given how we've collected historically. And so we're focused on those things that we can control. I don't know when the environment sort of abates and gets a little bit better for consumers, but I think this sort of new normal that we're operating in, in terms of the car price, that's sort of to be expected. And so for us, there are lots of creative ways in this business that we can position this business to generate value and we're looking at all of them.

And so I think as quarters progress, the most important thing for us is to make sure that we optimize our cost structure and that we start to have positive earnings. That's the most important thing. And then we can focus on the flexibility we have as it relates to rebuilding our inventory and trying to capture some of this demand that's out there. We've been in a really sort of positive credit cycle for many, many years. And so it's just now turning the corner and this pressure that's on the consumer is really unfortunate. But it is when our business thrives. Historically, there's been validation points along the way that we have really, really robust times in our business. What's important is to make sure you get to the other side and that you can enjoy the fruits of that. And so we're just making sure that we're going to be set up and positioned for whatever transpires in the business.

Our next question comes from the line of Kyle Joseph with Stephens.

With the new debt in place, and you guys talked about application flow is really strong. Give us a sense for the timing in terms of being able to meet that strong demand.

Kyle, thanks for the question. So Jamie referenced the deviation and sort of inventory position through the 2 periods, declining about 7% in terms of total inventory on the balance sheet. We're in that phase of sort of rebuilding inventory. And I think that takes us to work through the quarter and it's more important as we set up for tax time. So in my mind, Q3 is that time to sort of rebuild inventory. And so Q3, just given sort of what's on the slate, we're going to be working on an ABS transaction, rebuilding inventories and then making sure we set up for a tax time and obviously executing Phase II on our SG&A plan. So I think we will be set up nicely here for the fourth quarter to make sure that we can get after it in tax time, especially considering that tax refunds are supposed to be elevated here going into the season. So we're excited to take advantage of that.

Got it. And then yes, obviously, you guys were able to complete the term debt despite unfavorable market conditions, which is an understatement. And kind of walk us through -- I know you talked about completing another ABS, but in terms of the next phase on the right side of the balance sheet, it sounds like a warehouse. Can you give us a sense for some of the discussions you've had and how you're thinking about structuring that, whether it's 1 or 2 facilities and where you are on that?

Yes. Kyle, good to talk to you. Yes, if you go back for a long time as a company, we managed ourselves with a very simple capital structure in [ ABL ]. And one of the things that this term loan provides us with this flexibility. And one piece of that flexibility is to move to what we describe as our [ amended ] capital structure. And so we do anticipate putting a couple of warehouses into our capital structure, and that will provide us with some flexibility from that perspective. We'll continue to leverage the ABS market. That's an important platform that we've engaged with and built over time. Going back, we started this process probably about a year ago. And so part of that process was engaging with various warehouse providers, but you needed to complete the term loan first to put cash on balance sheet. And so we do believe that the warehouse structure will be a fast [ follower ], and we're actively working on that from that perspective.

Got it, Jonathan. Last one for me. Just in terms of credit performance, just a lot of moving parts out there, and it sounds like some are specific to Car-Mart in some are just kind of macro more broadly. But at least in terms of leading indicators, it seems like credit is getting better. You guys have rolled out LOS V2. Again, we can see the curves there. Looks like there's overall improvement and then you balance that with higher charge-offs, which I think you guys explained well, the higher reserve and then broader macro uncertainty. Is that kind of a fair way to think about it? Just that what you're seeing at Car-Mart, you're seeing general improvement. But given what's going on in macro, you're not really willing to call it at this point. Is that a fair way to assess how you're seeing credit?

That's correct. There's no doubt that this environment is putting a strain on all customers. Our customers included we've been pedaling really, really hard to ensure that the type of customer that we're putting in the portfolio is more durable, and we've spoken about that a number of times. Through the quarter, the consumer has been navigating continued pressure seen on tariffs and the cost of goods, et cetera. And then, of course, all of the [ snap ] benefit speculation, et cetera, which we were getting in front of and messaging our fields to ensure that we could deal with that and use the levers within our toolbox to help consumers navigate that. And that was right at the period in closing the quarter. I think that's especially notable, just given that we finished off delinquencies at 3.1%, and those continue to trend well.

Into November, that low delinquency rate has worked out sort of favorably in terms of the number of unit losses that we take and that's about down 10% in November when averaged across what we saw in the quarter. I don't know how that plays out through the rest of the third quarter but it certainly is a good leading indicator, which is why we really focus on that as a key metric, a managerial metric for credit on how we manage our business. And to your point, the dynamic is really fluid. But what's been important to us and this consumer, given our 1 million-plus cars sold in the space is to ensure that we stick to the playbook on helping customers navigate this environment where we can and that if it is not going to be successful to call it and get the asset back and ensure that there's quality in the asset and we can recover that and provide good returns to our shareholders. And I think that playbook is working well. Obviously, we continue to look at that as we navigate new headwinds like the [ snapping ] as an example. But we continue to do that and booking larger amounts of stronger consumers in our portfolio is an important piece of that.

[Operator Instructions] Our next question comes from the line of Vincent Caintic with BTIG.

I appreciate all the detail that you provided on the call and on the presentation. You did particularly a good job highlighting the SG&A improvements that we are going to generate as well as what to expect to annualized. I did want to focus on revenues and sales expectations going forward thinking about all the operational improvements that you've already made and are underway as well as the changes and the flexibility from the new capital structure and then also your underwriting changes. So kind of putting that all together, should we be expecting sales volume, sales per store per month sort of to accelerate from here? If you could maybe talk about your confidence or are there some changes like -- I know you talked about some of the store closures is something that where maybe there's a bump in the near term, but that results in some strength in the long term. So if you could maybe give us some thoughts on how we should think about revenues. I would appreciate it.

Got it, Vincent. That's a really good question. I'm going to try and unpack it here as best as I can. We mentioned that the total impact on store closures here between the first 2 phases is going to be about 10% of the company's store footprint, which is going to be in and around that 15 store range here for the first 2 phases. If you just sort of put a pin to what our average productivity per rooftop is, it would imply that we'd have some reduction. You can do the math there. However, what we've tried to do is really focus on the geographical overlay between the stores that we're closing and really focus on consolidating. And I use that word carefully because what we want to do is be able to serve the same customer base.

And what we've done, and Jamie sort of alluded to some of that work is overlay all the accounts geographically by ZIP. And in many cases where we have some underperforming stores, there's a fair bit of density there. And there's a belief that we can recapture some of those sales through those new locations that we're moving and transitioning customers into. And so it's a little bit unknown in terms of how much retention we'll be able to keep but if the 5 closures that we executed here in early November are an indicator, it's somewhere greater than 80% of those sales. And so that's been encouraging. And so it makes it difficult to quantify, well, how much should I sort of pencil in, in terms of complete takeout. And I don't think it's fair to sort of deduct those sales from the closures like on a one-to-one basis, we'll be able to retain some of that given our approach on how we're doing that through these first 2 phases.

To your question on the near-term sales expectations, inventory is a function of that. And so we're going to work quickly here on rebuilding our inventories on Q3. So I'd expect Q3 to have what I would call the noise in terms of sales results, but that will be sort of largely done building that back through January. I think that we can get that done in the third quarter. And more importantly, to capitalize on the tax season. How that affects the tax season really just be a function of how much we can retain on those stores. And the -- I think the driving distance, Jamie, correct me if I'm wrong, through the first 5 stores we closed, the driving distance for any consumer is about 15 minutes from store to store. And so in this next round, it's in that 20- to 30-minute range, driving distance. That's been a big component of how we think it will affect the impact on sales is. And so that leaves us some confidence to think that we'll have a high retention on the sales, but we'd have to prove that out.

Okay. That's super helpful. And I appreciate and I thought it was great that you highlighted kind of the valuation of Car-Mart stock versus it's trading 1/3 of book value. With that, I'm wondering if there are any actions you can take to kind of force that issue to close that valuation gap. Normally, we think about share repurchases, but I know there's a lot of capital structure changes upcoming. But you also talked on the press release about the ability to access a substantial amount of the residual equity in the ABS deals. So just kind of throwing that out there, if there's anything you can do, any thoughts from a structural level to be able to realize some of that value?

Yes, Vincent, thanks. The -- I think an important piece of closing that gap is information. And in the absence of information, fear sits there. And so as noted in both the press release and the supplemental presentation, we are trying to provide our investor base and the guys who cover us here more information so they understand. And I think actions like articulating out exactly where the level of precision SG&A actions that we're taking and what the quantifiable benefit that you can expect both in the fiscal year and annualized are really important components of that. And I believe that will help people sort of understand how they can sort of close that gap. That would be my expectation. In addition to that, behind the results. And that's really what we're focused on.

Okay. Great. And last one for me, and I think this one is for Jonathan. Just wanted to maybe talk about the credit allowance percentage. So on that slide that we moved or that talked about the adjusted EPS and removing the onetime impact of the allowance percentage adjustment I'm wondering then if that implies that the -- I think the 24% were currently stands, if that's the right percentage we should be thinking about going forward. So I just want to be sure I understood that, that's we're now making a onetime adjustment, and so 24% is the right place to be.

Yes. Thanks, Vincent, how are you this morning. Yes. I mean, if you go back in history, the allowance moves around within a range, right? And it -- there's a piece of it where we're looking at the portfolio itself and how is it performing. But there's also a piece of it where you're looking at the macroeconomic factors. And so we just came out of a period with government shutdown, we kind of became dangerously close to kind of snap benefits not happening and et cetera. If you look forward, the consumer, as Doug mentioned, is under stress. I don't know that we can say with confidence that 6 months from now, a year from now, like the macroeconomic environment, there's like a path to like 100% goodness. It doesn't necessarily mean that it's going to be bad or good or whatever. But there's some uncertainty there. I think we could all agree to that. And so some of that uncertainty is built into kind of our allowance.

I would expect it to be within this historical range. Is it going to be exactly 24%. I don't know that I would commit to that. But I also wouldn't commit to like it growing significantly higher than what it is today. So I think it will sit within a range. I think we're currently in our kind of historical range as a percentage of receivables. And then time will tell with what happens with the macroeconomic environment.

I'd only add there on top of that, Jonathan. The -- it is a bit of a tug of war on that front where you have this deteriorating environment with the consumer. They're navigating and [ COs ] are ticking up a bit. There's no doubt that that's happening. You also have, as every month and every quarter that goes by improving quality of customer entering the portfolio. And then there's this qualitative overlay that Jonathan alluded to. And like as an example, one of those is a forward-looking outlook on interest rates and inflation. And last quarter, there were certain we were going to get cut and now maybe not so much and maybe they're pushed into '26. And those things have an impact on what the provision and the allowance is going to stand at and so we -- it's tough to really quantify that. But given that it's still under where it was a year ago, and it ticked up a bit like I think it's moving in and moving it around in the ring that it should be. But it's really difficult to tell and understand what the outside environment is going to do that as well.

And I'm currently showing no further questions at this time. This does conclude today's conference call. Thank you all for your participation. You may now disconnect.

Good morning, and welcome to America's Car-Mart's First Quarter Fiscal Year 2026 Earnings Conference Call for the period ending July 31, 2025. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Jonathan Collins, Chief Financial Officer. Jonathan, please go ahead.

Good morning. I'm Jonathan Collins, the company's Chief Financial Officer. Welcome to America's Car-Mart's First Quarter Fiscal Year 2026 Earnings Call for the period ending July 31, 2025. Joining me on the call today is Doug Campbell, our company's President and CEO; and Jamie Fischer, our COO. We issued our earnings release earlier this morning and the supplemental materials are on our website. We will post a transcript of our prepared remarks following this call and the Q&A session will be available through the webcast.

During today's call, certain statements we make may be considered forward-looking and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the Private Securities 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. For more information, including important cautionary notes please see Part 1 of the company's annual report on Form 10-K for the fiscal year ended April 30, 2025, and our current and quarterly reports first to or filed with the Securities and Exchange Commission on Forms 8-K and 10-Q. As a note, the comparisons that we will cover will be for the first quarter of fiscal 2026 versus the first quarter of fiscal 2025, unless otherwise noted.

Doug, I'll turn it over to you now.

Thanks, Jonathan, and good morning everyone. As outlined in our release this morning, the quarter reflects steady progress on the fundamentals we control. Gross margin expanded to 36.6%, interest income increased 7.5% and total collections rose by 6.2%, while we stay disciplined on volume to protect returns and affordability. Demand remains solid. Credit applications were up about 10% year-over-year. The website traffic was flat year-over-year, but we are seeing a higher conversion rate from consumers completing applications, indicating there's a higher level of intent. This dynamic really started to play out in July and has continued since. I'll allow Jamie to provide more color on this in a moment.

Although demand was solid, we paced volume as tariffs and wholesale pricing created temporary constraints. We saw a knock-on effect from tariffs which drove a $500 per unit increase in the procurement cost during the quarter. This is incremental to the $300 I called out last quarter but the increases we are seeing have since smoothed out. This has ultimately put downward pressure on the inventory capacity under our current capital facility. We're actively evaluating actions to expand that capacity so it's not a limiting factor to sales going forward.

There are a few themes driving the momentum we're seeing on some of the aforementioned items. First, underwriting and pricing quality with LOS V2 now live across our entire footprint, Embedded risk-based pricing is now better aligning expected returns with customer profiles. The new scorecard is delivering exactly what we designed it to do, shifting mix towards our highest ranked customers and away from lowest tiers. During the quarter, 15% more of our volume came from ranks 5 through 7, while bookings in some of our lowest ranks were reduced by nearly 50%. This higher quality mix historically drives lower loss frequency and severity, faster breakeven, stronger returns on invested capital and lower downstream costs, all of which improved expected unit economics over the life of the loan. As a result, we expect originations from the quarter to generate stronger returns even on lower overall volumes, given the concentration of customers with stronger credit profiles and better unit economics.

Second, payment experience and portfolio health. Our upgraded Pay Your Way platform is resonating with our consumers. Since the late June launch, we've already seen a shift from in-store to online payments. and recurring payment enrollments have nearly doubled, enhancing the convenience for our customers and supporting a more consistent payment behavior and collections efficiency. Both LOS V2 and Pay Your Way were originally scheduled to be implemented throughout the fiscal year. We pulled these initiatives forward which will enable us to unlock SG&A savings, I have Jonathan expand upon in a minute.

Third, capital efficiency and funding. We continue to strengthen our securitization platform. On August 29, we closed our 2025-3 securitization, a $172 million issuance at an overall weighted average coupon of 5.46%, an 81 basis point improvement when compared to our May 2025 deal and our fourth consecutive improvement in the overall weighted average coupon. Since our 2024-1 issuance, the team has improved on the overall coupon by over 400 basis points, 75% of which is related to tightening spreads. Strong capital markets receptivity to our new collections platform is paving the way for more incremental reductions in the cost of our capital and lowering financing costs associated with our securitization platform.

At this point, I'd like to turn the call over to Jamie to review our operational performance for the quarter. Jamie?

Thanks, Doug, and good morning, everyone. Total revenue for the quarter was $341.3 million, a decrease of 1.9% from the prior year, primarily resulting from fewer retail units sold. This was partially offset by a 7.5% increase in interest income, supported by a larger portfolio and more payments collected year-over-year. Growth in the receivables base reflects disciplined originations as well as the benefit of our expanding footprint from acquisition locations.

As highlighted on our last call, wholesale pricing pressures began to emerge late in the prior quarter. That trend continued into Q1 with procurement costs rising an incremental $500 per unit. At the same time, we were deliberately focused on quality vehicles and a stronger mix to better serve the needs of our higher rent customers. The combination of these 2 factors created additional strain on our ability to expand sales volumes. And as a result, volumes declined 5.7% to 13,568 units compared to 14,391 units a year ago. The average selling price of vehicles, excluding ancillary products decreased by $144 year-over-year reflecting that much of the inventory sold in the quarter had been acquired before the most recent procurement cost increases.

We also realized margin benefits from the ancillary product price increases taken in Q3 of last fiscal year which continue to flow through as favorable year-over-year variance. Combined with strong attachment rates and disciplined vehicle pricing, these actions contributed to gross margin improvement to 36.6%, a 160 basis point increase over the prior year quarter. Gross margin also benefited from improved wholesale retention as well as favorable trends in post-sale vehicle repairs, both in frequency and severity. Looking ahead, we expect average selling prices, excluding ancillary products, to have a positive effect on revenue and the company will remain disciplined on its approach to gross margin rate.

Turning to demand. As Doug previously mentioned, credit applications were up 10% year-over-year for the quarter, underscoring the strength of customer need for our offering. We saw a sharp uptick in duly with a 26.5% increase in applications year-over-year. That growth spanned all customer rings from our strongest profiles to those with more challenged credit with an overall average FICO score slightly up from prior year averages and was driven by strategic marketing and customer outreach strategy. The month of August maintain that same level of elevated application flow and we are pleased to see September has started just as strong.

As we've said before, when the macro environment tightens and traditional credit access becomes more constrained, our business is positioned to grow. The past 60 days have been a positive indication of that dynamic. Because of the aforementioned surge in applications and constraints on inventory available for sale, our LOS V2 played a critical role in actively steering our field teams towards booking the best rate customers. As a result, we ensure that the vehicles we did have were placed into the healthiest part of the portfolio.

I'll now turn it over to Jonathan to cover the remainder of our results.

Thank you, Jamie. Operating expenses for SG&A totaled $51.4 million, a 10.1% increase from $46.7 million in the prior year. Roughly 2/3 of this increase was related to payroll growth, including strategic hires in areas like finance and accounting and 1/3 was driven by technology investments such as the rollout of LOS V2 and Pay Your Way. We expect to unwind approximately half of total SG&A growth in the back half of the year. Notably, the implementation of the upgraded Pay Your Way technology is expected to guide a shift towards a more modernized collection infrastructure, which will deliver approximately 5% annual cost savings over time. These efforts are expected to drive SG&A efficiency, improve operational performance and move us closer to our target of mid-16% SG&A as a percentage of retail sales.

On the collection side, performance remained robust with total collections rising 6.2% to $183.6 million. This improvement highlights the effectiveness of the Pay Your Way platform and the expanding adoption of digital payment channels, resulting in a higher average collection per active customer, [ $585 ] this quarter compared to $562 in the same period last year. The strength in collections underscores the quality of the portfolio and the success of recent operational enhancements.

On the credit side, net charge-offs as a percentage of average finance receivables rose slightly to 6.6% from 6.4% last year. Approximately 50% of this increase was due to softer sales, which muted the growth in the denominator and 50% due to higher loss frequency and some severity in legacy pools, which affected the numerator. Delinquencies greater than 30 days were 3.8% at the end of the quarter, representing a 30 basis point increase. Our allowance for credit losses improved to 23.35% compared to 25% at July 31, 2024. Sequentially, the allowance increased slightly from 23.25% at April 30, 2025, resulting in a $3 million increase to the allowance which was driven equally by portfolio growth as well as by the frequency and severity of loss.

Our portfolio quality continues to strengthen with nearly 72% of the portfolio dollars originated under enhanced underwriting standards and our top 3 customer ranks increasing by 790 basis points during the quarter versus fiscal 2025 average. The average originating term for new contracts was 44.9 months, up 0.6 months from last year. And our weighted average total contract term for the portfolio stood at 48.3 months, a modest increase of 0.2 months compared to last year. The weighted average age was 12.6 months a 5% improvement over the prior year's quarter. Importantly, our active customer account grew by 1.4% to almost 104,700 customers, reflecting the resilience and ongoing strength of our portfolio. Debt to finance receivables and debt net of cash to finance receivables were 51.1% and 43.1%, respectively, both improved from last year. Interest expense decreased by 6.9% to $17 million as we continue to benefit from the improvement in our securitization platform.

During the quarter, we successfully completed a $216 million term securitization at a weighted average interest rate of 6.27%. After the quarter ended, we also finalized our 2025-3 securitization, raising $172 million at a weighted average interest rate of 5.46%. While there is still room for further improvement, we are encouraged by the progress our platform has made so far. Market interest in our securitizations remains high with the Class A notes almost 8x oversubscribed and the Class B notes nearly 16x oversubscribed on our most recent transaction. Strong demand, combined with favorable operating performance within our portfolio, has significantly improved the pricing of our notes. Notably, our most recent transaction marks the fourth consecutive improvement in our overall weighted average coupon, and we have reduced our weighted average spread by 308 basis points since our 2024-1 transaction.

In our last transaction, 21 out of 26 investors who had previously participated in our securitization chose to invest again, which demonstrates the continued confidence they have on our platform. As Doug highlighted earlier, I'm also very encouraged by the impact that our upgraded Pay Your Way platform and our broader collections modernization will have on our ABS platform and future cost of capital as enhanced payment consistency and less of a reliance on field operations should support a stronger outlook from our rating agencies and unlock more favorable terms on upcoming securitizations.

I'd also like to address several important operational disclosures. First, as previously communicated, our annual report on Form 10-K was filed after a brief delay. The delay was related to the prior adoption of enhanced contract modification disclosures. These disclosures provide additional detail on the frequency and nature of modifications, their impact on our portfolio performance and our approach to managing risk in this area. We believe these enhanced disclosures will provide greater transparency and help investors better understand the dynamics of our receivables and credit performance. Further, we have taken significant steps to remediate the associated material weakness including enhanced oversight, additional training and the implementation of new review procedures. We are committed to maintaining strong controls and transparency, and we will continue to update stakeholders on our progress.

Second, I want to highlight the capital constraint impacting our working capital and inventory management. Currently, we faced both a low advance rate of 30% and a cap of $30 million on our inventory advances under our revolving credit facility. While these limits have existed in the past, the significant rise in vehicle prices since COVID has amplified their impact, putting ongoing pressure on our ability to expand retail sales and manage working capital efficiently. We are actively exploring alternative financing solutions to address these constraints and unlock additional capacity to serve our qualified customer demand. Looking ahead, our focus remains on disciplined execution, portfolio quality and capital efficiency. The successful rollout of LOS V2 and risk-based pricing is already driving measurable improvements in deal quality and cash flow predictability. As we continue to diversify our funding sources and optimize our balance sheet, I'm confident that we are well positioned to support both near-term performance and long-term growth.

Finally, I want to thank our finance and operations teams for their commitment and agility in a dynamic environment. Their dedication is critical to our success. With that, I'll turn the call back over to Doug for closing remarks before we move to Q&A.

Thank you, Jonathan. To summarize, this quarter, we kept our focus on the fundamentals we control. We expanded gross margin, increased interest income and improved collections while being disciplined on volume as tariffs and wholesale pricing temporarily pressurized inventory capacity under our current facility. LOS V2 and the new scorecard are doing the work we intended, shifting mix towards our highest rent customers under better pricing structures powered by risk-based pricing. And Pay Your Way is an upgrade that's laying the groundwork for more consistent payment behavior, operational efficiency and a lower cost of capital.

Looking ahead, our priorities are clear: quality, growth with affordability, serving more customers and protecting returns. Payment and collections modernization, continuing to scale digital adoption; and third, our capital structure and capacity evaluating actions to expand inventory capacity, so demand, not financing mechanics determines our sales trajectory. I'm proud of the team's execution and grateful to our associates for keeping our customers on the road every day.

Operator, let's open the line for questions. Thank you.

[Operator Instructions] Our first question is going to come from the line of Kyle Joseph with Stephens.

Just on the unit volume decline. I know you guys talked about applications being really strong, particularly in July. But Doug, I think you highlighted some increased procurement costs in the quarter. Just wondering what you've seen kind of subsequent to the quarter end in terms of procurement cost, and I recognize that you guys are doing what you can in terms of financing solutions in order to manage working capital as well.

Yes, thanks for the question. So I think subsequent to the quarter, we've seen the pricing smooth out. It's been sort of in that same exact range. In fact, it's come down a couple of bucks, but that's nominal. And on a positive note, we've seen the same sort of demand we saw in July sort of flow through August. And as Jamie mentioned, September is off to a great start. I think this sort of goes towards -- we speak about our business where when things tighten, another people tighten consumers come to us from the top. And we've certainly seen that based on the overall volume of applications and the quality of applications coming to us.

Got it. And then shifting to credit. I appreciate that the new loans under the new LOS are over 70% of the portfolio. But as that back book wanes, you kind of expect some credit tailwinds but we've seen increases in [ DQs] and [ NCOs ]. So I appreciate the color you gave on charge-offs in terms of frequency and severity and portfolio size. But just given [ DQs ] are up, give us your sense for how quickly you would expect that to stabilize with the new LOS systems?

Yes. The portfolio is weighted with mostly this new underwriting in place. And so I would expect, like now we sort of have like our normal cadence and normal seasonality as it relates to [ NCOs ]. And so we would typically see a couple of basis points change as we sort of go in and through the year. So to me, this is just sort of more normal. Over the last several quarters, we've obviously experienced the benefit of LOS sort of building the portfolio up. Now it represents the majority of the portfolio. And I think we should expect sort of the normal seasonal fluctuations within [ NCOs ]. And certainly, where we're at today is well within our operating range.

Got it. Last question, probably, Jonathan. But just on the G&A, was up in the quarter. It sounds like there is a pull forward of investments, but just kind of expectations for the cadence of G&A, it sounds like should the second quarter be kind of in line with the first quarter and then we really start to see some of the benefits of the investments you've been making. Is that kind of the right cadence of expenses?

Yes, that's right. I think in the second half, we'll see roughly half of the increase from this quarter unwind as we start to kind of finish the implementation of some of the technologies that we've pulled forward. I think there's also a broader story around some of the technologies that we're rolling out will modernize, for example, Pay Your Way that will modernize our collections infrastructure that will generate an additional tailwind and we put that about 5% of SG&A costs. And as we continue to roll out the system and test the system we should start seeing that benefit in the next fiscal year.

And then finally, all of those pieces combined will help us get towards our ultimate goal, which is about mid-16% SG&A as a percentage of sales.

[Operator Instructions] Our next question is going to come from the line of John Hecht with Jefferies.

Some of it's related to what Kyle was just asking, But the you have the temporary impact from tariffs. So we look at this as just sort of a onetime step function change in inventory pricing? Or will this be a spike up and then the cost will go down? I guess the just question is what are you guys anticipating in terms of used car pricing? And like to call it, the duration of how long that will affect the system?

Sure. I would say that the wholesale pricing, obviously, post tax season, we should have had some sort of normal seasonality fall in pricing. We didn't experience that. I think the industry is contending with what is today represents a 5% or 6% increase relative to the prior year. I would expect that through the balance of the year now that the effects of tariffs are sort of known that we get some seasonality and pricing decline in the back half, all other things being equal, if you procure the same asset, et cetera. So this is really just a period of sort of managing through what that is today, but it does sort of lend itself to this other question around our capital structure with which we highlighted there.

And really, I'll let Jonathan sort of unpack a little bit about how we think about that and how we can leverage and create opportunity there.

Yes. If I just unpack. We currently, as you're aware, John, we have a revolving line of credit. We manage that -- we leverage that to manage our working capital but really, the way we think about it is from a seasoning of AR and timing of entering into the ABS market. And if I just unpack that logic a little bit we have 2 components within our ABL, one is an inventory borrowing base, the other one is an AR borrowing base. And I shared some metrics in the prepared remarks, 30% advance rate and $30 million cap that doesn't cover our full inventory. And to the degree that we see continued pressure on pricing that chews up the desired cushion that we would want to have in ABL that allows us to season our receivables, which in turn allows us to go into the ABS market, achieve better rates, achieve better structures, et cetera.

So what we're trying to do during the quarter is really just navigate that and what we're laser-focused on is a financial solution to unlock capacity there.

Okay. And then a follow-up question, that's very helpful by the way. Follow-up question is the -- sorry, my phone was cutting out. You guys -- there's still very high demand from the consumer, but I guess it's tough to complete the transactions given supply constraints and macro factors and so forth. I guess, you guys are positioning yourself to be very like resourced and strong during a recovery period. So what factors should we look for in terms of seeing green shoots maybe for the dissipation of some of these headwinds?

Sure. I think with the release of LOS V2, which went live on May 8 that's like our second iteration for the LOS. If you go back in time, you remember, when we first launched LOS, it was around deal structures on our customer ranks 1 through 4 and tightening the credit box. The second iteration is more about identifying and properly identifying risk and more accurately identifying risk and with more granularity than we've had in the past. LOS V2 has a new scorecard embedded. And so I would expect us to continue to sort of continue to get favorability. My hope would be that similar to what we had in terms of a step change in the credit quality that we've had over the last 1.5 years that it's another step in that right direction.

As an example, if you look year-over-year from Q1 '25 to Q1 '26, the average FICO score change was about 20 points in origination quarter-over-quarter. And you can see that distribution, there was a new chart we included in the presentation in our supplemental slide pack that shows us more heavily weighting these 5 to 7 rent customers. And typically, we talked about the volume of applications that Jamie mentioned earlier, we're really pleased with what we're seeing there. It's really important given that we're seeing more growth at the top of the funnel and equal growth at the bottom, but more growth with these better qualified customers that we maintain the asset quality. We're not going to be able to capitalize on that opportunity unless we have the right asset to match what the consumers' needs are.

Thank you. And I'm showing no further questions on the phone lines and you guys can move to your Q&A queue from the web questions.

Thank you. We do have a couple of questions. One is related to the deal structures that rolled out with LOS V2. So what we did on deal structures while with LOS V2, we took our 7 rank consumers, they're getting a slight rate break and a slight down payment break. So you can see overall average down payments came down a little bit during the quarter in the aggregate. That is because we gave the most flexibility to these customers who present the least amount of risk.

If I look at sort of the bottom 2 or 3 ranks of customers, they actually put 13% more down on average. They had $2,000 less financed. They had overall higher average originating rates because our 1 and 2 rank customers saw 200 and 100 basis point increases in the originating rates and those terms that we've originated for those consumers were 4 months shorter. So the return profile on those consumers are going to be much stronger. That does not show up in the distribution of how those consumers appeared in the chart. That's the risk-based pricing factor on top of that. And so that's obviously going to drive more positive returns.

There's another question here on consumer health. How would you characterize the existing health of the consumer. Jamie, if you want to take that one?

Yes, I'll take that one. I'd certainly say with credit tightens, people come to us, and we are the place where credit challenge of the landing spot for our credit challenge customers. And as we've seen that demand increase, I think it's an indication that our consumer base is strained. However, it's generally our mission, keeping our customers on the road, I think our customer base is always in a spot of being challenged with what's happening in the macro environment. And so that's part of the reason why we pulled our LOS V2 forward was our ability to not only tighten on the bottom end but be able to attract more of those higher customers with a stronger credit profile in the tightened environment externally.

What also gives us comfort is that although they are probably more constrained today than they were a year ago, our structures with the rollout of LOS, our structures are much better today than they were a year ago, with as Jonathan mentioned 72% of the portfolio now made up of LOS, tighter underwritten customers.

There's another one here. The 30-day delinquencies were up 30 basis points. Is that a sign that the consumer is strained? Listen, I think, as Jamie mentioned, our consumer base is always strained that's sort of our specialty, but it is a leading indicator on how we think about delinquencies. When I think about maybe the impact that happened during the quarter, take for a moment and consider the fact that we did roll out our new payment system. And so that did a couple of things. Like any technology that sort of had its first bumps over the first couple of weeks but more importantly, there was a certain subset of customers who had automatic recurring payments structured and set up.

To the extent that like they need to reenroll in our new system that obviously would cause some timing delays there. And so we certainly had our challenge is getting them reenrolled but that happened in very, very short order. And we highlighted in the release there that not only did that cured, we actually now have doubled the amount of customers enrolled in recurring payments. And so that is going to be a key unlock for how we manage and how much work it takes to manage the portfolio.

I'd add sort of since then, delinquencies have come back into sort of a more daily normalized range of between 3.4, 3.6. We actually ended August at 2.8%. So we feel really good about where that sits both from a [indiscernible] and 30-day delinquency standpoint. And that 30-day delinquency measurement is a point in time. So there is a little bit of to unpack there. So I appreciate the question.

I don't think we have anything more in the queue. Yes, I don't think we have anything more in queue, anything else?

No.

All right. Again, I want to thank all of our associates for their hard work during the quarter. Thank you to our shareholders and Board for their support and to the field. Our customers are always counting on you. Let's get after it in the quarter. Thank you very much and thank you for joining the call and believing in America's Car-Mart.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

I'm Vickie Judy, the company's Chief Accounting Officer. Welcome to America's Car-Mart Fourth Quarter Fiscal Year 2025 Earnings Call for the period ending April 30, 2025. Joining me on the call today is Doug Campbell, our company's President and CEO; Jonathan Collins, our CFO; and Jamie Fischer, our COO. We issued our earnings release earlier this morning and the supplemental materials are on our website.

We will post a transcript of our prepared remarks following this call and the Q&A session will be available through the webcast. During today's call, certain statements we make may be considered forward-looking and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the Private Securities 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.

For more information, including important cautionary notes, please see Part 1 of the company's annual report on Form 10-K for the fiscal year ended April 30, 2024, and our current and quarterly reports furnished to or filed with the Securities and Exchange Commission on Forms 8-K and 10-Q.

As a note, the comparisons that we will cover will be the fourth quarter of fiscal 2025 versus the fourth quarter of fiscal 2024, unless otherwise stated.

Doug, I'll turn it over to you now.

Thank you, Vicki, and thank you, everyone, for your interest in Americas Karma and for joining us to hear more about our fourth quarter and full year results. Before we get into the fourth quarter and full year performance, I want to take a moment to address a leadership transition that's important to the future of America's Car-Mart. After more than 15 years of dedicated service to our company, half of that time as our Chief Financial Officer, Vickie Judy has transitioned into a newly created Chief Accounting Officer role. Vickie has played an integral part of Car-Mart's growth, helping us navigate through multiple market cycles, improve financial discipline and build the foundation of a resilient and scalable finance organization. Her deep institutional knowledge, operational grounding and unwavering commitment to our mission, have earned her the trust and respect of our Board, leadership team and investor community. We're fortunate that Vicki will remain with Car-Mart, working closely with our new CFO. This move reflects not only her commitment to a smooth and thoughtful transition but also our intent to further strengthen our financial leadership.

With that, I'm pleased to formally welcome Jonathan Collins as our new Chief Financial Officer. Jonathan brings over 2 decades of global finance experience across large public companies high-growth digital platforms and emerging markets. He is a strategic and results-driven leader who has served in senior roles at Walmart, Flipkart Group and KPMG. His background in operational transformation, capital efficiency and long-term value creation will be critical as we sharpen our focus on disciplined execution and financial performance.

With that, I'd like to turn it over to Jonathan Collins, our new CFO, to briefly introduce himself and share a bit about why he chose America's Car-Mart, and what he sees in our future. Jonathan?

Thank you, Doug. Today marks my official 1-month anniversary with the company, and I'm looking forward to spending more time with each of you in the investment community in the weeks and months ahead. I, too, want to acknowledge Vicki for her many years of dedicated service. and the strong partnership we've quickly established. Doug and I both recognize that Car-Mart operates in a unique corner of the market, one where deep experience in subprime consumer finance and automotive lending is critical. To that end, I'm excited to announce a new addition to my team, Marie Pichette, our new Senior Vice President of Capital Markets. Marie is a seasoned finance executive within for 20 years of leadership in consumer auto finance. Marie will lead our capital markets activity, helping to diversify and improve our funding platforms.

What originally drew me to America's Car-Mart continues to energize me every day. We are a mission-driven company dedicated to keeping our customers on the road. Since my arrival, I have developed an even deeper appreciation for our mission, our unique business model and our exceptional associates. We recently held a company-wide field leadership meeting where I had the opportunity to connect with our dealership and field level management. It was energizing and inspiring to see the commitment and passion that our associates have for our customers. I also want to recognize our talented finance team who provide critical support to our shareholders, board, leadership team and dealership associates. In fact, I got to engage with many of them within my first week as we successfully closed our seventh term securitization, issuing $216 million in asset-backed notes. The transaction was well received by the market and we achieved a weighted average coupon of 6.27%, a 22 basis point improvement versus our January issuance and 117 basis points tighter than our October 2024 issuance.

I was pleased with the depth of demand we saw and the favorable structure we achieved. This continued improvement in execution is a direct reflection of our growing investor confidence in the quality of our portfolio and the underlying credit performance. My enthusiasm for the company grows daily as I consider the opportunities ahead of us. I'm particularly excited about how we'll leverage our current investments, capitalize on the strength of our balance sheet, maximize our unique integrated sales and financing business model to capture additional market share and continue building on our remarkable depth of talent. We are establishing the foundation for significant future growth. and it is an exciting time to be at America's Car-Mart.

Doug, back to you.

Thanks, Jonathan. I have great confidence in the team's ability to improve the cost of our capital structure, optimize our risk management capabilities and execute against the priorities that matter most to our shareholders. Fiscal year 2025 was a defining year for our company, one that marked a clear operational and financial turnaround, the performance of sales, collections, resulting gross margins, underwriting were all evident moving from a net loss of $31.4 million in the prior year to generating $17.9 million in net income this year. an improvement of more than $49 million. This performance reflects the strength of our strategy, our disciplined execution and the unwavering commitment from our team.

As we advance key initiatives we remain grounded in the values that guide and service our associates, customers and communities. Over the past year, we successfully executed several strategic initiatives to elevate our platform. and position Karma as a compelling multiyear growth opportunity. On the last call, I mentioned I've been thinking about ways to improve our collections infrastructure. It's a critical piece of the business that is needed to support future growth. As a part of our commitment to evolve the customer experience, I want to highlight the relaunch of Pay Your Way, our expanded suite of payment options that reflect how our customers live and manage their finances.

Many of our customers operate outside of the traditional banking system. They often are underbanked, lacking consistent access to a checking account, a credit card or even a stable banking relationship. For years, we supported them through in-person payments at our stores or with basic debit and ACH channels. But as digital financial tools have grown more accessible, so too have the expectations and the opportunities. to serve this customer base in a smarter, more flexible ways.

Our updated Pay Your Way platform will give customers more control and convenience than ever before. We've added widely used platforms like Apple Pay, Google Pay, Venmo and PayPal, all tools that don't require a traditional bank account and are already familiar to many of our customers. We've also made cash payments easier and far more accessible. Access to a cash payment network has grown from about 14,000 to over 80,000 locations, now including Dollar General, CVS, Walgreens, Walmart and more. And thanks to a mobile pass that is stored directly in a digital wallet, customers can self service by walking into these locations, scanning a barcode and pay without ever needing to remember their account details. It's fast, secure and tailored to their reality.

In our stores, we're launching a campaign that allows customers to sign up for auto pay at the time of sale with different payment options than we've offered in the past. This helps reduce missed payments and gives customers more peace of mind, all while relieving some of the day-to-day account management burden on our store teams. We believe these changes will strengthen payment performance, improve customer satisfaction, and ultimately deepen the relationship between our brand and the communities we serve. This pilot is live now in a few of our stores and will scale nationwide during the current quarter.

Another important step that we've taken this year to strengthen credit performance is a transition to a more advanced underwriting and pricing model. For years, we've used a 6x6 scorecard to evaluate customer profiles and deal structures. While effective, it limited our ability to finally segment risk and align pricing accordingly. About a year ago, we began testing a new 7x7 scorecard in parallel with our existing model. This gave us the opportunity to observe how customers would migrate between score bands and to analyze the impact with real-world data before making a full transition. The expanded scorecard provides greater granularity and accuracy in projecting loss ratios. And based on the data we've accumulated to date, we believe it will lead to an improvement in overall credit losses. It's still early, but we're optimistic about how this will translate into improved credit performance and more informed capital deployment.

In conjunction with the scorecard rollout, we also launched our first iteration of risk-based pricing. I shared in the last quarter, we began this pilot in December across a small group of stores. with 34 locations live at the time of our last earnings call. Over the course of the fourth quarter, we collected valuable insights that are now shaping our go-forward strategy. We started by testing rate increases in the riskiest segments, our 1 and 2 rating customers. We increased originating interest rates by a few hundred basis points and modestly increased the required down payments. What's notable is that we saw no material drop in application conversion indicating that we have pricing power even in our highest risk bands.

Conversely, we tested modestly lower interest rates for our highest quality customers, those 7 rated and saw a meaningful improvement in sales volume. The early read suggests there's a real opportunity to grow share among better qualified consumers while enhancing the returns at the bottom of the credit spectrum. The strength of these results gave us the confidence to accelerate this rollout. And as of May 8, risk-based pricing is now live nationwide across all of our stores, except for our acquisition dealerships. This transition doesn't just impact underwriting. It has broader implications for how we operate. A shift towards higher-rated customers will influence the inventory mix we carry.

Over time, it should lower reconditioning costs, and reduced the claims on our warranty products, creating either margin leverage or financial relief for the consumer. Altogether, we see this evolution in underwriting and pricing as a major enabler of smarter growth, better risk-adjusted returns and ultimately, a more resilient business model.

With this overview, I'll now turn the call over to Jamie to review our fourth quarter operating results.

Thanks, Doug, and good morning, everyone. Throughout the fiscal year, we remained focused on improving affordability. In the third quarter, we made a strategic decision to increase inventory levels by approximately 28% compared to the prior year ahead of the tax season. Our intent was to steer around the normal tax season bump and procurement price, but this became especially important given the uncertainty around tariffs. The result was less pressure on procurement during what has been a very speculative wholesale environment. and ultimately reduced our reliance on the volume of cars we would normally procure during the season.

It's why our customers enjoyed the benefit of a vehicle sales price decrease during the fourth quarter of $316 to $17,240. Despite the decrease in selling prices, we were still successful in driving incremental revenue of 1.5% in the fourth quarter compared to the prior year's quarter. This was driven in 2 ways. The first by an increase of 2.6% in unit sales volume and the second by a 4.2% increase in interest income. For the full year, we sold 57,022 units, down just 1.7% year-over-year. I would like to take a moment to recognize and thank our associates. Their improved execution and customer-focused approach played a major role in the second half performance lift where the company rebounded with a 7.2% unit growth after ending the first half of the year down 9.3%.

Beyond operational execution, we took several decisive steps that fueled our fourth quarter performance. Our Q3 decision to raise service contract pricing continues to contribute to incremental revenue growth. And to date, we have not seen any negative impact on product penetration. We launched our tech season marketing campaign earlier than last year, generating demand sooner and we leveraged our CRM platform that was implemented last summer, which has meaningfully improved our efficiency as we engage with customers throughout their buying journey.

When looking at the full year, revenue was relatively flat given the headwind we experienced in the first half of the year. Looking ahead, as Doug mentioned, we launched the new 7x7 scorecard and risk-based pricing in early May. These tools give us greater insight into the buying power of our top customers and open the door to exploring adjustments to our inventory mix strategy. Over the coming year, we will be evaluating ways to balance our vehicle mix to the potential demand driven by our risk-based pricing.

Finally, Q4 gross margin came in at 36.4%, up from 35.5% a year ago. A key driver of this improvement was stronger performance in our wholesale channel. Due to market reactions to ongoing tariff uncertainty, prices are more elevated than the typical spring, allowing us to capitalize on recovery values in the wholesale environment to achieve stronger retention on units sold in Q4. As we shared in prior calls, our long-term target for gross margin remains 37% to 38% on an annualized basis. For the full fiscal year, gross margin finished at 36.7%, a 200 basis point improvement.

Looking ahead, we will continue to pursue opportunities to leverage technology, enhance profitability within our protection plans and deepen the impact of our Cox partnership as we work toward our goal.

I'll now turn it over to Vicki to cover the rest of our results.

Thank you, Jamie. As mentioned in the press release, we improved net charge-offs as a percentage of average finance receivables for the quarter to 6.9% compared to 7.3% in the prior year quarter. and an improvement of 130 basis points for the full year. On a relative basis, we saw overall improvement in both the frequency and severity of loss. Our average time to repossession improved by 14% compared to the same period in the prior year. Our customers are staying on the road longer. With that backdrop, we made meaningful progress in how we address portfolio risk, and I want to briefly explain the change in our allowance for credit loss reserves.

In Q4, we implemented several enhancements to our CECL allowance methodology, which when combined with our improved performance led to a $10.3 million net reduction in our reserve balance. These changes are expected to improve the precision of the model. As our data sets have matured, especially in connection with our LOS originations, we've been able to model the performance of our receivables at a more granular level. We now have over 18 months of actual loss history related to the LOS originated receivables, which gives us confidence to weigh it more appropriately. And because performance in this portfolio has consistently outperformed our legacy book, particularly around loss severity, the result is a lower expected loss profile overall, now that it accounts for 65.7% of our receivables, excluding our acquisition receivables.

So while the headline number is a reserve reduction, the takeaway is stronger. We've reached a point in our underwriting and data maturity that allows us to reserve more precisely. These improvements will better align capital with risk, and we believe that's a positive development for both the business and our investors. The allowance for credit losses as a percentage of finance receivables net of deferred revenue and accident protection plan claims was 23.25% at quarter end.

Our average originating term was 44.4 months, up from 44 months compared to the prior year quarter and down from 44.6 months sequentially. We continue to optimize the distribution of the term by customer score, shortening the term for our highest credit risk customers and allowing additional term links for our best credit scoring customers. At the end of the quarter, the weighted average total contract term for the portfolio was 48.3 months, the weighted average age was 12.4 months, a 5% improvement over the prior year's quarter. We continue to make progress on boosting overall collections, which are up 2.1% over last year. Our teams executed well in collecting our seasonal tax payments and improved the monthly average total collected per active customer to $612 compared to $607 in the same period last fiscal year.

SG&A expenses increased by $3.8 million or 8.6% primarily driven by our continued investments in technology, talent and strategic acquisitions. These acquisitions are part of our long-term growth strategy and while they temporarily impact SG&A leverage, they are instrumental in expanding customer portfolios and enhancing future revenue potential. Importantly, we remain focused on improving cost efficiency on a per customer basis. In this regard, we made meaningful progress, achieving a 6.1% increase in SG&A per customer, which is notably lower than the overall dollar increase. This reflects our commitment to scaling effectively while investing in growth.

Interest expense decreased by $388,000 or 2.2% as we begin to benefit from the improvement in benchmark rates as well as the positive impacts from our recent improvements in securitization rates. Finally, it has been a privilege to be part of Car-Mart's evolution and growth over the past 15 years. In my new role as CAO, I'm excited to continue supporting the company's success expand our financial capabilities and continue to help take Car-Mart to the next level.

Thank you, and I'll turn it back to Doug to finish this out.

Thanks, Vickie. I am proud of the experienced leadership team we have built as we focus on our mission on delivering successful outcomes to our customers and creating long-term value for our shareholders. As we look to the future, I want to provide some expectations for fiscal year 2026. From a macro perspective, we believe the used car market will remain dynamic. We've done a nice job navigating the impact of tariffs on pricing thus far and the impact on the vintage of vehicles we procure has been relatively muted at around an increase of $300 per unit.

Given the cost that we've taken out of procurement over the last year, this is very manageable. The tighter supply environment will be a challenge, but it has been for some time. As we think about diversifying our underwriting it presents an opportunity on the procurement side as we can expand the base of assets we buy. We are very focused on helping our existing customers navigate the environment while creating competitive options for some of our strongest ranking applicants. This represents a growth opportunity for the company and a more thoughtful way to grow our receivables.

We'll also continue to think about ways we can connect and manage our relationships with our customers that support growing and scaling this business. Also, the continued enhancements of our LOS and related risk basing pricing strategy are key initiatives that we expect will strengthen credit performance and grow the size of our portfolio in the fiscal year. While we remain mindful of the macroeconomic backdrop, we are confident in our strategy, our team and our platform.

So with this overview, we'll move on to Q&A. Operator, please provide instructions to ask questions.

[Operator Instructions] Our first question comes from Vincent Caintic with BTIG.

First, Jonathan, congratulations support to working with you and Vickie as well, congratulations and well done. First, I wanted to focus on kind of the macro and consumer behavior. There's been so many things happening over the past quarter and with tariffs and higher used car prices. Just wondering how that's affected the business, if at all? Like for instance, did you see a pull forward of sales? And has there been any difference in consumer behaviors for spending and from a credit perspective, -- and then since the quarter in May and June, any differences there as well?

Vincent, it's Doug. On the sales standpoint, the real impact that we're seeing around the speculative nature in the wholesale environment really started to sort of rear head in the April time period. So it was towards the end of the quarter there for us. So I wouldn't say it had an impact on actual pricing for most of the quarter. So what we've seen thus far, where I articulated about a $300 increase on the procurement side per unit. We really started to see that in April and throughout May. And so to the extent that, that persists, that piece is manageable, and that's sort of what I was referencing in my prepared remarks. I don't think this is sort of more of a pull forward on the tax season. I know coming off Q3, we were talking about sort of lapping a weaker comp. And I think sort of the growth that we're seeing now is sort of more sustainable in nature.

When I think about our just activity, lead activity in general, we had double-digit growth for the full year in terms of lead activity growth. And so we feel really confident about the consumers and the need for the service that we provide. It's just that we're being more selective. And I think we have to be, just given the supply environment, the industry on a whole from a trend perspective is starting the year with less inventory on the ground from a used car supply perspective than it ever has in the last several years. And so it behooves us to make sure that we're doing the most with the capital that we're deploying and make sure we can get optimum returns. And that's why we're so focused on the credit piece. And so there's a lot that we can do, as I mentioned before. We've finished rolling out our risk-based pricing model throughout all our stores. That wasn't the original plan. We were going to sort of test that throughout the balance of the calendar year.

But given sort of the backdrop on tariffs, we thought it would be prudent to pull that forward. have that as a lever in the business, and we're quickly learning sort of what some of those opportunities are. And the early indicators are that in those upper bands, we can see growth that are approaching double-digit growth in the bands that we can get. So we're excited about that. It's still very early, but I would look at that as an opportunity to maybe navigate additional headwinds that may come our way.

Okay. Great. Very helpful. And then Second question, and I wanted to get an update on all the different upgrades you're doing to your operations to procurement, to your partnership with [indiscernible] and how that process is -- which inning are we in, in terms of getting all those processes done? And then your view of how that's going to affect your gross profit margins and the sales per store per month.

Yes, sure thing. From the gross profit perspective, that has been a bright spot, obviously. We were up 90 basis points on the quarter, up 200 basis points year-over-year. We had articulated that we had this target for this 37% to 38% range over several years. As I said before, I think we can get there sooner. And I think that there's more that we can do just around the optimization of those products. And I think our work isn't done sort of with the partnership and what it can yield there.

So we'll have to let that play out. But clearly, we're thinking beyond this 37%, 38% margin. but there's got to be tactics to sort of get there. I think from the operational perspective, we feel really good about where the partnership is at what we need to deploy. Clearly, we've turned our attention to how we're collecting for the consumer. So when I think about setting us up for growth. There were some fundamental things we needed to do there. That included talent leadership. Obviously, we bought Jamie on board. We are very focused on gross margin and making sure that, that's appropriate and more of a return to the norm that it has been over several years.

But on the credit side, on the collection side, in particular, the way that we interact with our consumers, there's so much opportunity. It's very manual today and there was not a lot of technology that supports that but our first step towards that is the relaunch of our Pay Your Way campaign. And when I think about the opportunity for these consumers, about half of households sort of use some of these mechanisms, nontraditional banking mechanisms to pay bills, et cetera.

When we did a study with the Buy here pay here segment, in particular, roughly 25% of consumers use some of those digital methods, which aren't in any of our collections practices today. I think that represents a tremendous opportunity to take the burden off some of the work that happens at the store level and the potential to collect better from our consumers and take the friction out of the process. That would be part 1. The second part is really around how do we interact and interface with these consumers, the day-to-day phone calls, et cetera. And similar to how we did on the sales side, we're focused on how do we make sure that piece happens. It's one thing to diversify the payment channels that they can operate in. It's another thing to have the communications and a build-out of that experience on the back side to maintain the stickiness with these consumers that we've enjoyed over a long period of time. And the back half of that's already in flight and we think we can get that done in the back half of the fiscal year.

To me, those are critical components before we sort of really get focused on unit growth. I do see a very clear path to continue to grow receivables just based on how we are underwriting. But I would consider us to be more focused on unit growth here as we wrap up these 2 projects.

Our next question comes from Kyle Joseph with Stephens.

Doug, if you don't mind, just walk us through -- you talked about rolling out risk-based pricing, just how we can expect that to kind of impact the P&L, specifically either on yields or on margins?

Sure thing. So we rolled out risk-based pricing. We're live throughout all our stores. Through the fourth quarter, we had about 20% of the organization on. It was version 1 of this risk-based underwriting. It included the scorecard, which gives us better accuracy to underwrite and project loss ratios. And obviously, we get additional definition there moving to a 7x7 scorecard, and this creation of the 7 rank customer, which is like our super tier internally.

For us, the bottom side of the portfolio in sort of testing price elasticity, there is room to grow there. We've moved about 200 basis points up with Nobel breakage in conversion, and also higher down payment. So what we're trying to do is get better returns on these lower rank customers. There's a ton of opportunity that remains for the company, but we want to do that in a really smart, thoughtful way. And so we're going to continue to test that. What I think throughout our organization that there's only 1 real limitation from a user recap standpoint, which should be Arkansas. I think we have 36 or 37 stores there. The rest of the organization can sustain sort of more yield management. So we will look to do that in the coming quarters. We have our second pilot that's getting ready to go in flight this month, and so we'll continue to test that piece.

On the upper end, we really focus on the 7 rank customer. And so what we try to do for these consumers who present the very least risk to us is offer them slightly lower down payment options and a slight rate break, and we did see some growth in overall volume within that customer segment. And so it got us thinking about what we could do with consumers who are similar in nature 5, 6 and 7 ranked customers. It was -- our test was really limited to the vera customers. But clearly, there's an opportunity to drive more volume that way. That would be our preference to continue to grow that way. And our pilot for that rolls out. Our second iteration, I would say, rolls out here this month as well.

The rest of the organization is on V1, and we've started to see some of those results in May as well. And so we're really focused on trying to make sure we get higher quality customers in the portfolio. It obviously creates an opportunity, as I mentioned and Jamie mentioned as well to diversify the stocking mix. So the pressure around procuring sort of one type of asset. If we sort of moved up scale a little bit, obviously, a little bit nicer car, needs a little bit less repair prior to sale and post sale. And obviously, that would take a burden of the consumer and help gross margin when we're not having to manage the repairs for those vehicles downstream. So that credit piece that you're referencing does have impact both on the credit side and on the gross margin side potentially.

Great. And then just a follow up with -- I want to make sure I understand what's going on with unit volumes. Obviously, you guys had really strong growth in the third quarter, and you guys talked about comps to a certain extent. Was there -- and I know you referenced there wasn't really like a pull forward in terms of tariffs. But was any sort of fourth quarter volume moved into the third quarter? I think last call, you guys referenced that you started maybe tax season incentives a little earlier and just trying to get to piece out what the real underlying growth of units as between the 2 quarters.

Yes. I wouldn't say it was really a pull forward. We did see a little bit of impact in January right towards the tail end of the quarter. Our marketing campaign started mid-December for that. The stocking campaign associated with that, we really -- it was like a January sprint where we tried to make sure we were getting in front of the tax season. And obviously, was reflected in our balance sheet when we were carrying a heavier amount of inventory going into the tax season. What I really think that did is allow us to enjoy not to have to participate in some of the tariff noise there, and that really showed up in average selling prices. Obviously, you follow us very closely. Typically, we see a bump in retail selling prices. We saw a reduction, and that was based on the stocking strategy. That piece is gone. And so we're in the market procuring vehicles. And I think to the extent that we're out there and the tariff piece persists. That piece is manageable. I focus on the supply piece is what would really be the driver for volume, and it's a tight environment.

Obviously, everyone is sort of following consumers going after, I would call it pre-tariff inventory on the new vehicle side that drove a ton of trade-ins, those trade-ins dealers are capitalizing on but that's a short-lived play. I think sort of going into the summer, people will be sort of really challenged with trying to find the right supply and balance of supply of inventory, and we're working on strategies to combat that. Clearly, we're expanding the base of assets that we can stock and procure. And so we look at that as a potential way to mitigate some of that.

[Operator Instructions] Our next question comes from John Murphy with Bank of America.

Doug, just a first question just on the condition of your customer because there's kind of some cross currency here, it seems like things are getting a bit better with some of your low-end customers, but other data and sources would indicate the subro consumers under a bit more stress. I'm just curious, on a like-for-like basis, if you can talk about sort of the condition of your low-end consumer. Because I mean, if you are able to absorb higher rates, it seems like they're probably doing just probably better than people are fearing just kind of on a like-for-like basis, maybe on a year-over-year and sequential basis? How are you seeing your condition of your -- particularly your low-end consumer.

Appreciate the question. Obviously, we've sort of articulated our consumers live sort of in a recessionary environment. I very much believe that, that's the case. They are sort of used to navigating that they come to us for a need. If I think about sort of the forward-looking indicators for us like delinquencies look at contract modifications, late payment arrangements that we make and ultimately the resulting net charge-offs, there's no sort of cracks in the foundation that we see yet with these consumers. When I think externally about the things that can impact our consumer, we myopically focus on fuel costs, consumables, what they're paying at the grocery store, rent and auto insurance. Those are huge drivers of defaults for us as a company, and we focus on those things. But those have been persistent for the last 2 years. And so there's no real change quarter-to-quarter on that.

There certainly is this backdrop of there's more strain on the consumer. It doesn't mean that it can't happen. It's just that we're not seeing it show up yet. Especially when I start to think about the demand side, when we look at website visits and overall traffic, et cetera, we're not seeing that as well.

Also, when I think about our originating interest rate, which was the last part of your question. I don't think there are a lot of options out there for consumers to think about sort of the credit tightening out there and think about the originating interest rate that Car-Mart has versus its peer set. And so we have been originating interest rates 2 years ago with a 17 handle that had changed to about 18.25% in aggregate, When we're moving up a couple of hundred basis points, I still think that's a really competitive option for the consumer at about 20% when compared to our peer set when we're looking at these consumers.

And so the fact that we've seen no breakage to me just means that we're still a competitive option, and it's the lack of options for the consumer. That in its sort of on its face is the value that we sort of have in the marketplace. So hopefully, that answers your question, John.

That's super helpful. Just a second question. When you think about these underwriting changes and what you're doing and sort of pushing towards the -- your sort of your Tier 7 customers sort of at the high end, it was a long history of sub-prime auto financing companies moving upmarket and being very successful at it. It seems like you're starting to do that. I'm just curious, Doug, how far you think you're going to take this? I mean, is this the kind of thing where 3 to 5 years from now, you could be still doing the sub-prime with your Tier 1 and 2 customers, but also all the way up to sort of a vintage of customer and vehicle that might compete with the likes of CarMax at Carvana?

It's an interesting question. It reminds me of our conversation on the panel back in December about going upmarket. And obviously, I had an inside track on what we were thinking about. I don't know. The answer is it's very, very early. Clearly, it's been on our mind and the direction that we can take the business. I think also our core customer, there is a ton of opportunity there, especially when I think about an environment that might be sort of degrading slightly where we would see additional inflow is for these consumers. And we're really focused on ensuring that they also have options as well. From an environment that is also deteriorating, we do and are paying attention to the fact that there's going to be more consumers in the top of our funnel.

And it creates a tremendous opportunity for the consumer to grow the brand with those -- with a newer consumer that we normally wouldn't see. And so we want to make sure we're positioned right there at that intersection where typically maybe they weren't thinking about a Car-Mart, but that's a marriage of both marketing, the right asset type and these consumers, which typically maybe we haven't seen before. And I don't know how far upstream it will go, but there's enough opportunity sort of at the very top and right to where we were as a 6-rated customer for us to do more just with that base and slightly just expanding. We'll have to see sort of what the business sort of evolves into over time, but it's been 3 months worth of this underwriting style and we're on about, I think, 5 weeks sort of nationwide. And so we're learning a lot and really quickly.

But I think that is one of the things that we wanted to do to make sure that we have levers deployed to navigate whatever the environment is. So hopefully, that answers your question there, John.

Yes. And if I could sneak 1 last 1 in and highly correlated with all this stuff is, I mean, the changes in success you're having in cap markets in the ABS issuance. I'm just curious how you think that success sort of sets you apart from your competition out there? And how much of that might help fuel growth as well? Because I mean, it seems like the LOS is really expanding, you're getting tighter on the 7x7 box or better, I should say. It just seems like your -- what you're presenting to the market is getting more consistent, maybe slightly higher quality, so be real opportunities out there. I mean how do you think about sort of that flow through to the capital markets and then how that circles back with the growth in the business over time.

Yes. Let me let our new CFO give you an opportunity to answer that. Go ahead, Jon.

John, yes. I think -- I mean, first, you can see in our press release, we're quite pleased with our most recent securitization. We continue to kind of expand tighten spreads from what we're seeing. As a reminder, as a company, our history is managing this company through organic growth with an ABL and a revolver. Then a couple of years ago, we started to mature our capital structure. We've entered into the securitization market. And to date, we've securitized over $2 billion in receivables. I mentioned in my prepared remarks, we've hired Marie, who's a real thought leader from a capital markets and starting to help us think through what could a more mature capital structure look like that would match both the size of our company today, but also the improving economics that we're trying to drive through the business.

So one of the things, both she and I are critically focused on is One of the other elements that we should be thinking about to expand kind of our tools in our toolkit, things like warehouse loans, maybe longer tenure of type debt facilities and structures. We're very early in our thinking, but we're working very hard and very quickly to try to come up with what should the future of that look like. I think we'll continue to utilize the securitization market. I think we'll -- our last few securitizations have been slightly smaller and slightly more frequent. You would expect in the future or we would get back to kind of that normal cadence of 2 to 3 times a year, a bit larger than we've done in the last couple.

But I would expect, given the improving economic performance that we should see ultimately lower interest rates from an income statement as the market kind of continues to understand our business and get more comfortable with us.

And I would add just 1 or 2 things there. 2/3 of the portfolio now sits with this LOS underwriting. I think as we've sort of approached the market sort of sequentially, people understand that. and they're getting sort of a different look at the blend of percentage of receivables that are LOS underwritten. And so you're seeing that sort of reflect there in the coupon. It's also notable that like we still have a single A ratings cap, there are things that we need to do to optimize the structure. But absent none of those changes, I still think there's more to go get. And so that is sort of the opportunity in addition to the things that Jon mentioned.

Forgive me from ignorance, and I probably should know this at this point, but you don't have a standard warehouse facility right now to like to push ABS into the market, you're still working off an ABL revolver. Is that correct?

We do have a warehouse facility in place. but it's 0 utilized. And again, like everything, and as Doug mentioned, you could look across our entire balance sheet and P&L. And there's room to improve. I'm always slightly dissatisfied and I want to improve further and so we're continuing to think about what that might look, how that might look differently, how our ABL might look differently? Are there changes to our securitization model and how we approach the market, how that might look differently? All to be able to improve what comes on to our income statement and ultimately be able to kind of serve our customers better.

I'm not showing any further questions at this time. And as such, this does conclude today's presentation. Thank you for your participation. You may now disconnect, and have a wonderful day.