10-K 1 crmt20240430_10k.htm FORM 10-K crmt20240430_10k.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 2054

____________________________

 

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended April 30, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number 0-14939

____________________________

 

AMERICA’S CAR-MART, INC.

(Exact name of registrant as specified in its charter)

 

Texas

63-0851141

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No)

   

1805 North 2nd Street, Suite 401
Rogers, Arkansas

72756

(Address of principal executive offices)

(Zip Code)

 

(479) 464-9944

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

CRMT

NASDAQ Global Select Market

 

Securities registered pursuant to section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No ☒ 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

☐ Large accelerated filer Accelerated filer  
☐ Non-accelerated filer Smaller reporting company Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. 

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   No ☒

 

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates on October 31, 2023 was $390,091,664 (5,824,002 shares), based on the closing price of the registrant’s common stock on October 31, 2023 of $66.98.

 

There were 6,396,757 shares of the registrant’s common stock outstanding as of July 11, 2024.

 

 

 

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s Proxy Statement to be furnished to stockholders in connection with its 2024 Annual Meeting of Stockholders are incorporated by reference in response to Part III of this report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

AMERICAS CAR-MART, INC.

FORM 10-K

FOR FISCAL YEAR ENDED APRIL 30, 2024

TABLE OF CONTENTS

 

   

Page

   

No.

PART I.

   
     

Item 1.

Business

5

Item 1A.

Risk Factors

17

Item 1B.

Unresolved Staff Comments

23

Item 1C.

Cybersecurity

23

Item 2.

Properties

25

Item 3.

Legal Proceedings

25

Item 4.

Mine Safety Disclosures

25
     

PART II

   
     

Item 5.

Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities

26

Item 6.

[Reserved]

27

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

40

Item 8.

Financial Statements and Supplementary Data

41

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

70

Item 9A.

Controls and Procedures

70

Item 9B.

Other Information

72

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

72
     

PART III

   
     

Item 10.

Directors, Executives Officers and Corporate Governance

72

Item 11.

Executive Compensation

72

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matter

72

Item 13.

Certain Relationships and Related Transactions and Director Independence

73

Item 14.

Principal Accountant Fees and Services

73
     

PART IV

   
     

Item 15.

Exhibits and Financial Statement Schedules

73

Item 16.

Form 10-K Summary

77
 

Signatures

78

 

 

 

3

 

 

 

PART I

 

Forward-Looking Statements

 

This Annual Report on Form 10-K and the documents incorporated by reference in this Annual Report on Form 10-K contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address the Company’s future events, objectives, plans and goals, as well as the Company’s intent, beliefs and current expectations regarding future operating performance and can generally be identified by words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” and other similar words or phrases. Specific events addressed by these forward-looking statements may include, but are not limited to:

 

 

operational infrastructure investments;

 

same dealership sales and revenue growth;

 

customer growth;

 

gross profit margin percentages;

 

gross profit per retail unit sold;

 

business acquisitions;

 

technological investments and initiatives;

 

future revenue growth;

 

receivables growth as related to revenue growth;

 

new dealership openings;

 

performance of new dealerships;

 

interest rates;

 

future credit losses;

 

the Company’s collection results, including but not limited to collections during income tax refund periods;

 

future supply and demand for used vehicles;

 

availability of used vehicle financing;

 

seasonality; and

 

the Company’s business, operating and growth strategies and expectations.

 

These forward-looking statements are based on the Company’s current estimates and assumptions and involve various risks and uncertainties. As a result, you are cautioned that these forward-looking statements are not guarantees of future performance, and that actual results could differ materially from those projected in these forward-looking statements. Factors that may cause actual results to differ materially from the Company’s projections include, but are not limited to:

 

 

general economic conditions in the markets in which the Company operates, including but not limited to fluctuations in gas prices, grocery prices and employment levels;

 

the availability of quality used vehicles at prices that will be affordable to our customers, including the impacts of changes in new vehicle production and sales;

 

the availability of credit facilities and access to capital through securitization financings or other sources on terms acceptable to us, and any increase in the cost of capital, to support the Company’s business;

 

the Company’s ability to underwrite and collect its contracts effectively, including whether anticipated benefits from the Company’s recently implemented loan origination system are achieved as expected or at all;

 

competition;

 

dependence on existing management;

 

ability to attract, develop, and retain qualified general managers;

 

changes in consumer finance laws or regulations, including but not limited to rules and regulations that have recently been enacted or could be enacted by federal and state governments;

 

 

 

4

 

 

the ability to keep pace with technological advances and changes in consumer behavior affecting our business;

 

security breaches, cyber-attacks, or fraudulent activity;

 

the ability to identify and obtain favorable locations for new or relocated dealerships at reasonable cost;

 

the ability to successfully identify, complete and integrate new acquisitions; 

 

the occurrence and impact of any adverse weather events or other natural disasters affecting the Company’s dealerships or customers; and

 

potential business and economic disruptions and uncertainty that may result from any future public health crises and any efforts to mitigate the financial impact and health risks associated with such developments.

 

The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made.

 

Item 1. Business

 

Business and Organization

 

America’s Car-Mart, Inc., a Texas corporation initially formed in 1981 (the “Company”), is one of the largest publicly held automotive retailers in the United States focused exclusively on the “Integrated Auto Sales and Finance” segment of the used car market. References to the “Company” include the Company’s consolidated subsidiaries. The Company’s operations are principally conducted through its two operating subsidiaries, America’s Car Mart, Inc., an Arkansas corporation (“Car-Mart of Arkansas”), and Colonial Auto Finance, Inc., an Arkansas corporation (“Colonial”). Collectively, Car-Mart of Arkansas and Colonial are referred to herein as “Car-Mart.” The Company primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the Company’s customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems. As of April 30, 2024, the Company operated 154 dealerships located primarily in small cities throughout the South-Central United States.

 

Business Strategy

 

In general, it is the Company’s objective to continue to expand its business using the same business model that has been developed and used by Car-Mart for over 40 years with enhancements to our technology and core products to better serve our customers. This business strategy focuses on:

 

Collecting Customer Accounts.  Collecting customer accounts is perhaps the single most important aspect of operating an Integrated Auto Sales and Finance used car business and is a focal point for dealership level and corporate office personnel on a daily basis. The Company measures and monitors the collection results of its dealerships using internally developed delinquency and account loss standards. A large part of dealership management and account representatives’ incentive compensation is tied directly or indirectly to collection results. The Company has a collections department and support staff at the corporate level to work with field operators to improve collection results. This team monitors efficiencies and the effectiveness of account representatives as they work to improve customer success rates. The Company also utilizes several collection efforts centrally at the corporate office through texting, phone calls and other methods to supplement the field efforts. Over the last five fiscal years, the Company’s annual provision for credit losses as a percentage of sales have ranged from a low of 19.31% in fiscal 2021 to 36.48% in fiscal 2024 (average of 26.36%). During fiscal 2024, credit losses signaled a return to more normal pre-pandemic levels, but customers are still faced with continued inflationary pressure and increasing interest rates from federal monetary policy. The percentage of credit loss as a percentage of sales was impacted by the lower sales revenue in fiscal 2024. See Item 1A, Risk Factors, for further discussion.

 

Maintaining a Decentralized Operation. The Company’s dealerships operate on a decentralized basis. Each dealership is ultimately responsible for the quality of its vehicles, making sales contacts, making credit decisions with our loan origination system, and collecting the contracts it originates in accordance with established policies and procedures. Approximately 50% of customers make their payments in person at one of the Company’s dealerships. This decentralized structure is complemented by the oversight and involvement of corporate office management and the maintenance of centralized financial controls, including monitoring proprietary credit scoring, establishing standards for down-payments and contract terms, and an internal compliance function.

 

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Expanding Through Controlled Organic Growth and Strategic Acquisitions. The Company grows by increasing revenues at existing dealerships and opening or acquiring new dealerships. The Company has historically viewed organic growth at its existing dealerships as its primary source for growth. The Company continues to make infrastructure investments in order to improve performance of existing dealerships and to support growth of its customer count. The Company acquired one new dealership during the year ending fiscal 2024 with 154 locations. The Company intends to continue to add new dealerships primarily through the pursuit of strategic acquisition opportunities that it believes will enhance its brand and maximize the return to its shareholders. The Company has successfully completed acquisitions in each of the last three fiscal years and anticipates that future acquisitions will likely contribute to its growth. These plans are subject to change based on both internal and external factors.

 

Selling Basic Transportation.  The Company focuses on selling basic and affordable transportation to its customers. The Company’s average retail sales price was $19,113 per unit in fiscal 2024, compared to $18,080 in fiscal 2023. Used vehicle pricing continued to increase due to the high demand and tight supply of used vehicles. In general, the demand for quality, used vehicles has increased due to a shortage of new vehicles leading to inventory constraints in both the new and used vehicle markets.  Management expects continued pressure on the supply and price of used vehicles for the near term. The Company focuses on providing a quality vehicle with affordable payment terms while maintaining relatively shorter-term lengths compared to others in the industry on its installment sales contracts (overall portfolio weighted average of 47.9 months).

 

Operating in Smaller Communities. As of April 30, 2024, approximately 71% of the Company’s dealerships were located in cities with populations of 50,000 or less. The Company believes that by operating in smaller communities it develops strong personal relationships, resulting in better collection results. Further, the Company believes that operating costs, such as salaries, rent and advertising, are lower in smaller communities than in major metropolitan areas. As the Company builds its infrastructure and certain aspects of the business become more centralized, we may expand and operate in larger cities.

 

Enhanced Management Talent and Experience.  The Company seeks to hire honest and hardworking individuals to fill entry-level positions, nurture and develop these associates, and promote them to managerial positions from within the Company. By promoting from within, the Company believes it is able to train its associates in the Car-Mart way of doing business, maintain the Company’s unique culture and develop the loyalty of its associates by providing opportunities for advancement. Due to growth, the Company has, to a larger extent, also had to look outside of the Company for associates possessing requisite skills and core competencies and who share the values and appreciate the unique culture the Company has developed over the years. The Company has also been able to attract quality individuals via its Training and Development Team and Recruiting Team. Management has determined that it will be increasingly difficult to grow the Company without looking for outside talent. The Company’s operating success has been a benefit for recruiting outside talent; however, the Company expects the hiring environment to continue to be challenging as a result of increasing wages, competition for qualified workers, and the impact of inflation on our business and operations.

 

Cultivating Customer Relationships. The Company believes that developing and maintaining a relationship with its customers is critical to the success of the Company. A large percentage of sales at mature dealerships are made to repeat customers, and additional sales result from customer referrals. By developing a personal relationship with its customers, the Company believes it is in a better position to assist a customer, and the customer is more likely to cooperate with the Company should the customer experience financial difficulty during the term of his or her installment contract. The Company is able to cultivate these relationships through a variety of communication channels, including our recently developed customer relationship management technology and direct face-to-face interactions as a high percentage of customers visit Company dealerships in-person to make payments and for account and vehicle servicing needs.

 

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Business Strengths

 

The Company believes it possesses a number of strengths or advantages that distinguish it from most of its competitors. These business strengths include:

 

Experienced and Motivated Management. The Company has a strong senior management team with extensive experience in the automotive industry and expertise in understanding the unique needs and preferences of subprime customers. The Company’s management team is driven to continuously innovate and adapt to changing market dynamics, embrace technology, explore new avenues for growth and make a positive impact on customers’ lives. This extensive industry experience and strong motivation, coupled with strategic decision-making, operational efficiency, and customer focus, enable the Company to tailor its operations to best serve its customers and help drive value for the Company and solidify its position in the used car market.

 

Proven Business Practices. The Company’s operations are highly structured. While dealerships operate on a decentralized basis, the Company has established policies, procedures, and business practices for virtually every aspect of a dealership’s operations. Detailed online operating manuals are available to assist the dealership manager and office, sales and collections personnel in performing their daily tasks. As a result, each dealership is operated in a uniform manner. Further, corporate office personnel monitor the dealerships’ operations through weekly visits and a number of daily, weekly and monthly communications and reports.

 

Low-Cost Operator.  The Company has structured its dealership and corporate office operations to minimize operating costs. The number of associates employed at the dealership level is dictated by the number of active customer accounts each dealership services. Associate compensation is standardized for each dealership position and adjusted for various markets. Other operating costs are closely monitored and scrutinized. Technology is utilized to maximize efficiency. Our recent technology investments in a new loan origination system and an enterprise resource planning system have been foundational in improving efficiencies and operational flexibility as the Company grows. The Company monitors operating costs as a percentage of revenues and per customer served and strives to provide excellent service at a low cost.

 

Well-Capitalized.   The Company believes it can fund its planned growth from net income generated from operations supplemented by its external capital resources. To the extent external capital is needed to fund growth, the Company plans to draw on its existing credit facilities, or renewals or replacements of those facilities, and to participate in the securitization market from time to time, when appropriate. The Company may also choose to access other debt or equity markets if needed or if market conditions are favorable to pursue its growth and acquisition strategies. Management will continue to scrutinize capital deployment to manage appropriate liquidity and access to capital to support growth. As of April 30, 2024, the Company’s ratio of debt to finance receivables (revolving credit facilities and non-recourse notes payable divided by principal balance of finance receivables) was 52.6%. Excluding the amount of total cash, the Company’s adjusted ratio of debt to finance receivables (a non-GAAP measure) as of April 30, 2024 was 46.0% which the Company believes is lower than many of its competitors. For a reconciliation of the adjusted debt to finance receivables ratio to the most directly comparable GAAP financial measure, see “Non-GAAP Financial Measure” included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Significant Expansion Opportunities. The Company historically targets smaller communities in which to locate its dealerships (i.e., populations from 20,000 to 50,000), but has operations in larger cities such as Tulsa, Oklahoma; Lexington, Kentucky; Springfield, Missouri; Chattanooga and Knoxville, Tennessee and Little Rock, Arkansas. The Company believes there are numerous suitable communities to expand our physical footprint within the twelve states in which the Company currently operates and other contiguous states to satisfy anticipated dealership growth for the next several years. In addition, the Company is leveraging its growing online presence, including an intuitive website, online inventory browsing, and seamless online application process, to improve the buying experience while also reaching beyond physical dealership locations.

 

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Operations

 

Operating Segment. Each dealership is an operating segment with its results regularly reviewed by the Company’s Head of Operations in an effort to make decisions about resources to be allocated to the segment and to assess its performance. Individual dealerships meet the aggregation criteria for reporting purposes under the current accounting guidance. The Company operates in the Integrated Auto Sales and Finance segment of the used car market. In this industry, the nature of the sale and the financing of the transaction, financing processes, the type of customer and the methods used to distribute the Company’s products and services, including the actual servicing of the contracts as well as the regulatory environment in which the Company operates, all have similar characteristics. Each dealership is similar in nature and only engages in the selling and financing of used vehicles. All individual dealerships have similar operating characteristics. As such, individual dealerships have been aggregated into one reportable segment.

 

Dealership Organization. Dealerships operate on a decentralized basis. Each dealership is responsible for selling vehicles, making credit decisions, and servicing and collecting the installment contracts it originates, with assistance from the corporate office. Dealership-level financial statements are prepared by the corporate office on a monthly basis and reviewed by various levels of management. Depending on the number of active customer accounts, a dealership may have as few as four or as many as thirty-eight full-time associates employed at that location. Associate positions at a large dealership may include a general manager, assistant manager(s), office manager, office clerk(s), service manager, purchasing agent, collections personnel, sales personnel, inventory associates (detailers), and on-call drivers. Dealerships are generally open Monday through Saturday from 9:00 a.m. to 6:00 p.m.

 

Dealership Locations and Facilities. Below is a summary of dealerships operating during the fiscal years ended April 30, 2024, 2023 and 2022:

 

   

Years Ended April 30,

 
   

2024

   

2023

   

2022

 

Dealerships at beginning of year

    156       154       151  

Dealerships opened or acquired

    1       3       3  

Dealerships closed

    (3 )     (1 )     -  
                         

Dealerships at end of year

    154       156       154  

 

 

 

 

 

 

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Below is a summary of dealership locations by state as of April 30, 2024, 2023 and 2022:

 

   

As of April 30,

 

Dealerships by State

 

2024

   

2023

   

2022

 

Arkansas

    37       37       38  

Oklahoma

    29       30       30  

Missouri

    18       18       18  

Alabama

    16       16       16  

Texas

    14       14       13  

Kentucky

    12       12       12  

Georgia

    9       9       9  

Tennessee

    9       10       8  

Mississippi

    5       5       5  

Illinois

    3       3       3  

Indiana

    1       1       1  

Iowa

    1       1       1  
                         

Total

    154       156       154  

 

Dealerships are located on leased or owned property between one and four acres in size. When opening a new dealership, the Company will either remodel an existing structure on the property to conduct business or construct a new facility. Dealership facilities typically range in size from 1,500 to 5,000 square feet.

 

Purchasing. The Company purchases vehicles primarily from wholesalers, new car dealers, rental/fleet companies, auctions and the general public. Vehicle purchasing is performed by corporate buyers as well as purchasing agents in our local communities. Dealership managers are authorized to purchase vehicles as needed. The Company centrally sets purchasing guidelines and monitors the quantity and quality of vehicles purchased and holds responsible parties accountable for results. When purchasing inventory, focus is given to three general areas:

 

 

Compliance with Company standards, including an internal condition report;

 

Costs and physical characteristics of the vehicle, based on market values; and

 

Vehicle reliability and historical performance, based on market conditions.

 

Generally, the Company purchases vehicles between 5 and 12 years of age with 70,000 to 150,000 miles and pays between $7,000 and $15,000 per vehicle with an average cost of $7,300 per vehicle. The Company focuses on providing basic transportation to its customers. The Company sells a variety of vehicles that include primarily sport utility vehicles, trucks, and sedans. The Company typically does not purchase sports cars or luxury cars. A member of dealership management inspects and test-drives vehicles prior to a sale. The Company strives to purchase vehicles that require little or no repair as the Company has limited facilities to repair or recondition vehicles. As part of the strategy to obtain quality, affordable vehicles, the Company has formed relationships with reconditioning companies leveraging volumes to negotiate improved labor rates and consistent condition reports to recondition vehicles, in particular repossessions and trades, in order to have access to a larger quantity of and lower cost vehicles.

 

Selling, Marketing and Advertising.  Dealerships generally maintain an inventory of 20 to 90 vehicles depending on the size and maturity of the dealership and also the time of the year. Inventory turns over approximately 7 times each year. Selling is done predominantly by the dealership manager, assistant manager, manager trainee or sales associate. Sales associates are paid a commission for sales in addition to an hourly wage. Sales are made on an “as is” basis; however, customers are given an option to purchase a service contract, which covers certain vehicle components and assemblies. For covered components and assemblies, the Company coordinates service with third-party service centers with which the Company typically has previously negotiated labor rates. The vast majority of the Company’s customers elect to purchase a service contract when purchasing a vehicle. Additionally, the Company offers its customers to whom financing is extended an accident protection plan (“APP”) product. The APP product contractually obligates the Company to cancel the remaining amount owed on a contract where the vehicle has been totaled, as defined in the plan, or the vehicle has been stolen. APP is available in most of the states in which the Company operates, and the vast majority of financed customers elect to purchase this product when purchasing a vehicle in those states.

 

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The Company has a 7-day vehicle exchange policy. If a customer is not satisfied with their purchase, the customer has the option to return the vehicle within 7 days after purchasing the vehicle or before having driven the car for 500 miles (whichever occurs first), and the Company will exchange it for another vehicle of equal or lesser value.

 

The Company’s objective is to offer its customers basic transportation at a fair price and treat each customer in such a manner as to earn his or her repeat business. The Company attempts to build a positive reputation in each community where it operates and generate new business from such reputation as well as from customer referrals. For mature dealerships, a large percentage of sales are to repeat customers.

 

The Company primarily advertises using television, radio, digital and social media. In addition, the Company periodically conducts promotional sales campaigns in an effort to increase sales or promote the brand. The Company uses an outside marketing firm to enhance its brand strategy and broaden the Company’s usage of digital and social media channels.

 

Underwriting and Finance.  The Company provides financing to substantially all of its customers who purchase a vehicle at one of its dealerships. The Company only provides financing to its customers for the purchase of its vehicles and selected ancillary products, and the Company does not provide any type of financing to non-customers. The Company’s installment sales contracts as of April 30, 2024, typically include down payments ranging from 0% to 20% (average of 5.4%), terms ranging from 18 months to 69 months (average of 47.9 months), and a fixed annual interest rate of 18.25% for contracts originating after early December 2023 (up from 18.0%) for all states except Arkansas, Illinois and acquired dealerships in Tennessee. The interest rate for sales in Arkansas, which account for approximately 27.1% of the Company’s revenues, is subject to a usury cap of 17%, and therefore, these sales are originated at 16.75%. The interest rate for sales in Illinois and the acquired Tennessee dealerships range from 19.5% to 23.0%. The portfolio weighted average interest rate is 16.9%.

 

The Company requires that payments be made on a weekly, bi-weekly, semi-monthly or monthly basis, scheduled to coincide with the day the customer is paid by his or her employer, with approximately 78% of payments being due on either a weekly or bi-weekly basis. Upon the customer and the Company reaching a preliminary agreement as to financing terms, the Company obtains a credit application from the customer which includes information regarding employment, residence and credit history and personal references. These items are entered into the origination system and then certain information is verified by Company personnel. After the verification process, the dealership manager makes the decision to accept, reject or modify (perhaps obtain a greater down payment or suggest a lower priced vehicle) the proposed transaction. The refinements to the underwriting guidelines in the origination system improved the dealership manager’s ability to assess the stability and character of the applicant. The dealership manager who makes the credit decision is ultimately responsible for collecting the contract, and his or her compensation is directly related to the collection results of his or her dealership. The Company provides centralized support to the dealership manager by assisting in underwriting decisions when needed, as well as providing training and reporting used for monitoring customer accounts on a daily, weekly and monthly basis.

 

Collections. All of the Company’s retail installment contracts are serviced by Company personnel at the dealership level. Approximately half of the Company’s customers make their payments in person at the dealership where they purchased their vehicle; however, in an effort to make paying convenient for its customers, the Company offers a variety of payment options. Customers can send their payments through the mail, set up ACH auto draft, make mobile and online payments, and make payments at certain money service centers. Each dealership closely monitors its customer accounts using the Company’s proprietary receivables and collections software that stratifies past due accounts by the number of days past due. The vice presidents of operations and the area operations managers routinely review and monitor the status of customer collections to ensure collection activities are conducted in compliance with applicable policies and procedures. The Company believes that the timely response to past due accounts is critical to its collections success.

 

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The Company has established standards with respect to the percentage of accounts one and two weeks past due, 15 or more days past due and 30 or more days past due (delinquency standards), and the percentage of accounts where the vehicle was repossessed, or the account was charged off that month (account loss standard).

 

The Company works diligently to keep its delinquency percentages low and not to repossess vehicles. Accounts one to three days late are contacted by telephone or text message. Notes from each contact are electronically maintained in the Company’s computer system. The Company centrally utilizes text messaging notifications which allows customers to elect to receive payment reminders and late notices via text message.

 

The Company attempts to resolve payment delinquencies amicably prior to repossessing a vehicle. If a customer becomes severely delinquent in his or her payments, and management determines that timely collection of future payments is not probable, the Company will take steps to repossess the vehicle. Periodically, the Company enters into contract modifications with its customers to extend or modify the payment terms. The Company only enters into a contract modification or extension if it believes such action will increase the amount of monies the Company will ultimately realize on the customer’s account and will increase the likelihood of the customer being able to pay off the vehicle contract. At the time of modification, the Company expects to collect amounts due including accrued interest at the contractual interest rate for the period of delay. No other concessions are granted to customers, beyond the extension of additional time at the time of modification. Modifications are minor and are made for pay day changes, minor vehicle repairs and other reasons. For those vehicles that are repossessed, a large portion are returned or surrendered by the customer on a voluntary basis. Other repossessions are performed by Company personnel or third-party repossession agents. Depending on the condition of a repossessed vehicle, it is either resold on a retail basis through a Company dealership or sold for cash on a wholesale basis, primarily through physical or online auctions.

 

New Dealership Openings. Along with strategic dealership acquisitions, the Company continues to explore opportunities for new dealership openings. When opening new dealerships, senior management, with the assistance of the corporate office staff, will make decisions with respect to the communities in which to locate a new dealership and the specific sites within those communities. New dealerships have historically been located in the general proximity of existing dealerships to facilitate the corporate office’s oversight of the Company’s dealerships.

 

Dealership Acquisitions.  Since 2020, the Company has actively pursued strategic dealership acquisitions to expand its market presence and enhance its business operations. Most recently, the Company continued its expansion efforts by acquiring used car dealerships in Tennessee, Texas and Arkansas. These acquisitions helped the Company further strengthen its footprint and increase its market share. By strategically acquiring established dealerships, the Company believes it can accelerate its growth and solidify its position as a key player in the used auto industry. The Company’s recent acquisitions have not only expanded the Company's geographic reach but also allowed the Company to leverage the acquired dealerships' operational efficiencies, experienced personnel, and customer relationships, leading to enhanced value for both the Company and its customers. Management continues to actively pursue additional acquisitions, including in regions beyond the Company’s existing geographic footprint, and believes that disruptions in the current competitive landscape will provide unique opportunities to acquire productive dealerships in good markets managed by experienced owners and their staff. 

 

Corporate Office Oversight and Management. The corporate office, based in Rogers, Arkansas, consists of regional vice presidents of operations, area operations managers, as well as regional support personnel in inventory, sales, collections, compliance and human resources. The corporate office also provides training and development personnel, accounting and management information systems personnel, compliance and risk personnel, administrative personnel and senior management. The corporate office monitors and oversees dealership operations. The corporate office has access to operating and financial information and reports on each dealership on a daily, weekly, monthly, quarterly, and annual basis. This information includes cash receipts and disbursements, inventory and receivables levels and statistics, receivables aging, sales and account loss data. The corporate office uses this information to compile Company-wide reports, plan dealership visits and prepare monthly financial statements.

 

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Periodically, area operations managers, regional vice presidents, compliance auditors, loss prevention associates, and senior management visit the Company’s dealerships to inspect, review and comment on operations. The corporate office provides the overall training plan and assists in training new managers and other dealership level associates. Compliance auditors and loss prevention associates visit dealerships to ensure policies and procedures are being followed and that the Company’s assets are being safe-guarded. In addition to financial results, the corporate office uses delinquency and account loss standards and a point system to evaluate a dealership’s performance. Also, bankrupt and legal action accounts and other accounts that have been written off at dealerships are handled by the corporate office to allow dealership personnel time to focus on more current accounts.

 

The Company’s dealership managers meet monthly on an area, regional or Company-wide basis. At these meetings, corporate office personnel provide training and recognize the achievements of dealership managers. Near the end of every fiscal year, the respective area operations manager, regional vice president and senior management conduct “projection” meetings with each dealership manager. At these meetings, the year’s results are reviewed and ranked relative to other dealerships, and both quantitative and qualitative goals are established for the upcoming year. The qualitative goals may focus on staff development, effective delegation, and leadership and organization skills. Quantitatively, the Company establishes unit sales goals and profit goals based on invested capital and, depending on the circumstances, may establish delinquency, account loss or expense goals.

 

The corporate office is also responsible for establishing policy, maintaining the Company’s management information systems, conducting compliance audits, orchestrating new dealership openings and setting the strategic direction for the Company.

 

Industry

 

Used Car Sales. The market for used car sales in the United States is significant. Used car retail sales typically occur through franchised new car dealerships that sell used cars or independent used car dealerships. The Company operates in the Integrated Auto Sales and Finance segment of the independent used car sales and finance market. Integrated Auto Sales and Finance dealers sell, and finance used cars to individuals that often have limited credit histories or past credit problems. Integrated Auto Sales and Finance dealers typically offer their customers certain advantages over more traditional financing sources, such as less restrictive underwriting guidelines, flexible payment terms (including scheduling payments on a weekly or bi-weekly basis to coincide with a customer’s payday), and the ability to make payments in person, an important feature to individuals who may not have a checking account.

 

Used Car Financing. The used automobile financing industry is served by traditional lending sources such as banks, savings and loans, and captive finance subsidiaries of automobile manufacturers, as well as by independent finance companies and Integrated Auto Sales and Finance dealers. Many loans that flow through the more traditional sources have historically ended up packaged in the securitization markets. Despite significant opportunities, many of the traditional lending sources have not historically been consistent in providing financing to individuals with limited credit histories or past credit problems. Management believes traditional lenders have historically avoided this market because of its high credit risk and the associated collections efforts. Beginning in 2012, funding for the deep subprime automobile market increased significantly and has remained elevated compared to historic levels, likely due to the ultra-low interest rate environment combined with the historical credit performance of the used automobile financing market during and after the recession of the prior decade. However, as a result of the recent inflationary environment, increased funding costs, and increased insurance costs, credit availability for used vehicle financing has tightened. Management expects this to continue for the foreseeable future and believes the reduced availability of used vehicle financing will provide the Company an opportunity to gain market share and better serve an increasing customer base.

 

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Competition

 

The used automotive retail industry is fragmented and highly competitive. The Company competes principally with other independent Integrated Auto Sales and Finance dealers, as well as with (i) the used vehicle retail operations of franchised automobile dealerships, (ii) independent used vehicle dealers, and (iii) individuals who sell used vehicles in private transactions. The Company competes for both the purchase and resale of used vehicles. The tight supply of used vehicles in our market has led to higher purchase and retail prices which have been the primary contributors to the Company’s decision in recent periods to allow longer term lengths and slightly lower down payments in connection with our customer financing contracts.

 

Management believes the principal competitive factors in the sale of its used vehicles include (i) the availability of financing to consumers with limited credit histories or past credit problems, (ii) the breadth and quality of vehicle selection, (iii) pricing, (iv) the convenience of a dealership’s location, (v) the option to purchase a service contract and an accident protection plan, and (vi) customer service. Management believes that its dealerships are not only competitive in each of these areas, but have some distinct advantages, specifically related to the provision of strong customer service for a credit challenged consumer. The Company’s local face-to-face presence combined with some centralized support through digital and phone allows it to serve customers at a higher level by forming strong personal relationships.

 

Seasonality

 

Historically, the Company’s third fiscal quarter (November through January) has been the slowest period for vehicle sales. Conversely, the Company’s first and fourth fiscal quarters (May through July and February through April) have historically been the busiest times for vehicle sales. Therefore, the Company generally realizes a higher proportion of its revenue and operating profit during the first and fourth fiscal quarters. The Company expects this pattern to continue in future years.

 

If conditions arise that impair vehicle sales during the first or fourth fiscal quarters, the adverse effect on the Company’s revenues and operating results for the year could be disproportionately large.

 

Regulation and Licensing

 

The Company is committed to a culture of compliance by promoting and supporting efforts to design, implement, manage, and maintain compliance initiatives. The Company’s operations are subject to various federal, state and local laws, ordinances and regulations pertaining to the sale and financing of vehicles. Under various state laws, the Company’s dealerships must obtain a license in order to operate or relocate. These laws also regulate advertising and sales practices. The Company’s financing activities are subject to federal laws such as truth-in-lending and equal credit opportunity laws and regulations as well as state and local motor vehicle finance laws, installment finance laws, usury laws and other installment sales laws. Among other things, these laws require that the Company limit or prescribe terms of the contracts it originates, require specified disclosures to customers, restrict collections practices, limit the Company’s right to repossess and sell collateral, and prohibit discrimination against customers on the basis of certain characteristics including age, race, gender and marital status.

 

The Company’s consumer financing and collection activities are also subject to oversight by the federal Consumer Financial Protection Bureau (“CFPB”), which has broad regulatory powers over consumer credit products and services such as those offered by the Company. Under applicable CFPB rules, the Company’s finance subsidiary, Colonial, is deemed a “larger participant” in the automobile financing market and is therefore subject to examination and supervision by the CFPB.

 

The states in which the Company operates impose limits on interest rates the Company can charge on its installment contracts. These limits have generally been based on either (i) a specified margin above the federal primary credit rate, (ii) the age of the vehicle, or (iii) a fixed rate.

 

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The Company is also subject to a variety of federal, state and local laws and regulations that pertain to the environment, including compliance with regulations concerning the use, handling and disposal of hazardous substances and wastes.

 

Management believes the Company is in compliance in all material respects with all applicable federal, state and local laws, ordinances and regulations; however, the adoption of additional laws, changes in the interpretation of existing laws, or the Company’s entrance into jurisdictions with more stringent regulatory requirements could have a material adverse effect on the Company’s used vehicle sales and finance business.

 

Human Capital Resources

 

At America’s Car-Mart, Inc., our associates are the heart of our business. Our associates are committed to making a difference for customers, their communities and each other. As of April 30, 2024, the Company, including its consolidated subsidiaries, employed a diverse associate base of approximately 2,280 fulltime associates. None of the Company’s employees are covered by a collective bargaining agreement, and the Company believes that its relations with its employees are positive.

 

Diversity and Inclusion

 

The Company’s culture is one that fosters diversity, equity and inclusion. We view diversity as an important factor in reflecting the values and cultures of all our associates. Each of our dealerships is a locally operated business, and our diversity must represent the communities in which we serve. The Company is an equal opportunity employer that strives to provide an inclusive environment, including associates that represent a wide range of backgrounds, cultures, and experiences. The Company’s hiring practices are designed to find and promote candidates reflecting the various communities in which we operate. As of April 30, 2024, 53% of the Company’s associates were women and 33% of our associates were racially or ethnically diverse.

 

Employee Safety and Health

 

Ensuring the safety of all associates is a critical priority for the Company. Associates are expected to stay informed about safety initiatives and to report unsafe conditions to their supervisor. Suppliers are expected to ensure that employees working on behalf of Car-Mart adhere to all of the Company’s health and safety policies, requirements and regulations. The Company’s specific annual safety goals are to eliminate all preventable work-related injuries, illnesses and property damage and achieve 100% compliance with all established safety procedures. Internally, we track workplace injuries among associates, customers and other third parties at our facilities. With our comprehensive safety and education program and attention to proper procedures at our dealerships, the number of incidents is below industry standards for all retail locations. Our Legal and Compliance departments are responsible for safety education and training, and regularly reviews indicators and areas where risks and injuries can occur, helping to eliminate hazards. General Managers at each dealership are responsible for safety at their location on a daily basis, and members of the safety committee at our corporate office are trained on CPR and other emergency procedures and regularly conduct drills for events such as a fire or tornado.

 

From a health perspective, the Company believes it is important to support the physical, mental, social, environmental and financial well-being of our Car-Mart associates at work and at home. The Company is committed to doing so with key initiatives that inspire associates to strive for long-term sustainable health and wellness for themselves and their families. We seek to educate and empower associates to improve and maintain their overall health. Further, we offer resources for preventive care, such as flu shots, vaccinations and other preventative health screenings. Associates have access to retirement investment plans and legal consultants to help them save for their future needs. The Company also offers professional resources that promote associates’ mental health and general well-being at no cost to the associates and their immediate families.

 

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Talent and Development

 

The Company is committed to building a working environment and culture that attracts, develops and retains motivated associates. The Company strives to provide associates with broader challenging opportunities, an environment that encourages entrepreneurial thinking and the ability to develop their career. The success of our growth strategy and the operation of an organization that supports dealerships throughout 12 states requires that we continue to seek, attract, hire and retain top talent at all levels of the Company. We offer a competitive compensation and benefits program, and an opportunity for our associates to grow personally and professionally, with an eye toward retirement and financial planning.

 

The Company provides each associate with a comprehensive compensation package that is based on the role he or she fills. Our compensation philosophy is based on performance, both individually and as a company. Many of our associates have the opportunity to earn additional compensation through commissions, performance-based salary increases and bonuses. All associates earn above minimum wage requirements under both state and federal law requirements. In addition, associates have a menu of benefit options to choose from to meet their needs.

 

The Company offers multiple programs for associate training, mentoring, and advancement. All associates are required to complete orientation courses in culture, safety, sexual harassment and discrimination awareness, and other compliance topics. Associates also have access to online training programs for the development of job-specific skills, leadership behaviors, and advanced topics such as unconscious bias. The Company’s Future Manager training program allows associates to learn all facets of operating a Car-Mart store from vehicle inventory and facility management to effective collection techniques, while acquiring leadership skills. In addition, the Company maintains its “Car-Mart U” training program which builds on the foundation established in the Future Manager program by providing a series of blended learning solutions preparing assistant managers for a general manager or other elevated management role by introducing new curriculum focused on advanced leadership training, business concepts and customer experience. We believe such programs demonstrate the Company’s commitment to the long-term growth, motivation, and success of our associates.

 

 

Available Information

 

The Company’s website is located at www.car-mart.com. The Company makes available on this website, free of charge, access to its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, as well as proxy statements and other information the Company files with, or furnishes to, the Securities and Exchange Commission (“SEC”) as soon as reasonably practicable after the Company electronically submits this material to the SEC. The information contained on the website or available by hyperlink from the website is not incorporated into this Annual Report on Form 10-K or other documents the Company files with, or furnishes to, the SEC.

 

 

 

 

 

 

 

 

 

 

 

 

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Executive Officers of the Registrant

 

The following table provides information regarding the executive officers of the Company as of April 30, 2024:

 

Name

Age

Position with the Company

     

Douglas Campbell

48

Chief Executive Officer and President

     

Vickie D. Judy

58

Chief Financial Officer

     

Jeffrey A. Williams

61

CEO Emeritus

 

Douglas Campbell became Chief Executive Officer, President and a director of the Company in October 2023, after serving as President of the Company for the prior year. Before joining the Company, Mr. Campbell was Senior Vice President, Head of Fleet Services for the Americas, at Avis Budget Group (“Avis”) since June 2022, previously serving in roles as Head of Fleet Services for the Americas since June 2021 and Vice President, Remarketing for the Americas, at Avis from March 2018 to June 2021. Prior to joining Avis, Mr. Campbell held management positions at AutoNation from September 2014 to March 2018 serving as Used Vehicle Director, Eastern Region, in AutoNation’s corporate office and later as General Manager of its Honda Dulles dealership. Preceding AutoNation, Mr. Campbell served fifteen years with Coral Springs Auto Mall, most recently serving as Executive General Manager.

 

Vickie D. Judy has served as Chief Financial Officer of the Company since January 2018. Before becoming Chief Financial Officer in January 2018, Ms. Judy served as Principal Accounting Officer since March 2016 and Vice President of Accounting since August 2015. Since joining the Company in May 2010, Ms. Judy has also served as Controller and Director of Financial Reporting. Ms. Judy is a Certified Public Accountant and prior to joining the Company her experience included approximately five years in public accounting with Arthur Andersen & Co. and approximately 17 years at National Home Centers, Inc., a home improvement product and building materials retailer, most recently as Vice President of Financial Reporting.

 

Jeffrey A. Williams served as CEO Emeritus through April 30, 2024 and currently serves as a director of the Company.  He previously served as Chief Executive Officer of the Company from January 2018 to September 2023, and President of the Company from March 2016 until October 2022. He has served as a director since August 2011. Mr. Williams also served as Chief Financial Officer of the Company from  2005 to January 2018. He also served as Vice President Finance from 2005 to March 2016 and as Secretary of the Company from 2005 to May 2018. Mr. Williams is a Certified Public Accountant, inactive, and prior to joining the Company, his experience included approximately seven years in public accounting with Arthur Andersen & Co. and Coopers and Lybrand LLC in Tulsa, Oklahoma and Dallas, Texas. His experience also includes approximately five years as Chief Financial Officer and Vice President of Operations of Wynco, LLC, a nationwide distributor of animal health products.

 

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Item 1A. Risk Factors

 

The Company is subject to various risks. The following is a discussion of risks that could materially and adversely affect the Company’s business, operating results, and financial condition.

 

Risks Related to the Companys Business, Industry, and Markets

 

Recent and future disruptions in domestic and global economic and market conditions could have adverse consequences for the used automotive retail industry in the future and may have greater consequences for the non-prime segment of the industry.

 

In the normal course of business, the used automotive retail industry is subject to changes in regional U.S. economic conditions, including, but not limited to, interest rates, gasoline prices, inflation, personal discretionary spending levels, and consumer sentiment about the economy in general. Recent and future disruptions in domestic and global economic and market conditions, including rising interest rates and higher grocery and gasoline prices, or significant changes in the political environment (such as the ongoing military conflicts in the Middle East, and Ukraine) and/or public policy, could adversely affect consumer demand or increase the Company’s costs, resulting in lower profitability for the Company. Due to the Company’s focus on non-prime customers, its actual rate of delinquencies, repossessions and credit losses on contracts could be higher under adverse economic conditions than those experienced in the automotive retail finance industry in general.

 

The outlook for the U.S. economy and the impacts of efforts to reduce inflation through interest rate increases remains uncertain, which may adversely affect the Company’s financial condition, results of operations and liquidity. Periods of economic slowdown or recession are often characterized by high unemployment and diminished availability of credit, generally resulting in increases in delinquencies, defaults, repossessions and credit losses. Further, periods of economic slowdown may also be accompanied by temporary or prolonged decreased consumer demand for motor vehicles and declining used vehicle prices. Significant increases in the inventory of used vehicles during periods of economic slowdown or recession may also depress the prices at which repossessed automobiles may be sold or delay the timing of these sales. The prices of used vehicles are variable and a rise or decline in the used vehicle prices may have an adverse effect on the Company’s business. The Company is unable to predict with certainty the future impact of the most recent global and domestic economic conditions on consumer demand in our markets or on the Company’s costs.

 

A reduction in the availability or access to sources of inventory could adversely affect the Companys business by increasing the costs of vehicles purchased.

 

The Company acquires vehicles primarily through wholesalers, new car dealers, individuals and auctions. There can be no assurance that sufficient inventory will continue to be available to the Company or will be available at comparable costs. Any reduction in the availability of inventory or increases in the cost of vehicles could adversely affect gross margin percentages as the Company focuses on keeping payments affordable to its customer base. The Company could have to absorb a portion of cost increases. The supply of vehicles at appropriate prices available to the Company is significantly affected by overall new car sales volumes, which were negatively impacted by the business and economic and supply chain disruptions following the outbreak of the COVID-19 pandemic and have historically been materially and adversely affected by prior economic downturns. Any future decline in new car sales could further adversely affect the Company’s access to and costs of inventory. Our ability to source vehicles could also be impacted by the closure of auctions and wholesalers as a result of any future public health crisis, adverse economic conditions, or other factors.

 

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The used automotive retail industry is fragmented and highly competitive, which could result in increased costs to the Company for vehicles and adverse price competition. Increased competition on the financing side of the business could result in increased credit losses.

 

The Company competes principally with other independent Integrated Auto Sales and Finance dealers, and with (i) the used vehicle retail operations of franchised automobile dealerships, (ii) independent used vehicle dealers, and (iii) individuals who sell used vehicles in private transactions. The Company competes for both the purchase and resale, which includes, in most cases, financing for the customer, of used vehicles. The Company’s competitors may sell the same or similar makes of vehicles that Car-Mart offers in the same or similar markets at competitive prices. Increased competition in the market, including new entrants to the market, could result in increased wholesale costs for used vehicles and lower-than-expected vehicle sales and margins. Further, if any of the Company’s competitors seek to gain or retain market share by reducing prices for used vehicles, the Company would likely reduce its prices in order to remain competitive, which may result in a decrease in its sales and profitability and require a change in its operating strategies. Increased competition on the financing side puts pressure on contract structures and increases the risk for higher credit losses. More qualified applicants have more financing options on the front-end, and if events adversely affecting the borrower occur after the sale, the increased competition may tempt the borrower to default on their contract with the Company in favor of other financing options, which in turn increases the likelihood of the Company not being able to save that account.

 

The used automotive retail industry operates in a highly regulated environment with significant attendant compliance costs and penalties for non-compliance.

 

The used automotive retail industry is subject to a wide range of federal, state, and local laws and regulations, such as local licensing requirements and laws regarding advertising, vehicle sales, financing, and employment practices. Facilities and operations are also subject to federal, state, and local laws and regulations relating to environmental protection and human health and safety. The violation of these laws and regulations could result in administrative, civil, or criminal penalties against the Company or in a cease and desist order. As a result, the Company has incurred, and will continue to incur, capital and operating expenditures, and other costs of complying with these laws and regulations. Further, over the past several years, private plaintiffs and federal, state, and local regulatory and law enforcement authorities have increased their scrutiny of advertising, sales and finance activities in the sale of motor vehicles. Additionally, the Company’s finance subsidiary, Colonial, is deemed a “larger participant” in the automobile finance market and is therefore subject to examination and supervision by the CFPB, which has broad regulatory powers over consumer credit products and services such as those offered by the Company.

 

The Companys business is geographically concentrated; therefore, the Companys results of operations may be adversely affected by unfavorable conditions in its local markets.

 

The Company’s performance is subject to local economic, competitive, and other conditions prevailing in the twelve states where the Company operates. The Company provides financing in connection with the sale of substantially all of its vehicles. These sales are made primarily to customers residing in Alabama, Arkansas, Georgia, Illinois, Kentucky, Mississippi, Missouri, Oklahoma, Tennessee and Texas with approximately 27.1% of revenues resulting from sales to Arkansas customers. The Company’s current results of operations depend substantially on general economic conditions and consumer spending habits in these local markets. Any decline in the general economic conditions or decreased consumer spending in these markets may have a negative effect on the Company’s results of operations.

 

The Companys growth strategy is dependent upon the following factors:

 

 

Favorable operating performance. Our ability to increase revenues at existing dealerships or expand our business through additional dealership openings or strategic acquisitions is dependent on a sufficiently favorable level of operating performance to support the management, personnel and capital resources necessary to successfully grow existing locations, open and operate new locations, or acquire new locations.

 

 

Ability to successfully identify, complete and integrate new acquisitions. Part of our current growth strategy includes strategic acquisitions of dealerships. We could have difficulty identifying attractive target dealerships, completing the acquisition or integrating the acquired business’ assets, personnel and operations with our own. Acquisitions are accompanied by a number of inherent risks, including, without limitation, the difficulty of integrating acquired companies and operations; potential disruption of our ongoing business and distraction of our management or the management of the target company; difficulties in maintaining controls, procedures and policies; potential impairment of relationships with associates and partners as a result of any integration of new personnel; potential inability to manage an increased number of locations and associates; failure to realize expected efficiencies, synergies and cost savings; reaction to the transaction among the companies’ customers and potential customers; and the effect of any government regulations which relate to the businesses acquired.

 

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Availability of suitable dealership sites. Our ability to open new dealerships is subject to the availability of suitable dealership sites in locations and on terms favorable to the Company. If and when the Company decides to open new dealerships, the inability to acquire suitable real estate, either through lease or purchase, at favorable terms could limit the expansion of the Company’s dealership base. In addition, if a new dealership is unsuccessful and we are forced to close the dealership, we could incur additional costs if we are unable to dispose of the property in a timely manner or on terms favorable to the Company. Any of these circumstances could have a material adverse effect on the Company’s expansion strategy and future operating results.

 

 

Ability to attract and retain management for new and existing dealerships. The success of new dealerships is dependent upon the Company being able to hire and retain additional competent personnel. The market for qualified employees in the industry and in the regions in which the Company operates is highly competitive. If we are unable to hire and retain qualified and competent personnel to operate our new dealerships, these dealerships may not be profitable, which could have a material adverse effect on our future financial condition and operating results.

 

 

Availability and cost of vehicles. The cost and availability of sources of inventory could affect the Company’s ability to open new dealerships. The long-term impacts of the economic downturn due to COVID-19 on new car sales volumes and the ability of auctions and wholesalers to continue to operate is uncertain. Any of these factors could potentially have a significant negative effect on the supply of vehicles at appropriate prices available to the Company in future periods. This could also make it difficult for the Company to supply appropriate levels of inventory for an increasing number of dealerships without significant additional costs, which could limit our future sales or reduce future profit margins if we are required to incur substantially higher costs to maintain appropriate inventory levels.

 

 

Acceptable levels of credit losses at new dealerships. Credit losses tend to be higher at new dealerships due to fewer repeat customers and less experienced associates; therefore, the opening of new dealerships tends to increase the Company’s overall credit losses. This may require the Company to incur additional costs to reduce future credit losses or to close the underperforming locations altogether. Any of these circumstances could have a material adverse effect on the Company’s future financial condition and operating results.

 

The Companys business is subject to seasonal fluctuations.

 

Historically, the Company’s third fiscal quarter (November through January) has been the slowest period for vehicle sales. Conversely, the Company’s first and fourth fiscal quarters (May through July and February through April) have historically been the busiest times for vehicle sales. Therefore, the Company generally realizes a higher proportion of its revenue and operating profit during the first and fourth fiscal quarters. The Company expects this pattern to continue in future years.

 

If conditions arise that impair vehicle sales during the first or fourth fiscal quarters, the adverse effect on the Company’s revenues and operating results for the year could be disproportionately large.

 

19

 

The effects of any future public health crisis could have a significant impact on our business, sales, results of operations and financial condition.

 

The global outbreak of COVID-19 led to severe disruptions in general economic activities, particularly retail operations, as businesses and federal, state, and local governments implemented mandates to mitigate this public health crisis. The pandemic has affected consumer demand and the overall health of the U.S. economy. The effects of any future outbreaks of the pandemic or similar health crises could negatively impact all aspects of our business, including used vehicle sales and financing, finance receivable collections, repossession activity and inventory acquisition. Our business is also dependent on the continued health and productivity of our associates, including management teams, throughout this crisis. The consequences of any future adverse public health developments could have a material adverse effect on our business, sales, results of operations and financial condition.

 

Additionally, our liquidity could be negatively impacted if economic conditions were to once again deteriorate due to a future COVID-19 outbreak or other public health crisis, which could require us to pursue additional sources of financing to obtain working capital, maintain appropriate inventory levels, support the origination of vehicle financing, and meet our financial obligations. Capital and credit markets were significantly affected by onset of the crisis and could be disrupted once again by any future wave of the virus or outbreak of a new coronavirus variant, and our ability to obtain any new or additional financing is not guaranteed and largely dependent upon evolving market conditions and other factors.

 

Risks Related to the Companys Operations

 

The Company may have a higher risk of delinquency and default than traditional lenders because it finances its sales of used vehicles to credit-impaired borrowers.

 

Substantially all of the Company’s automobile contracts involve financing to individuals with impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders. Financing made to borrowers who are restricted in their ability to obtain financing from traditional lenders generally entails a higher risk of delinquency, default and repossession, and higher losses than financing made to borrowers with better credit. Delinquency interrupts the flow of projected interest income and repayment of principal from a contract, and a default can ultimately lead to a loss if the net realizable value of the automobile securing the contract is insufficient to cover the principal and interest due on the contract or if the vehicle cannot be recovered. The Company’s profitability depends, in part, upon its ability to properly evaluate the creditworthiness of non-prime borrowers and efficiently service such contracts. Although the Company believes that its underwriting criteria and collection methods enable it to manage the higher risks inherent in financing made to non-prime borrowers, no assurance can be given that such criteria or methods will afford adequate protection against such risks. If the Company experiences higher losses than anticipated, its financial condition, results of operations and business prospects could be materially and adversely affected.

 

The Companys allowance for credit losses may not be sufficient to cover actual credit losses, which could adversely affect its financial condition and operating results.

 

When applicable, the Company has to recognize losses resulting from the inability of certain borrowers to pay contracts and the insufficient realizable value of the collateral securing contracts. The Company maintains an allowance for credit losses in an attempt to cover net credit losses expected over the remaining life of the contracts in the portfolio at the measurement date. Additional credit losses will likely occur in the future and may occur at a rate greater than the Company has experienced to date. The allowance for credit losses represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical credit loss experience, changes in contractual characteristics (i.e., average amount financed, term, and interest rates), and other  qualitative considerations, such as credit quality trends, collateral values, current and forecasted economic conditions, underwriting and collections practices, concentration risk, credit review, and other external factors. This evaluation is inherently subjective as it requires estimates of material factors that may be susceptible to significant change. If the Company’s assumptions and judgments prove to be incorrect, its current allowance for credit losses may not be sufficient and adjustments may be necessary to allow for different economic conditions or adverse developments in its contract portfolio which could adversely affect the Company’s financial condition and results of operations. At April 30, 2024 the Company had an allowance for credit losses at 25.32% (compared to 23.91% at April 30, 2023) of the principal balance of finance receivables, net of deferred revenue and pending APP claims. The increase in the allowance for credit losses was primarily due to continuing inflationary pressure on customers and the update to our calculation methodology and the performance of our loan portfolio in the second quarter of the fiscal year 2024. Any future deterioration in economic conditions or consumer financial health may result in additional future credit losses that may not be fully reflected in the allowance for credit losses.

 

20

 

The Companys success depends upon the continued contributions of its management teams and the ability to attract and retain qualified employees.

 

The Company is dependent upon the continued contributions of its management teams. Because the Company maintains a decentralized operation in which each dealership is responsible for inspecting and selling its own vehicles, making credit decisions and collecting contracts it originates, the key employees at each dealership are important factors in the Company’s ability to implement its business strategy. Consequently, the loss of the services of key employees could have a material adverse effect on the Company’s results of operations. In addition, when the Company decides to open new dealerships, the Company will need to hire additional personnel. The market for qualified employees in the industry and in the regions in which the Company operates is highly competitive and may subject the Company to increased labor costs during periods of low unemployment or times of increased competition for labor.

 

The Companys business is dependent upon the efficient operation of its information systems.

 

The Company relies on its information systems in managing its sales, inventory, consumer financing, and customer information effectively. The failure of the Company’s information systems to perform as designed, or the failure to maintain and continually enhance or protect the integrity of these systems, could disrupt the Company’s business, impact sales and profitability, or expose the Company to customer or third-party claims.

 

Security breaches, cyber-attacks or fraudulent activity could result in damage to the Company's operations or lead to reputational damage.

 

Our information and technology systems are vulnerable to damage or interruption from computer viruses, network failures, computer and telecommunications failures, infiltration by unauthorized persons and security breaches, usage errors by our employees, power outages and catastrophic events such as fires, tornadoes, floods, hurricanes and earthquakes. A security breach of the Company's computer systems could also interrupt or damage its operations or harm its reputation. In addition, the Company could be subject to liability if confidential customer information is misappropriated from its computer systems. Any compromise of security, including security breaches perpetrated on persons with whom the Company has commercial relationships, that result in the unauthorized release of its users’ personal information, could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to the Company's reputation, and a loss of confidence in the Company's security measures, which could harm its business. Any compromise of security could deter people from entering into transactions that involve transmitting confidential information to the Company's systems and could harm relationships with the Company's suppliers, which could have a material adverse effect on the Company's business. Actual or anticipated attacks may cause the Company to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants. Despite the implementation of security measures, these systems may still be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems. The Company may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks.

 

Most of the Company's customers provide personal information when applying for financing. The Company relies on encryption and authentication technology to provide security to effectively store and securely transmit confidential information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by the Company to protect transaction data being breached or compromised.

 

21

 

In addition, many of the third parties who provide products, services, or support to the Company could also experience any of the above cyber risks or security breaches, which could impact the Company's customers and its business and could result in a loss of customers, suppliers, or revenue.

 

We may be unable to keep pace with technological advances and changes in consumer behavior affecting our business, which could adversely affect our business, financial condition and results of operations.

 

We rely on our information technology systems to facilitate digital sales leads. Our ability to optimize our digital sales platform is affected by online search engines and classified sites that are not direct competitors but that may direct online traffic to the websites of competing automotive retailers. These third-party sites could make it more difficult for us to market our vehicles online and attract customers to our online offerings. Further, to address changes in consumer buying preferences and to improve customer experience, inventory procurement and recruiting and training, we make corresponding technology and systems upgrades. We may not be able to establish sufficient technological upgrades to support evolving consumer buying preferences and to keep pace with our competitors. If these systems fail to perform as designed or if we fail to respond effectively to consumer buying preferences or keep pace with technological advances by our competitors, it could have a material adverse effect on our business, financial condition and results of operations.

 

Changes in the availability or cost of capital and working capital financing could adversely affect the Companys growth and business strategies, and volatility and disruption of the capital and credit markets and adverse changes in the global economy could have a negative impact on the Companys ability to access the credit markets in the future and/or obtain credit on favorable terms.

 

The Company generates cash from income from continuing operations. The cash is primarily used to fund finance receivables growth. To the extent finance receivables growth exceeds income from continuing operations, the Company generally increases its borrowings under its revolving credit facilities and, more recently, has issued non-recourse notes through asset-back securitization transactions to provide the cash necessary to fund operations. On a long-term basis, the Company expects its principal sources of liquidity to consist of income from continuing operations and borrowings under revolving credit facilities and/or term securitizations. Any adverse changes in the Company’s ability to borrow under revolving credit facilities or by accessing the securitization market, or any increase in the cost of such borrowings, would likely have a negative impact on the Company’s ability to finance receivables growth which would adversely affect the Company’s growth and business strategies. Further, the Company’s current credit facilities and non-recourse notes payable contain various reporting and/or financial performance covenants. Any failure of the Company to comply with these covenants could have a material adverse effect on the Company’s operating results, financial condition, cash flow and ability to implement its business strategy.

 

If the capital and credit markets experience disruptions and/or the availability of funds becomes restricted, it is possible that the Company’s ability to access the capital and credit markets may be limited or available on less favorable terms which could have an impact on the Company’s ability to refinance maturing debt or react to changing economic and business conditions. In addition, if negative domestic or global economic conditions persist for an extended period of time or worsen substantially, the Company’s business may suffer in a manner which could cause the Company to fail to satisfy the financial and other restrictive covenants under its credit facilities.

 

The impact of climate-change related events, including efforts to reduce or mitigate the effects of climate change and inclement weather can adversely impact the Companys operating results.

 

The effects of climate change such as natural disasters or the occurrence of weather events, such as rain, snow, wind, storms, hurricanes, or other natural disasters, which can adversely affect consumer traffic and operations at the Company’s automotive dealerships as well as customers’ ability to make their car payments, could negatively impact the Company’s operating results. Further, the pricing of used vehicles is affected by, among other factors, consumer preferences, which may be impacted by consumer perceptions of climate change and consumer efforts to mitigate or reduce climate change-related events by purchasing vehicles that are viewed as more fuel efficient (including vehicles powered primarily or solely through electricity). An increase in the supply or a decrease in the demand for used vehicles may impact the resale value of the vehicles the Company sells. Moreover, the implementation of new or revised laws or regulations designed to address or mitigate the potential impacts of climate change (including laws which may adversely impact the auto industry in particular as a result of efforts to mitigate the factors contributing to climate change) could have a significant impact on the Company. Consequently, the impact of climate change-related events, including efforts to reduce or mitigate the effects of climate change, may adversely impact the Company’s operating results.

 

22

 

Risks Related to the Companys Common Stock

 

The Companys stock trading volume may result in greater volatility in the market price of the Companys common stock and may not provide adequate liquidity for investors.

 

Although shares of the Company’s common stock are traded on the NASDAQ Global Select Market, the average daily trading volume in the Company’s common stock is less than that of other larger automotive retail companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of a sufficient number of willing buyers and sellers of the common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control. Given the average daily trading volume of the Company’s common stock, the market price of the Company’s common stock may be subject to greater volatility than companies with larger trading volumes as smaller transactions can more significantly impact the Company’s stock price. Significant sales of the Company’s common stock in a brief period of time, or the expectation of these sales, could cause a decline in the price of the Company’s common stock. The price of the Company’s common stock may also be subject to wide fluctuations based upon the Company’s operating results, general economic and market conditions, general trends and prospects for our industry, announcements by competitors, the Company’s ability to achieve any long-term targets or performance metrics and other factors. Any such fluctuations could increase the Company’s risk of being subject to securities class action litigation, which could result in substantial costs, divert management’s attention and resources and have other material adverse impacts on the Company’s business. Additionally, low trading volumes may limit a stockholder’s ability to sell shares of the Company’s common stock.

 

The Company currently does not intend to pay future dividends on its common stock.

 

The Company historically has not paid cash dividends on its common stock and currently does not anticipate paying future cash dividends on its common stock. Any determination to pay future dividends and other distributions in cash, stock, or property by the Company in the future will be at the discretion of the Company’s Board of Directors and will be dependent on then-existing conditions, including the Company’s financial condition and results of operations and contractual restrictions. The Company is also limited in its ability to pay dividends or make other distributions to its shareholders without the consent of its lender. Therefore, stockholders should not rely on future dividend income from shares of the Company’s common stock.

 

Item 1B. Unresolved Staff Comments

 

Not applicable.

 

Item 1C. Cybersecurity

 

Material Effects of Cybersecurity Incidents

 

Risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected us, including our business strategy, results of operations, or financial condition. Further information regarding cybersecurity risks can be found in Item 1A. Risk Factors, of this Annual Report on Form 10-K.

 

 

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Cybersecurity Risk Management and Strategy

 

We consider the protection of our customers’ and corporate data to be a priority within our business. We continually monitor and assess the cybersecurity landscape and invest in enhancing our cybersecurity capabilities and strengthening our partnerships with appropriate business partners, service partners, and government and law enforcement agencies to understand the range of cybersecurity risks in the operating environment, enhance defenses, and improve resiliency against cybersecurity threats.  Through these partnerships, we incorporate threat intelligence, security operations, continuous training, and penetration testing. We strive to reduce the threat landscape for both the Company and our customers, through vigilantly monitoring systems and general technology controls.

 

Our efforts focus on protecting and enhancing the security of our information systems, software, networks, and other assets, whether commercial products or custom solutions. Our cybersecurity program focuses on protecting and enhancing the security of our information systems, software, networks, and other assets, whether commercial products or custom solutions. These efforts are under continuous review for improvement within the changing threat landscape and are designed to protect against, and mitigate the effects of, cybersecurity incidents that could result in unauthorized access to confidential, sensitive, or personal information of associates or customers or proprietary company information and potentially disrupt or impede our operations or otherwise cause harm to the Company, our customers, suppliers, dealers, or other key stakeholders.

 

Our cybersecurity program leverages both internal and external techniques and expertise across the cybersecurity spectrum. We maintain and utilize industry best practice capabilities, processes, and other security-related measures, based upon National Institute of Standards and Technology (NIST) and Control Objectives for Information Technologies (CoBIT) frameworks.  Our capabilities, processes, and other security measures include, among others: 

 

 

Threat detection through the use of security information and event management software;

 

Incident management processes for any security-related activity, requiring senior management signoff;

 

Corporate endpoint detection and response software, which monitors for malicious activities on external-facing endpoints;

 

Cloud monitoring tools, running on primary public and private cloud environments;

 

Data encryption at rest and during transit and immutable data backups; and

 

Business continuity, disaster recovery and incident response plans.

 

We also  expect our suppliers to follow the same industry-standard security practices that we follow.  Despite having thorough due diligence, onboarding, and cybersecurity assessment processes in place for our suppliers, the responsibility ultimately rests with our suppliers to establish and uphold their respective cybersecurity programs. The ability and availability of information to monitor the cybersecurity practices and controls of our suppliers is limited, and there can be no assurance that we can prevent or mitigate the risk of any compromise or failure in information systems, software, networks, and other assets owned or controlled by our suppliers. Although the Company attempts to manage its exposure to such events through the purchase of cyber liability insurance, such events are inherently unpredictable, and insurance may not be sufficient to protect the Company against all losses. There is no assurance that the Company's security systems or processes will prevent or mitigate future break-ins, tampering, security breaches or other cyber-related attacks.

 

Cybersecurity Governance

 

Our Board of Directors oversees the management of risks inherent in the operation of our business, with a focus on the most significant risks that we face, including those related to cybersecurity. Our Board of Directors has delegated oversight of cybersecurity, including privacy and information security, as well as enterprise risk management to the Innovation and Technology Committee. In connection with that oversight responsibility, our Senior Vice President of Technology and Chief Legal Officer meet with the Innovation and Technology Committee on a quarterly basis to provide information and updates on a range of cybersecurity topics which may include our cybersecurity program and governance processes; cyber risk monitoring and management; the status of projects to strengthen our cybersecurity and privacy capabilities; recent significant incidents or threats impacting our operations, industry, or third-party suppliers; and the emerging threat landscape.

 

24

 

Our information security team works closely with key stakeholders, including regulators, government agencies, law enforcement, peer institutions, industry groups, and develops and invests in talent and innovative technology to manage cybersecurity risk.

 

When a cybersecurity threat or incident is identified, the Senior Vice President of Technology and the security team works closely with cross functional committees, leveraging subject matter expertise across the organization, as part of our incident response plans and promptly provides information to senior management, with the goal of timely assessing such incidents, determining applicable disclosure requirements and communicating with the Chairs of the Innovation and Technology Committee and the Audit Committee, regarding any significant cybersecurity incidents, including those experienced by third party service providers, which may pose significant risk to our business, customers, clients, associates and stakeholders, and continues to provide regular reports until such incidents are concluded. The above framework tracks and allows team members to monitor each incident throughout its lifecycle to ensure the Company is informed about and following cybersecurity incidents as they are mitigated and remediated. Post-incident reviews are also performed to determine if there are any additional controls that may feasibly be implemented to prevent recurrence.

 

Item 2. Properties

 

As of April 30, 2024, the Company leased approximately 86% of its facilities, including dealerships and the Company’s corporate offices. These facilities are located principally in the states of Alabama, Arkansas, Georgia, Illinois, Kentucky, Mississippi, Missouri, Oklahoma, Tennessee and Texas. The Company’s corporate offices are located in approximately 50,000 square feet of leased space in Rogers, Arkansas. For additional information regarding the Company’s properties, see “Operations-Dealership Locations and Facilities” under Item 1 above.

 

Item 3. Legal Proceedings

 

In the ordinary course of business, the Company has become a defendant in various types of legal proceedings. While the outcome of these proceedings cannot be predicted with certainty, the Company does not expect the final outcome of any of these proceedings, individually or in the aggregate, to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

 

Item 4. Mine Safety Disclosure

 

Not applicable.

 

 

 

 

 

 

 

 

25

 

 

PART II

 

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information for Common Equity

 

The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol CRMT.

 

Holders of Record

 

As of June 19, 2024, there were approximately 988 shareholders of record. This number excludes stockholders holding the Company’s common stock as “beneficial owners” under nominee security position listings.

 

Stockholder Return Performance Graph

 

Set forth below is a line graph comparing the fiscal year end percentage change in the cumulative total stockholder return on the Company’s common stock to (i) the cumulative total return of the NASDAQ Market Index (U.S. companies), and (ii) the market-weighted value of a customized peer group of automotive dealership companies (“Auto Dealerships”) composed of the common stock of Asbury Automotive Group, Inc.; AutoNation, Inc.; CarMax, Inc.; Copart, Inc.; Group 1 Automotive, Inc.; Lithia Motors, Inc.; Penske Automotive Group, Inc.; Rush Enterprises, Inc.; and Sonic Automotive, Inc. for the period of five fiscal years commencing on May 1, 2019 and ending on April 30, 2024.

 

The graph assumes that the value of the investment in the Company’s common stock and each index or peer group was $100 on April 30, 2019.

 

perf.jpg

 

 

26

 

The dollar value at April 30, 2024 of $100 invested in the Company’s common stock on April 30, 2019 was $57.79, compared to $201.71 for the NASDAQ Market Index (U.S. Companies) and $249.06 for the Auto Dealerships peer group.

 

Dividend Policy

 

Since its inception, the Company has paid no cash dividends on its common stock. The Company currently intends for the foreseeable future to continue its policy of retaining earnings to finance future growth. Payment of cash dividends in the future will be determined by the Company's Board of Directors and will depend upon, among other things, the Company's future earnings, operations, capital requirements and surplus, general financial condition, contractual restrictions that may exist, and such other factors as the Board of Directors may deem relevant. The Company is also limited in its ability to pay dividends or make other distributions to its shareholders without the consent of its lender. Please see “Liquidity and Capital Resources” under Item 7 of Part II for more information regarding this limitation.

 

Issuer Purchases of Equity Securities

 

The Company is authorized to repurchase shares of its common stock under its common stock repurchase program. On December 14, 2020, the Board of Directors authorized the repurchase of up to an additional one million shares along with the balance remaining under its previous authorization approved and announced on November 16, 2017. No shares of the Company’s common stock were purchased under the Company’s stock repurchase program during fiscal 2024.

 

Item 6. [Reserved]

 

 

 

 

 

 

 

27

 

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto appearing in Item 8 of this Annual Report on Form 10-K.

 

Overview

 

America’s Car-Mart, Inc., a Texas corporation (the “Company”), is one of the largest publicly held automotive retailers in the United States focused exclusively on the “Integrated Auto Sales and Finance” segment of the used car market. References to the Company include the Company’s consolidated subsidiaries. The Company’s operations are principally conducted through its two operating subsidiaries, America’s Car Mart, Inc., an Arkansas corporation (“Car-Mart of Arkansas”), and Colonial Auto Finance, Inc., an Arkansas corporation (“Colonial”). Collectively, Car-Mart of Arkansas and Colonial are referred to herein as “Car-Mart.” The Company primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the Company’s customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems. As of April 30, 2024, the Company operated 154 dealerships located primarily in small cities throughout the South-Central United States.

 

Car-Mart has been operating since 1981. While Car-Mart has grown its revenues between approximately 3.5% and 31.2% per year over the last ten years preceding 2024 (average 12.0%), revenue for the fiscal year ended April 30, 2024, declined slightly compared to fiscal 2023 primarily due to an 8.8% decrease in retail units sold. The decrease was partially offset by a 5.7% increase in the average retail sales price and an 18.8% increase in interest income.

 

The Company earns revenue from the sale of used vehicles, and in most cases a related service contract and an accident protection plan product, as well as interest income and late fees from the related financing. The Company’s cost structure is more fixed in nature and is sensitive to volume changes. Revenue can be affected by our level of competition, which is influenced to a large extent by the availability of funding to the sub-prime automobile industry, together with the availability and resulting purchase cost of the types of vehicles the Company purchases for resale. Revenues can also be affected by the macro-economic environment. Down payments, contract term lengths and credit scoring are critical to helping customers succeed and are monitored closely by corporate management at the point of sale. After the sale, collections, delinquencies, and charge-offs are crucial elements of the Company’s evaluation of its financial condition and results of operations and are monitored and reviewed on a continuous basis. Management believes that developing and maintaining a relationship with its customers and earning their repeat business is critical to the success and growth of the Company and can serve to offset the effects of increased competition and negative macro-economic factors.

 

The Company focuses on the benefits of excellent customer service and its “local” face-to-face offering in an effort to help customers succeed, while continuing to enhance the Company’s digital services and offerings to meet growing demands for an integrated digital-online sales and service experience. The Company, over recent years, has focused on providing a good mix of vehicles in various price ranges to increase affordability for customers.

 

The purchase price the Company pays for its vehicles can also have a significant effect on revenues, liquidity and capital resources. Because the Company bases its selling price on the purchase cost of the vehicle, increases in purchase costs result in increased selling prices. As the selling price increases, it becomes more difficult to keep the gross margin percentage and contract term in line with historical results because the Company’s customers have limited incomes, and their car payments must remain affordable within their individual budgets. Decreases in the overall volume of new car sales, particularly domestic brands, lead to decreased supply and generally increased prices in the wholesale used car market. Also, expansions or constrictions in consumer credit, as well as general economic conditions, can have an overall effect on the demand and the resulting purchase cost of the types of vehicles the Company purchases for resale.

 

28

 

The COVID-19 global pandemic and the resulting macroeconomic effects have negatively impacted the availability and prices of the vehicles the Company purchases. Over the past three years, the reduction in new car production and fewer off-lease vehicles have negatively impacted the availability of used vehicle inventory and resulted in higher purchase costs. The Company constantly reviews and adjusts purchasing avenues to ensure an appropriate flow of vehicles. While the Company anticipates that the availability of used vehicles will remain constricted and keep purchase costs elevated in the near future, any decline in overall market pressures affecting the availability and costs of used vehicles could result in lower inventory purchase costs and present an opportunity for the Company to purchase slightly newer, lower mileage vehicle for its customers.

 

The Company consistently focuses on collections. Each dealership is responsible for its own collections with supervisory involvement of the corporate office. Over the last five fiscal years, the Company’s provision for credit losses as a percentage of sales has ranged from a low of approximately 19.31% in fiscal 2021 to 36.48% in fiscal 2024 (average of 26.36%). Credit loss results improved substantially in fiscal 2021 due to a lower frequency of losses and lower severity of loss amounts relative to the principal balance as the CARES Act enhanced unemployment and stimulus funds, combined with the Company’s commitment to working with customers, aided customers’ ability to make their vehicle payments. The improvement in credit losses as a percentage of sales for fiscal 2021 was further accelerated by the Company’s decision during the fourth quarter of fiscal 2021 to reduce the allowance for credit losses back to 23.55% of finance receivables, net of deferred revenue, which resulted in a $14.2 million pretax decrease in the provision for credit losses. The fiscal year 2022 credit losses began to normalize to pre-pandemic levels but were still below historical levels despite the increase in the average retail sales price. During fiscal year 2023, credit losses exceeded pre-pandemic levels, partially driven by the lack of federal stimulus payments in the current fiscal year as compared to prior fiscal years due to the expiration of the CARES Act and the Consolidated Appropriations Act of 2021, and partially driven by the current macro-economic environment at that time. During fiscal 2024, the provision for credit losses as a percentage of sales increased to 36.5%, primarily due to the $28 million increase in provision for credit losses during the three months ended October 31, 2023. The allowance for credit losses as a percentage of finance receivables, net of deferred revenue and pending accident protection plan (“APP”) claims, increased from 23.91% at April 30, 2023 to 26.04% at October 31, 2023 due to the implementation of the third-party software to assist in calculating the allowance for credit losses as well as the performance of the loan portfolio during the first six months of fiscal 2024. Based on the Company’s current analysis of credit losses, the allowance for credit losses at April 30, 2024 decreased to 25.32% of finance receivables, net of deferred revenue and pending APP claims, which was primarily driven by changes in the underwriting process and refinement to the underwriting guidelines due to the implementation of the Company’s new loan origination system. Following the implementation of our new loan origination system (LOS), we have experienced a notable decrease in the frequency and loss rate in charge-offs for loans originated through the LOS as compared to loans that were originated during the same period and the same dealership state using the legacy system. All the underwriting information for loans originated through the LOS is centrally located in the system, allowing dealerships to view internal scores, down-payment percentages, pre-qualification credit reports and other customer information.  Historically, dealerships have had to obtain this information from several sources. These changes to the underwriting process and refinement to our underwriting guidelines facilitate better-informed underwriting decisions due to all the information being readily available in a single location.

 

Historically, credit losses, on a percentage basis, tend to be higher at new and developing dealerships than at mature dealerships. Generally, this is because the management at new and developing dealerships tends to be less experienced in making credit decisions and collecting customer accounts and the customer base is less seasoned. More mature dealerships have more repeat customers and, on average, repeat customers are a better credit risk than non-repeat customers. Credit losses and charge-offs can also be impacted by market and economic factors, including a competitive used vehicle financing environment and macro-economic conditions such as inflation in the price of childcare, insurance, rent, gasoline, groceries, and other staple items. Negative macro-economic issues, however, do not always lead to higher credit loss results for the Company because the Company provides basic affordable transportation which in many cases is not a discretionary expenditure for customers.

 

29

 

The Company continuously looks for ways to operate more efficiently, improve its business practices and adjust underwriting and collection procedures. The Company has a proprietary credit scoring system which enables the Company to monitor the quality of contracts. Corporate office personnel monitor proprietary credit scores and work with dealerships when the distribution of scores falls outside of prescribed thresholds. The Company also uses credit reporting and the use of global positioning system (“GPS”) units on vehicles. Additionally, the Company’s training department continuously strengthens its training for collections.  The Company’s collections department and support staff oversee collections and provide timely oversight and additional accountability on a consistent basis. Collections growth is included in quarterly earnings reports. The Company believes that the proper execution of its business practices is the single most important determinant of its long-term credit loss experience.

 

Over the last five fiscal years, the Company’s gross margin as a percentage of sales has ranged from a high of approximately 40.2% in fiscal 2021 to a low of 33.5% in fiscal 2023 (average of 36.9%). The gross margin percentage increased in fiscal 2024 to 34.7%. The Company’s initiatives around inventory life cycle efficiencies and a decrease in wholesale losses also contributed to the increase in gross profit percent. The total gross dollars per retail unit sold increased from the prior fiscal year by $593, primarily as a result of the Company selling on average a higher priced vehicle in fiscal 2024. The Company’s gross margin is based upon the cost of the vehicle purchased, with lower-priced vehicles typically having higher gross margin percentages but lower gross profit dollars. Gross margin is also affected by the percentage of wholesale sales to retail sales, which relates for the most part to repossessed vehicles sold at or near cost. The Company plans to continue to focus on improving gross margin dollars in the near term, as demonstrated by the increases during fiscal 2024 as well as continuing to focus on improving wholesale results through its partnership with reconditioning companies, cost controls, and operational improvement around the acquisition and disposal of vehicles.

 

Hiring, training and retaining qualified associates is critical to the Company’s success. The Company’s ability to add new dealerships and implement operating initiatives is dependent on having a sufficient number of trained managers and support personnel. Excessive turnover, particularly at the dealership manager level, could impact the Company’s ability to add new dealerships and to meet operational initiatives. The landscape for hiring remains very competitive. The Company has continued to add resources to recruit, train, and develop personnel, especially personnel targeted to fill dealership manager positions. The Company expects to continue to invest in the development of its workforce.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

Consolidated Operations

(Operating Statement Dollars in Thousands)

 

                           

% Change

                         
                           

2024

   

2023

                         
   

Years Ended April 30,

   

vs.

   

vs.

   

As a % of Sales

 
   

2024

   

2023

   

2022

   

2023

   

2022

   

2024

   

2023

   

2022

 

Operating Statement:

                                                               

Revenues:

                                                               

Sales

  $ 1,160,798     $ 1,204,194     $ 1,038,682       (3.6 )%     15.9 %     100.0 %     100.0 %     100.0 %

Interest and other income

    233,096       196,219       151,853       18.8       29.2       20.1       16.3       14.6  

Total

    1,393,894       1,400,413       1,190,535       (0.5 )     17.6       120.1       116.3       114.6  
                                                                 

Costs and expenses:

                                                               

Cost of sales, excluding depreciation shown below

    758,546       800,788       658,615       (5.3 )%     21.6 %     65.3       66.5       63.4  

Selling, general and administrative

    179,421       176,696       156,130       1.5       13.2       15.5       14.7       15.0  

Provision for credit losses

    423,406       352,860       238,054       20.0       48.2       36.5       29.3       22.9  

Interest expense

    65,348       38,312       10,919       70.6       250.9       5.6       3.2       1.1  

Depreciation and amortization

    6,871       5,602       4,033       22.7       38.9       0.6       0.5       0.4  

Loss on disposal of property and equipment

    437       361       149       21.1       142.3       -       -       -  

Total

    1,434,029       1,374,619       1,067,900       4.3       28.7       123.5       114.2       102.8  
                                                                 

(Loss) income before income taxes

  $ (40,135 )   $ 25,794     $ 122,635                       (3.5 )%     2.1 %     11.8 %
                                                                 

Operating Data (Unaudited):

                                                               

Retail units sold

    57,989       63,584       60,595       (8.8 )%     4.9 %                        

Average dealerships in operation

    154       155       152       (0.6 )     2.0                          

Average units sold per dealership per month

    31.4       34.2       33.2       (8.2 )     3.0                          

Average retail sales price

  $ 19,113     $ 18,080     $ 16,372       5.7       10.4                          

Gross profit per retail unit sold

  $ 6,937     $ 6,344     $ 6,272       9.3       1.1                          

Same store revenue growth

    (1.0 )%     16.7 %     30.1 %                                        

Receivables average yield

    16.2 %     15.7 %     15.8 %                                        

 

Fiscal 2024 Compared to Fiscal 2023

 

Total revenues decreased $6.5 million, or 0.5%, in fiscal 2024, as compared to revenue growth of 17.6% in fiscal 2023, principally as a result of declines in revenue from (i) dealerships that operated a full twelve months in both fiscal years ($13.8 million), and (ii) dealerships that were closed during or after the year ended April 30, 2023 ($14.9 million), partially offset by revenue growth from (iii) dealerships opened or acquired after April 30, 2023 ($22.2 million). The decline in revenue for fiscal 2024 is attributable to an 8.8% decrease in retail units sold, largely reflecting the challenging macroeconomic environment for our customers, partially offset by an 18.8% increase in interest and other income and a 5.7% increase in the average retail sales price. Interest income increased approximately $36.9 million compared to fiscal 2023, due to the $187.9 million increase in average finance receivables.

 

Cost of sales, as a percentage of sales, decreased to 65.3% compared to 66.5% in fiscal 2023, resulting in an increase in the gross margin percentage to 34.7% of sales in fiscal 2024 from 33.5% of sales in fiscal 2023. On a dollar basis, our gross margin per retail unit sold increased by $593 in fiscal 2024 compared to fiscal 2023. The average retail sales price for fiscal 2024 was $19,113, a $1,033 increase over the prior fiscal year, with over half of the increase attributable to vehicle price and the remaining related to ancillary products. As purchase costs increase, the margin between the purchase cost and the sales price of the vehicles we sell generally narrows on a percentage basis because the Company must offer affordable prices to our customers. The Company initiated a strategic partnership with an industry leader and implemented initiatives around vehicle reconditioning efforts, transportation and scaling are expected to provide a better volume of affordable units.

 

Selling, general and administrative expenses, as a percentage of sales increased to 15.5% in fiscal 2024 from 14.7% for fiscal 2023. Selling, general and administrative expenses are, for the most part, more fixed in nature.  In dollar terms, selling, general and administrative expenses increased $2.8 million from fiscal 2023. The increase resulted from increased collections costs due primarily to a higher frequency of repossessions and increased spending in professional services around improvements in technology, as well as operating in a higher inflationary environment, which was partially offset by operational improvements and cost-cutting measures implemented in fiscal 2024. These efforts resulted in the lowest percentage change in annual selling, general and administrative expenses in over five years at just a 1.5% increase.

 

31

 

Provision for credit losses as a percentage of sales increased to 36.5% for fiscal 2024 compared to 29.3% for fiscal 2023. The provision for credit losses as a percentage of sales was higher during the current year due to the growth in the balance of finance receivables, net of deferred revenue of $61.7 million, coupled with a decrease in sales of $43.4 million. An increase in net charge-offs also contributed to the higher provision. Net charge-offs as a percentage of average finance receivables increased to 27.2% for fiscal 2024 compared to 23.3% for the prior year. The Company experienced continued increases in both the frequency and severity of losses, with the frequency increase accounting for over 80% of the increase as the Company’s customers continue to face pressures on higher average costs of everyday items. Severity was also higher due to the longer terms and lower recovery values. The increased frequency and severity of losses was partially mitigated by improved collection results from loans originated using our new LOS system compared to our outstanding loans originated under our legacy system. Approximately 20% of the portfolio balance of April 30, 2024 originated under the new LOS system.

 

Interest expense for fiscal 2024 as a percentage of sales increased to 5.6% in fiscal 2024 from 3.2% in fiscal 2023. The increase in interest expense is primarily due to the higher interest rates in 2024 as well as the higher average borrowings in fiscal 2024 ($730.3 million in fiscal 2024 compared to $568.3 million for fiscal 2023). 60% of the increase in interest expense is attributable to the higher interest rates in 2024 and 40% is attributable to the increase in borrowings.

 

Fiscal 2023 Compared to Fiscal 2022

 

Total revenues increased $209.9 million, or 17.6%, in fiscal 2023, as compared to revenue growth of 31.2% in fiscal 2022, principally as a result of (i) revenue growth from dealerships that operated a full twelve months in both fiscal years ($196.7 million), and (ii) revenue from stores opened or acquired during or after the year ended April 30, 2022 ($15.3 million), partially offset by (iii) decreased revenue from dealerships closed during or after the year ended April 30, 2022 ($2.1 million). The increase in revenue for fiscal 2023 is attributable to (i) a 10.4% increase in average retail sales price, (ii) a 4.9% increase in retail units sold and (iii) a 29.2% increase in interest and other income, due to the $289.2 million increase in average finance receivables.

 

Cost of sales, as a percentage of sales, increased to 66.5% compared to 63.4% in fiscal 2022, resulting in a decrease in the gross margin percentage to 33.5% of sales in fiscal 2023 from 36.6% of sales in fiscal 2022. On a dollar basis, our gross margin per retail unit sold increased by $72 in fiscal 2023 compared to fiscal 2022. The average retail sales price for fiscal 2023 was $18,080, a $1,708 increase over the prior fiscal year, reflecting the high demand for used cars, especially in the market we serve. As purchase costs increase, the margin between the purchase cost and the sales price of the vehicles we sell generally narrows on a percentage basis because the Company must offer affordable prices to our customers. Demand for the vehicles we purchase for resale remained high during fiscal 2023 and the supply continued to be restricted primarily due to lower levels of new car production. The inflationary environment during fiscal 2023 also contributed to the lower gross margin percentage due to increased costs of vehicle parts, shop labor rates and transport services.

 

Selling, general and administrative expenses, as a percentage of sales decreased to 14.7% in fiscal 2023 from 15.0% for fiscal 2022. Selling, general and administrative expenses are, for the most part, more fixed in nature. During fiscal 2023 we continued investments in inventory procurement, technology and digital areas as well as investing in key additions to our leadership team. In dollar terms, selling, general and administrative expenses increased $20.6 million from fiscal 2022. These investments are expected to be leveraged, creating efficiencies in the business allowing us to serve more customers in future years.

 

Provision for credit losses as a percentage of sales increased to 29.3% for fiscal 2023 compared to 22.9% for fiscal 2022. Net charge-offs as a percentage of average finance receivables increased to 23.3% for fiscal 2023 compared to 18.3% for the prior year. The stimulus payments during fiscal 2022 had positive impacts on collections and net charge-off metrics, while in fiscal 2023, the absence of stimulus payments, added inflationary pressures and the current macro-economic environment had a negative impact on collections and net charge-off metrics. Net charge offs began to normalize to pre-pandemic levels in late fiscal 2022 and continued to normalize during fiscal 2023. The primary driver was an increased frequency of losses; however, the relative severity of losses also increased.

 

32

 

Interest expense for fiscal 2023 as a percentage of sales increased to 3.2% from 1.1% in fiscal 2022. The increase in interest expense is primarily due to the higher interest rates in 2023 as well as the higher average borrowings in fiscal 2023 ($568.3 million in fiscal 2023 compared to $331.6 million for fiscal 2022). 71% of the increase in interest expense is attributable to the higher interest rates in 2023 and 29% is attributable to the increase in borrowings.

 

Financial Condition

 

The following table sets forth the major balance sheet accounts of the Company at April 30, 2024, 2023 and 2022 (in thousands):

 

   

April 30,

 
    2024    

2023

   

2022

 

Assets:

                       

Finance receivables, net

  $ 1,098,591     $ 1,063,460     $ 856,114  

Inventory

    107,470       109,290       115,302  

Income taxes receivable, net

    2,958       9,259       274  

Property and equipment, net(1)

    60,361       61,682       45,412  
                         

Liabilities:

                       

Accounts payable and accrued liabilities

    49,207       55,108       47,925  

Deferred revenue

    120,781       120,469       92,491  

Deferred income tax liabilities, net

    17,808       39,315       30,449  

Non-recourse notes payable, net

    553,629       471,367       395,986  

Revolving line of credit, net

    200,819       167,231       44,670  

 

 

(1)

Prepaid expenses and other assets at April 30, 2022, reflects an immaterial reclassification of approximately $6.0 million of capitalized implementation costs related to a cloud-computing arrangement previously recorded in Property and equipment, net, and did not impact operating income.

 

The following table shows receivables growth compared to revenue growth during each of the past three fiscal years. For fiscal year 2024, growth in finance receivables, net of deferred revenue, of 4.9% exceeded revenue decline of 0.5%, due primarily to the increases in term lengths of our installment sales contracts as the Company strives to keep payments affordable for our customers. The Company currently anticipates that the growth in finance receivables will generally be slightly higher than overall revenue growth on an annual basis due to overall term length increases in our installment sales contracts, partially offset by improvements in underwriting and collection procedures in an effort to reduce credit losses. The average term for installment sales contracts at April 30, 2024 was 47.9 months, compared to 46.3. months for April 30, 2023.

 

   

Years Ended April 30,

 
   

2024

   

2023

   

2022

 
                         

Growth in finance receivables, net of deferred revenue

    4.9 %     24.2 %     34.1 %

Revenue growth

    (0.5 )%     17.6 %     31.2 %

 

At fiscal year-end 2024, inventory decreased 1.7% ($1.8 million), compared to fiscal year-end 2023. The decrease in inventory reflects the Company’s initiatives around inventory life cycle efficiencies from procurement, reconditioning, wholesale efficiencies and repairs after the sale. Annualized inventory turns for fiscal year-end 2024 were 7.0 consistent with 7.1 for the prior year. The Company strives to improve the quality of the inventory and maintain adequate turns while maintaining inventory levels to ensure an adequate supply of vehicles, in volume and mix, and to meet sales demand. 

 

33

 

Property and equipment, net, decreased by approximately $1.3 million as of April 30, 2024 as compared to fiscal 2023. The Company incurred approximately $6.1 million in expenditures during fiscal year 2024, primarily related to remodeling of existing locations. These expenditures were offset by $6.9 million in depreciation expense during fiscal 2024.

 

Accounts payable and accrued liabilities decreased by approximately $5.9 million at April 30, 2024 as compared to April 30, 2023 primarily due to lower accounts payable related to decreased inventory and sales activity.

 

Deferred revenue increased $312,000 at April 30, 2024 over April 30, 2023, primarily resulting from the increase in average retail sales price as well as the increased terms on the service contracts, partially offset by the decrease in retail unit sold.

 

Deferred income tax liabilities, net, decreased approximately $21.5 million on April 30, 2024, compared to April 30, 2023. As of April 30, 2024, the Company had an expected federal net operating loss carryforward of $83 million, which may be carried forward indefinitely until the loss is fully recovered.

 

The Company had $553.6 million and $471.4 million of non-recourse notes payable outstanding related to asset-backed term funding transactions as of April 30, 2024 and 2023, respectively. These notes accrue interest at fixed rates with a weighted average rate of 9.0% as of April 30, 2024.

 

The Company also maintains a revolving line of credit with a group of lenders with available borrowings based on and secured by eligible finance receivables and inventory. Interest under the revolving credit facilities is payable monthly at an interest rate determined based on the Company’s consolidated leverage ratio for the preceding fiscal quarter. The current applicable interest rate under the credit facilities is generally the Secured Overnight Financing Rate (SOFR) plus 3.50%.  Borrowings on the Company’s revolving credit facilities fluctuate primarily based upon a number of factors including (i) net income, (ii) finance receivables changes, (iii) funds available from asset-backed securitization offerings and/or warehouse facilities, (iv) income taxes, (v) capital expenditures, and (vi) common stock repurchases. At April 30, 2024 and 2023 the Company had $200.8 million and $167.2 million, respectively, in outstanding borrowings under the revolving credit facilities.

 

Historically, income from continuing operations, as well as borrowings on the revolving credit facilities, have funded the Company’s finance receivables growth, capital asset purchases, and common stock repurchases. The Company also utilizes the securitization market and has recently entered into a warehouse facility to increase its borrowing capacities, with issuances of asset-backed non-recourse notes which may cause the revolving line of credit to fluctuate between securitization issuances.  The overall increase in total borrowings during fiscal 2024 was made to support an increase in finance receivables, with longer terms, and a growing customer base. This was partially offset by the payoff of the April 2022 asset-backed notes in the third quarter of fiscal 2024.

 

During fiscal 2024, the Company grew finance receivables by $62.0 million, decreased inventory by $1.8 million, and purchased investments and fixed assets of $11.0 million with a $115.8 million increase in total debt and a $89.4 million increase in debt, net of cash (a non-GAAP Measure). See “Non-GAAP Financial Measures” below for a reconciliation of debt, net of cash, to the most directly comparable GAAP financial measure. These investments reflect our commitment to providing the necessary inventory and facilities to support a growing customer base.

 

 

 

 

 

 

 

34

 

 

Liquidity and Capital Resources

 

The following table sets forth certain historical information with respect to the Company’s Statements of Cash Flows (in thousands):

 

   

Years Ended April 30,

 
   

2024

   

2023

   

2022

 

Operating activities:

                       

Net income

  $ (31,393 )   $ 20,432     $ 95,014  

Provision for credit losses

    423,406       352,860       238,054  

Losses on claims for accident protection plan

    34,504       25,107       21,871  

Depreciation and amortization

    6,871       5,602       4,033  

Amortization of debt issuance costs

    5,139       5,461       775  

Stock based compensation

    4,174       5,314       5,496  

Deferred income taxes

    (21,507 )     8,866       8,750  

Finance receivable originations

    (1,079,946 )     (1,161,132 )     (1,009,858 )

Finance receivable collections

    455,828       434,458       417,796  

Accrued interest on finance receivables

    (792 )     (1,188 )     (1,559 )

Inventory

    139,186       133,047       51,057  

Accounts payable and accrued liabilities

    (9,338 )     8,621       5,167  

Deferred accident protection plan revenue

    (1,229 )     17,150       21,850  

Deferred service contract revenue

    1,540       24,542       30,645  

Income taxes, net

    6,301       (8,984 )     (424 )

Other(1)

    (6,642 )     (5,884 )     (7,845 )

Total

    (73,898 )     (135,728 )     (119,178 )
                         

Investing activities:

                       

Purchase of investments

    (4,815 )     (5,549 )     (1,574 )

Purchase of property and equipment(1)

    (6,146 )     (22,106 )     (15,796 )

Proceeds from sale of property and equipment

    316       84       20  

Total

    (10,645 )     (27,571 )     (17,350 )
                         

Financing activities:

                       

Debt facilities, net

    27,330       119,580       (186,037 )

Non-recourse debt, net

    83,381       72,900       399,994  

Change in cash overdrafts

    823       -       (1,802 )

Purchase of common stock

    (365 )     (5,196 )     (34,698 )

Dividend payments

    (40 )     (40 )     (40 )

Exercise of stock options, including tax benefits and issuance of common stock

    (173 )     1,502       (1,195 )

Total

    110,956       188,746       176,222  
                         

Increase in cash, cash equivalents, and restricted cash

  $ 26,413     $ 25,447     $ 39,694  

 

 

(1)

Prepaid expenses and other assets at April 30, 2022, reflects an immaterial reclassification of approximately $6.0 million of capitalized implementation costs related to a cloud-computing arrangement previously recorded in Property and equipment, net, and did not impact operating income.

 

The primary drivers of operating profits and cash flows include (i) top line sales (ii) interest income on finance receivables, (iii) gross margin percentages on vehicle sales, and (iv) credit losses, a significant portion of which relates to the collection of principal on finance receivables. Historically, most of the cash generated from operations has been used to fund finance receivables growth, capital expenditures and common stock repurchases. To the extent finance receivables growth, common stock repurchases, and capital expenditures exceed income from operations, the Company has increased borrowings under our revolving credit facilities and secured additional funding through the issuance of asset-backed non-recourse notes.

 

35

 

Cash flows used in operating activities for fiscal 2024 compared to fiscal 2023 decreased primarily as a result of (i) an increase in the provision for credit losses and (ii) a decrease in finance receivable originations, partially offset by an (iii) increase in cash used for accounts payable and accrued liabilities and (iv) a net loss.

 

Cash flows used in operating activities for fiscal 2023 compared to fiscal 2022 increased primarily as a result of (i) an increase in finance receivable originations and (ii) a decrease in deferred revenue, partially offset by an increase in (iii) finance receivable collections.

 

The purchase price the Company pays for a vehicle has a significant effect on liquidity and capital resources. Because the Company bases its selling price on the purchase cost for the vehicle, increases in purchase costs result in higher selling prices. As the selling price increases, it generally becomes more difficult to keep the gross margin percentage and contract term in line with historical results because the Company’s customers have limited incomes, and their car payments must remain affordable within their individual budgets. Several external factors can negatively affect the purchase cost of vehicles. Decreases in the overall volume of new car sales, particularly domestic brands, lead to decreased supply in the used car market. Also, constrictions in consumer credit, as well as general economic conditions, can increase overall demand for the types of vehicles the Company purchases for resale as used vehicles become more attractive than new vehicles in times of economic instability. A negative shift in used vehicle supply, combined with strong demand for used vehicles, results in increased used vehicle prices and thus higher purchase costs for the Company.

 

Sustained macro-economic pressures affecting our customers have helped keep demand high in recent years for the types of vehicles we purchase. This strong demand for used vehicles, coupled with modest levels of new vehicle sales in recent years, have led to a generally ongoing tight supply of used vehicles available to the Company in both quality and quantity. Wholesale prices continued to soften in calendar year 2024 but remain high compared to the last several years.  The Company expects the tight used vehicle supply and strong demand for the types of vehicles we purchase to continue to keep purchase costs and resulting sales prices elevated for the short term but anticipates that an increase in marketplace wages for our customers could enhance affordability.

 

The Company has devoted significant efforts to improving its purchasing processes to ensure adequate supply at appropriate prices which includes the new partnership with an industry leader, expanding its purchasing territories to larger cities in close proximity to its dealerships and forming relationships with reconditioning partners to reduce purchasing costs. The Company has also increased the level of accountability for its purchasing agents including updates to sourcing and pricing guidelines. The Company continues to build relationships with national vendors that can supply a large quantity of high-quality vehicles.  

 

The Company’s liquidity is also impacted by our credit losses. Macro-economic factors such as unemployment levels and general inflation on core and discretionary items can significantly affect our collection results and ultimately credit losses. Currently, as our customers look to cover rising costs of non-discretionary items, such as childcare, insurance, groceries and gasoline, it may impact their ability to make their car payments. The Company has made improvements to its business processes via the implementation of the loan origination system during the last two years to strengthen controls and provide stronger infrastructure to support its collections efforts. The Company continues to strive to reduce credit losses in spite of the current economic challenges and continued competitive pressures by improving deal structures. Management continues to focus on improved execution at the dealership level, specifically as related to working individually with customers concerning collection issues.

 

The Company’s collection results, credit losses and liquidity are also affected by the availability of funding to the sub-prime auto industry. In recent years, increased competition as well as the increasing used car prices resulting from the availability of funding to the sub-prime auto industry has contributed to the Company reducing down payments and lengthening contract terms for our customers, which negatively pressured collection percentages and credit losses and increased our need for external sources of liquidity. During fiscal years 2023 and 2024, the availability of credit to the Company’s customer base was somewhat dampened but remained near recent historical levels. The Company believes that the amount of credit available for the sub-prime auto industry, even with it tightening in 2023 and 2024, will remain relatively consistent with levels in recent years, which management expects will contribute to continued demand for most, if not all, of the vehicles the Company purchases for resale.

 

36

 

The Company’s business model relies on leasing the majority – approximately 86% as of April 30, 2024 – of the properties where its dealerships are located. At April 30, 2024 the Company had $82.9 million of operating lease commitments, including $23.8 million of non-cancelable lease commitments under the lease terms, and $59.1 million of lease commitments for renewal periods at the Company’s option that are reasonably assured. Of the $82.9 million in lease obligations, $42.4 million of these commitments will become due in more than five years. The Company expects to continue to lease the majority of the properties where its dealerships are located.

 

The Company’s revolving credit facilities generally restrict distributions by the Company to its shareholders. The distribution limitations under the credit facilities allow the Company to repurchase the Company’s stock if either: (a) the aggregate amount of such repurchases after September 30, 2021 does not exceed $50 million, net of proceeds received from the exercise of stock options, and the total availability under the credit facilities is equal to or greater than 20% of the sum of the borrowing bases, in each case after giving effect to such repurchases (repurchases under this item are excluded from fixed charges for covenant calculations), or (b) the aggregate amount of such repurchases does not exceed 75% of the consolidated net income of the Company measured on a trailing twelve month basis; provided that immediately before and after giving effect to the stock repurchases, at least 12.5% of the aggregate funds committed under the credit facilities remain available. Thus, although the Company does routinely repurchase stock, the Company is limited in its ability to pay dividends or make other distributions to its shareholders without the consent of the Company’s lenders.

 

At April 30, 2024, the Company had approximately $5.5 million of cash on hand and $73.4 million of availability under its revolving credit facilities (see Note F to the Consolidated Financial Statements in Item 8). On a short-term basis, the Company’s principal sources of liquidity include income from operations, proceeds from non-recourse notes payable issued under asset-back securitization transactions, warehouse facilities, borrowings under its revolving credit facilities, and other potential financing sources. On a longer-term basis, the Company expects its principal sources of liquidity to consist of income from operations, funding from asset-back securitization transactions, warehouse facilities, borrowings under revolving credit facilities or fixed interest term loans, and other potential financing sources. In February 2024, the Company entered into Amendment No. 6 to its revolving credit agreement (see Note F to the Consolidated Financial Statements) which extends the term of the Company’s revolving credit facilities to September 30, 2025, and reduces the total permitted borrowings from $600 million to $340 million. The reduction in the facility size relates primarily to the Company’s utilization of funding from recent issuances of asset-backed non-recourse notes, as well as two lenders withdrawing from the facility in connection with the Amendment. In July 2024, the Company entered into Amendment No. 7 to its revolving credit agreement to allow for, among other things, the entry into an amortizing warehouse agreement with recourse against the Company with respect to up to 10% of the aggregate amount borrowed under the warehouse facility and to amend the fixed charge coverage ratio under the credit agreement.

 

The Company expects to use cash from operations and borrowings to (i) grow its finance receivables portfolio, (ii) purchase fixed assets of approximately $6 million in the next 12 months as we complete facility updates and general fixed asset requirements, (iii) repurchase shares of common stock when favorable conditions exist and (iv) reduce debt to the extent excess cash is available. The Company projects total interest payments of 69.6 million over the next twelve months as of April 30, 2024, and approximately $34.5 million to be paid thereafter based on its current total outstanding debt facilities as of the date of this report.

 

In July 2024, the Company entered into a $150 million amortizing warehouse agreement backed by a portion of its finance receivables.  The warehouse facility accrues interest at a rate of SOFR plus 350 basis points, with payments of principal and interest due monthly and a scheduled maturity date of  July 12, 2026. The company primarily plans to use the funds from the warehouse facility to pay down the current revolving loan balance. The Company believes it will have adequate liquidity to continue to grow its revenues and satisfy its capital needs for the foreseeable future.

 

Off-Balance Sheet Arrangements

 

The Company has two standby letters of credit relating to insurance policies totaling $3.9 million at April 30, 2024.

 

Other than its letters of credit, the Company is not a party to any off-balance sheet arrangement that management believes is reasonably likely to have a current or future effect on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

37

 

Related Finance Company Contingency

 

Car-Mart of Arkansas and Colonial do not meet the affiliation standard for filing consolidated income tax returns, and as such they file separate federal and state income tax returns. Car-Mart of Arkansas routinely sells its finance receivables to Colonial at what the Company believes to be fair market value and is able to take a tax deduction at the time of sale for the difference between the tax basis of the receivables sold and the sales price. These types of transactions, based upon facts and circumstances, have been permissible under the provisions of the Internal Revenue Code as described in the Treasury Regulations. For financial accounting purposes, these transactions are eliminated in consolidation and a deferred income tax liability has been recorded for this timing difference. The sale of finance receivables from Car-Mart of Arkansas to Colonial provides certain legal protection for the Company’s finance receivables and, principally because of certain state apportionment characteristics of Colonial, also has the effect of reducing the Company’s overall effective state income tax rate. The actual interpretation of the Regulations is in part a facts and circumstances matter. The Company believes it satisfies the material provisions of the Regulations. Failure to satisfy those provisions could result in the loss of a tax deduction at the time the receivables are sold and have the effect of increasing the Company’s overall effective income tax rate as well as the timing of required tax payments.

 

The Company’s policy is to recognize accrued interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company had no accrued penalties or interest as of April 30, 2024.

 

Critical Accounting Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires the Company to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the Company’s estimates. The Company believes the most significant estimate made in the preparation of the Consolidated Financial Statements in Item 8 relates to the determination of its allowance for credit losses, which is discussed below. The Company’s accounting policies are discussed in Note B to the Consolidated Financial Statements in Item 8.

 

The Company maintains an allowance for credit losses on an aggregate basis at a level it considers sufficient to cover estimated losses expected to be incurred on the portfolio at the measurement date in the collection of its finance receivables currently outstanding. At April 30, 2024, the weighted average contract term was 47.9 months with 36.1 months remaining. The allowance for credit losses at April 30, 2024 of $331.3 million, was 25.32% of the principal balance in finance receivables of $1.4 billion, less unearned accident protection plan revenue of $51.8 million, unearned service contract revenue of $68.9 million and, pending APP claims of $6.4 million. The Company increased the allowance for credit losses as a percentage of finance receivables from 23.91% at April 30, 2023 to 25.32% at April 30, 2024.

 

The allowance for credit losses represents the Company’s expectation of future net charge-offs at the measurement date. The allowance takes into account quantitative and qualitative factors such as historical credit loss experience, with consideration given to changes in contract characteristics (i.e., average amount financed, greater than 30-day delinquencies, term, and interest rates), credit quality trends, collateral values, current and forecasted inflationary economic conditions, underwriting and collection practices, concentration risk, credit review, and other external factors. The allowance for credit losses is reviewed at least quarterly by management with any changes reflected in current operations.

 

38

 

The allowance for credit losses is a critical accounting estimate for the following reasons:

 

 

estimates relating to the allowance for credit losses require management to project future loan performance, including cash flows, prepayments, and charge-offs;

 

 

the allowance for credit losses is influenced by factors outside of management’s control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions including, but not limited to, inflation; and

 

 

judgment is required to determine whether the model used to generate the allowance for credit losses produces results that appropriately reflect a current estimate of lifetime expected credit losses.

 

Because management’s estimate of the allowance for credit losses involves a high degree of qualitative judgment, such as the subjectivity of the assumptions used, there is uncertainty inherent in such estimates. Changes in these estimates could significantly impact the allowance and provision for credit losses.

 

Recent Accounting Pronouncements

 

Occasionally, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies which the Company will adopt as of the specified effective date. Unless otherwise discussed, the Company believes the implementation of recently issued standards which are not yet effective will not have a material impact on its consolidated financial statements upon adoption.

 

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments Credit Losses. The guidance changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. This guidance will affect the Company’s vintage disclosures related to current-period gross write-offs by year of origination for financing receivables.  The amendments in this update are effective for fiscal years beginning after December 15, 2022. The Company adopted this standard on May 1, 2023, under a prospective basis. In regard to installment sale contract modifications, management notes that the Company primarily modifies a customer’s installment sale contract to allow for insignificant payment delays.  This type of modification is generally done to account for payday changes for the customer and minor vehicle repairs.

 

In October 2023, the FASB issued an accounting pronouncement (ASU 2023-06) related to disclosure or presentation requirements for various subtopics in the FASB’s Accounting Standards Codification (“Codification”). The amendments in the update are intended to align the requirements in the Codification with the U.S. Securities and Exchange Commission's (“SEC”) regulations and facilitate the application of GAAP for all entities. The effective date for each amendment is the date on which the SEC removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or if the SEC has not removed the requirements by June 30, 2027, this amendment will be removed from the Codification and will not become effective for any entity. Early adoption is prohibited. We do not expect this update to have a material impact on our consolidated financial statements.

 

In December 2023, the FASB issued an accounting pronouncement (ASU 2023-09) related to income tax disclosures. The amendments in this update are intended to enhance the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information. This update is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. We plan to adopt this pronouncement for our fiscal year beginning May 1, 2025, and we do not expect it to have a material effect on our consolidated financial statements.

 

 

39

 

Non-GAAP Financial Measure

 

This Annual Report on Form 10-K contains financial information determined by methods other than in accordance with generally accepted accounting principles (GAAP). We present debt, net of cash, and an adjusted debt to finance receivables ratio, each a non-GAAP financial measure, as supplemental measures of our financial condition. Debt, net of cash, is defined as total debt minus total cash, cash equivalents, and restricted cash on the balance sheet. The adjusted debt to finance receivables ratio is defined as the ratio of total debt, net of total cash, cash equivalents, and restricted cash divided by the outstanding principal balance of our finance receivables. We believe debt, net of cash, and the adjusted debt to finance receivables ratio are useful measures to monitor leverage and evaluate balance sheet risk. These measures should not be considered in isolation or as substitutes for reported GAAP results because they exclude certain items as compared to similar GAAP-based measures, and such measures may not be comparable to similarly-titled measures reported by other companies. We strongly encourage investors to review our consolidated financial statements included in this Annual Report on Form 10-K in their entirety and not rely solely on any one, single financial measure.  The reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures as of April 30, 2024, are provided in the table below.

 

   

April 30, 2024

   

April 30, 2023

 

Debt:

               

Revolving lines of credit, net

  $ 200,819     $ 167,231  

Non-recourse notes payable, net

    553,629       471,367  

Total debt

  $ 754,448     $ 638,598  
                 

Cash:

               

Cash and cash equivalents

  $ 5,522     $ 9,796  

Restricted cash from collections on auto finance receivables

    88,925       58,238  

Total cash, cash equivalents, and restricted cash

  $ 94,447     $ 68,034  
                 

Debt, net of total cash

  $ 660,001     $ 570,564  
                 

Principal balance of finance receivables

  $ 1,435,388     $ 1,373,372  
                 

Ratio of debt to finance receivables

    52.6 %     46.5 %

Ratio of debt, net of total cash, to finance receivables

    46.0 %     41.5 %

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

The Company is exposed to market risk on its financial instruments from changes in interest rates. In particular, the Company has historically had exposure to changes in the federal primary credit rate and changes in the prime interest rate of its lender. The Company does not use financial instruments for trading purposes but has in the past utilized an interest rate swap agreement to manage interest rate risk.

 

Interest rate risk.  The Company’s exposure to changes in interest rates relates primarily to its debt obligations. The Company is exposed to changes in interest rates as a result of its revolving credit facilities, and the interest rates charged to the Company under its credit facilities fluctuate based on its primary lender’s base rate of interest. The Company had an outstanding balance on its revolving line of credit of $200.8 million at April 30, 2024 and $167.2 million at April 30, 2023. The impact of a 1% increase in interest rates would result in increased annual interest expense of approximately $2.0 million and $1.7 million based on the amounts outstanding at April 30, 2024 and 2023, respectively, and a corresponding decrease in net income before income tax.

 

The Company’s earnings are impacted by its net interest income, which is the difference between the income earned on interest-bearing assets and the interest paid on interest-bearing notes payable. During the third quarter of fiscal 2024, the Company increased the interest rate by 0.25%. The Company’s finance receivables now carry a fixed annual interest rate of 18.25% (up from 18.0% at April 30, 2023) for all states, except Arkansas at 16.75% (which is subject to a usury cap of 17.0%), Illinois (originates at 19.5% – 21.5%), and acquired dealerships in Tennessee (which originate at up to 23.0%), based on the Company’s contract interest rate as of the contract origination date, while its revolving credit facilities contain variable interest rates that fluctuate with market interest rates.

 

40

 

 

Item 8. Financial Statements and Supplementary Data

 

The following financial statements and accountant’s report are included in Item 8 of this Annual Report on Form 10-K:

 

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248)

 

Consolidated Balance Sheets as of April 30, 2024 and 2023

 

Consolidated Statements of Operations for the years ended April 30, 2024, 2023 and 2022

 

Consolidated Statements of Cash Flows for the years ended April 30, 2024, 2023 and 2022

 

Consolidated Statements of Equity for the years ended April 30, 2024, 2023 and 2022

 

Notes to Consolidated Financial Statements

 

41

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Shareholders

America’s Car-Mart, Inc.

 

Opinion on the financial statements

 

We have audited the accompanying consolidated balance sheets of America’s Car-Mart, Inc. (a Texas corporation) and subsidiaries (the “Company”) as of April 30, 2024 and 2023, the related consolidated statements of operations, cash flows, and equity for each of the three years in the period ended April 30, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2024, in conformity with accounting principles generally accepted in the United States of America.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of April 30, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated July 15, 2024 expressed an unqualified opinion.

 

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Allowance for credit losses

As described further in Notes B and C to the consolidated financial statements, the Company recorded an allowance for credit losses of $331.3 million on finance receivables of $1.4 billion as of April 30, 2024. Management estimates the allowance for credit losses on finance receivables by performing an undiscounted cash flow model adjusted by a prepayment rate. A loss-rate using historical credit loss experience (both timing and severity of losses) and collateral values is then applied to the amortized cost basis of the finance receivables. The estimate is adjusted for conditions which include factors such as adjustments for changes in underwriting, customer credit deterioration and customer delinquency rates. The estimate is further adjusted for reasonable and supportable forecasts for the expected effects of macroeconomic factors, such as the effects of current and forecasted inflation. We identified the allowance for credit losses as a critical audit matter.

 

The principal considerations for our determination that the allowance for credit losses is a critical audit matter are the significant judgements made by management in adjusting the historical loss experience to reflect current conditions and the selection and measurement of factors to account for the reasonable and supportable forecast period. Evaluating management’s conclusion involved a high degree of auditor judgement in performing our audit procedures.

 

42

 

Our audit procedures related to the allowance for credit losses included the following, among others:

 

 

We tested the design and operating effectiveness of management’s review control over the allowance for credit losses, which included the selection and measurement of adjustments related to changes in underwriting, customer credit deterioration, customer delinquency rates as well as the expected effects from current and forecasted inflation, on the allowance for credit losses.

 

 

We tested management’s process for determining the allowance for credit losses, which included the selection and measurement of adjustments related to underwriting, customer credit deterioration, customer delinquency rates as well as the expected effects from current and forecasted inflation on the allowance for credit losses.

 

We have served as the Company’s auditor since 1999.

 

 

/s/ GRANT THORNTON LLP

 

Tulsa, Oklahoma

July 15, 2024

 

 

 

 

 

43

 

 

 

Consolidated Balance Sheets

Americas Car-Mart, Inc.

(Dollars in thousands, except share and per share amounts)

 

   

April 30, 2024

   

April 30, 2023

 

Assets:

               

Cash and cash equivalents

  $ 5,522     $ 9,796  

Restricted cash

    88,925       58,238  

Accrued interest on finance receivables

    6,907       6,115  

Finance receivables, net

    1,098,591       1,063,460  

Inventory

    107,470       109,290  

Income taxes receivable, net

    2,958       9,259  

Prepaid expenses and other assets

    31,276       26,039  

Right-of-use asset

    61,185       59,142  

Goodwill

    14,449       11,716  

Property and equipment, net

    60,361       61,682  
                 

Total Assets

  $ 1,477,644     $ 1,414,737  
                 

Liabilities, mezzanine equity and equity:

               

Liabilities:

               

Accounts payable

  $ 21,379     $ 27,196  

Deferred accident protection plan revenue

    51,836       53,065  

Deferred service contract revenue

    68,945       67,404  

Accrued liabilities

    27,828       27,912  

Deferred income tax liabilities, net

    17,808       39,315  

Lease liability

    64,250       62,300  

Non-recourse notes payable, net

    553,629       471,367  

Revolving line of credit, net

    200,819       167,231  

Total liabilities

    1,006,494       915,790  
                 

Commitments and contingencies (Note L)

           
                 

Mezzanine equity:

               

Mandatorily redeemable preferred stock

    400       400  
                 

Equity:

               

Preferred stock, par value $.01 per share, 1,000,000 shares authorized;

none issued or outstanding
    -       -  
Common stock, par value $.01 per share, 50,000,000 shares authorized;
13,727,013 and 13,701,468 issued at April 30, 2024 and April 30, 2023,
respectively, of which 6,394,675 and 6,373,404 were outstanding at
April 30, 2024 and April 30, 2023, respectively
    137       137  

Additional paid-in capital

    113,930       109,929  

Retained earnings

    654,369       685,802  

Less: Treasury stock, at cost, 7,332,338 and 7,328,064

shares at April 30, 2024 and April 30, 2023, respectively
    (297,786 )     (297,421 )

Total stockholders' equity

    470,650       498,447  

Non-controlling interest

    100       100  

Total equity

    470,750       498,547  
                 

Total Liabilities, mezzanine equity and equity

  $ 1,477,644     $ 1,414,737  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

44

 

 

 

Consolidated Statements of Operations

Americas Car-Mart, Inc.

(Dollars in thousands except share and per share amounts)

 

   

Years Ended April 30,

 
   

2024

   

2023

   

2022

 

Revenues:

                       

Sales

  $ 1,160,798     $ 1,204,194     $ 1,038,682  

Interest and other income

    233,096       196,219       151,853  
                         

Total revenues

    1,393,894       1,400,413       1,190,535  
                         

Costs and expenses:

                       

Cost of sales, excluding depreciation

    758,546       800,788       658,615  

Selling, general and administrative

    179,421       176,696       156,130  

Provision for credit losses

    423,406       352,860       238,054  

Interest expense

    65,348       38,312       10,919  

Depreciation and amortization

    6,871       5,602       4,033  

Loss on disposal of property and equipment

    437       361       149  

Total costs and expenses

    1,434,029       1,374,619       1,067,900  
                         

(Loss) income before income taxes

    (40,135 )     25,794       122,635  
                         

(Benefit) provision for income taxes

    (8,742 )     5,362       27,621  
                         

Net (loss) income

  $ (31,393 )     20,432     $ 95,014  
                         

Less: Dividends on mandatorily redeemable
preferred stock

    40       40       40  
                         

Net (loss) income attributable to common stockholders

  $ (31,433 )   $ 20,392     $ 94,974  
                         

Earnings per share:

                       

Basic

  $ (4.92 )   $ 3.20     $ 14.59  

Diluted

  $ (4.92 )   $ 3.11     $ 13.92  
                         

Weighted average number of shares outstanding:

                       

Basic

    6,388,537       6,371,229       6,509,673  

Diluted

    6,388,537       6,566,896       6,823,481  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

45

 

 

 

Consolidated Statements of Cash Flows

Americas Car-Mart, Inc.

(In thousands)

 

   

Years Ended April 30,

 

Operating activities:

 

2024

   

2023

   

2022

 

Net income

  $ (31,393 )   $ 20,432     $ 95,014  

Adjustments to reconcile net income to net cash provided by operating activities:

                       

Provision for credit losses

    423,406       352,860       238,054  
Losses on claims for accident protection plan     34,504       25,107       21,871  

Depreciation and amortization

    6,871       5,602       4,033  

Amortization of debt issuance costs

    5,139       5,461       775  

Loss on disposal of property and equipment

    437       361       149  

Stock-based compensation

    4,174       5,314       5,496  

Impairment of goodwill

    267       -       -  

Deferred income taxes

    (21,507 )     8,866       8,750  

Change in operating assets and liabilities:

                       

Finance receivable originations

    (1,079,946 )     (1,161,132 )     (1,009,858 )

Loan origination costs

    40       (10 )     (20 )

Finance receivable collections

    455,828       434,458       417,796  

Accrued interest on finance receivables

    (792 )     (1,188 )     (1,559 )

Inventory

    139,186       133,047       51,057  

Prepaid expenses and other assets

    (7,386 )     (6,235 )     (7,974 )

Accounts payable and accrued liabilities

    (9,338 )     8,621       5,167  

Deferred accident protection plan revenue

    (1,229 )     17,150       21,850  

Deferred service contract revenue

    1,540       24,542       30,645  

Income taxes, net

    6,301       (8,984 )     (424 )

Net cash used in operating activities

    (73,898 )     (135,728 )     (119,178 )
                         

Investing Activities:

                       

Purchase of investments

    (4,815 )     (5,549 )     (1,574 )

Purchases of property and equipment

    (6,146 )     (22,106 )     (15,796 )

Proceeds from sale of property and equipment

    316       84       20  

Net cash used in investing activities

    (10,645 )     (27,571 )     (17,350 )
                         

Financing Activities:

                       

Exercise of stock options

    (455 )     1,216       (1,488 )

Issuance of common stock

    282       286       293  

Purchase of common stock

    (365 )     (5,196 )     (34,698 )

Dividend payments

    (40 )     (40 )     (40 )

Debt issuance costs

    (5,897 )     (2,263 )     (6,108 )

Change in cash overdrafts

    823       -       (1,802 )

Issuances of non-recourse notes payable

    610,340       400,176       399,994  

Principal payments on notes payable

    (526,959 )     (327,276 )     -  

Proceeds from revolving credit facilities

    554,593       524,531       331,113  

Payments on revolving credit facilities

    (521,366 )     (402,688 )     (511,042 )

Net cash provided by financing activities

    110,956       188,746       176,222  
                         

Increase in cash, cash equivalents, and restricted cash

    26,413       25,447       39,694  

Cash, cash equivalents, and restricted cash beginning of period

    68,034       42,587       2,893  
                         

Cash, cash equivalents, and restricted cash end of period

  $ 94,447     $ 68,034     $ 42,587  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

46

 

 

 

Consolidated Statements of Equity

Americas Car-Mart, Inc.

(Dollars in thousands, except share amounts)

 

For the Years Ended April 30, 2024, 2023 and 2022

 

                   

Additional

                   

Non-

         
   

Common Stock

   

Paid-In

   

Retained

   

Treasury

   

Controlling

   

Total

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Stock

   

Interest

   

Equity

 
                                                         

Balance at April 30, 2021

    13,591,889     $ 136     $ 98,812     $ 570,436     $ (257,527 )   $ 100     $ 411,957  
                                                         

Issuance of common stock

    9,721       -       293       -       -       -       293  

Stock options exercised

    40,575               (1,488 )