Below is a summary of dealership locations by state as of April 30, 2016, 20152022, 2021 and 2014:2020:

Dealerships are typically located in smaller communities. As of April 30, 2016,2022, approximately 75%71% of the Company’s dealerships were located in cities with populations of less than 50,000. Dealerships are located on leased or owned property between one and three acres in size. When opening a new dealership, the Company will typically use an existing structure on the property to conduct business or purchase a modular facility while business at the new location develops. 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, individuals and auctions. The majority of vehicleVehicle purchasing is performed by the Company’s buyers,purchasing agents, although dealership managers are authorized to purchase vehicles as needed. A buyerneeded, as well as a purchasing agent will purchase vehicles for one to fourthree dealerships depending on the size of the dealerships. BuyersPurchasing agents report to the dealership manager, or managers, for whom they make purchases, and to a regional purchasing director. The regional purchasing directors report to the Director of Purchasing.purchases. The Company centrally monitors the quantity and quality of vehicles purchased and continuously compares the cost of vehicles purchased to outside valuation sources and holds responsible parties accountable for results.results, including corporate level purchases from larger wholesale vendors that can supply a large quantity of high-quality vehicles. The Company has grown its preferred vendor network for used vehicles and plans to continue to leverage its industry partnerships.

Generally, the Company’s buyers purchaseCompany purchases vehicles between six5 and 12 years of age with 90,00070,000 to 140,000150,000 miles and paypays between $3,000$5,000 and $7,000$20,000 per vehicle. The Company focuses on providing basic transportation to its customers. The Company generallysells a variety of vehicles, that include primarily, sport utility vehicles, trucks, and sedans. The Company typically does not purchase sports cars or luxury cars. Some of the more popular vehicles the Company sells include the Chevrolet Impala, Chevrolet Malibu, Chrysler 300, Ford Taurus, Ford Fusion, Dodge Ram Pickup, Ford Explorer and the Ford F-150 Pickup. The Company sells a significant number of trucks and sport utility vehicles. The Company’s buyerspurchasing agents or general managers inspect and test-drive almost every vehicle they purchase. Buyers attemptprior 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. The Company has formed relationships with recondition facilities to recondition vehicles, in particular repossessions and trades, in order to have access to lower cost vehicles.

Selling, Marketing and Advertising. Dealerships generally maintain an inventory of 2520 to 7590 vehicles depending on the size and maturity of the dealership and the time of the year. Inventory turns over approximately 97 to 109 times each year. Selling is done principallypredominantly by the dealership manager, assistant manager, manager trainee or sales associate. Sales associates are paid a commission for sales that they make 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 partythird-party service centers with which the Company typically has previously negotiated labor rates and mark-up percentages on parts. Substantially allrates. 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 a paymentan accident protection plan product. This 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. This product is available in most of the states in which the Company operates and substantially allthe vast majority of financed customers elect to purchase this product when purchasing a vehicle in those states.

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. The Company estimates that approximately 10% to 15% of the Company’s sales result from customer referrals. The Company recognizes repeat customers with silver, gold and platinum plaques representing the purchase of 5, 10 and 15 vehicles, respectively. These plaques are prominently displayed at the dealership where the vehicles were purchased. For mature dealerships, a large percentage of sales are to repeat customers.

The Company primarily advertises inusing television, radio, local newspapers, on the radio, on televisionpublications, internet and on the internet.social media. In addition, the Company periodically conducts promotional sales campaigns in orderan effort to increase sales. The Company uses an outside marketing firm and has a director of marketing overseeing the Company’s digital marketing efforts in order to broaden and increase the Company’s usage of digital and social media channels as a part of its marketing strategy.

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 the Company does not provide any type of financing to non-customers. The Company’s installment sales contracts as of April 30, 20162022, typically include down payments ranging from 0% to 17%20% (average of 7%6.4%), terms ranging from 18 months to 4254 months (average of 31.642.9 months), and a fixed annual interest rate of 15%16.5% (19.5% to 21.5% in Illinois) (weighted average of 14.9%16.5%). Subsequent to year-end, in May 2016 the Company increased its retail installment sales contract interest rate from 15.0% to 16.5% in response to continued high levels of credit losses.

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. 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, personal references and a detailed budget itemizing the customer’s monthly income and expenses. Certain information is then 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. In general, the dealership manager attempts 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 in the form of a proprietary credit scoring system used for monitoring and other supervisory assistance to assist with the credit decision. Credit quality is monitored centrally by corporate office personnel 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. A majorityhigh percentage 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. In addition, the Support Operations Officervice president of collections oversees the collections department and provides timely oversight and additional accountability on a consistent basis. The Company also has a Director of Collection Services who assists with managing the Company’s servicing and collections practices and provides additional monitoring and training. The Company believes that the timely response to past due accounts is critical to its collections success.

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 very hard to keep its delinquency percentages low and not to repossess vehicles. Accounts two days late are sent a notice in the mail. Accountsone to three days late are contacted by telephone.telephone or text message. Notes from each telephone contact are electronically maintained in the Company’s computer system. The Company 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. Other thanNo other concessions are granted to customers, beyond the extension of additional time, concessions are not granted to customers 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, the majority are returned or surrendered by the customer on a voluntary basis. Other repossessions are performed by Company personnel or third partythird-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. 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. The Company currently intends to add new dealerships, selectively in what it considers to be good, solid communities, subject to favorable operating performance.performance of existing dealerships and availability of qualified managers. Recently, the Company has opened new dealerships under experienced top performing general managers and may continue to do so in order to grow and leverage the talents of these experienced managers.

The Company’s approach with respect to new dealership openings has been one of gradual development. The manager in charge of a new dealership is normally a recently promoted associate who was an assistant manager at a larger dealership and in most cases participated in the formal manager-in-training program. The corporate office provides significant resources and support with pre-opening and initial operations of new dealerships. The facility may be of a modular nature or an existing structure. Historically, new dealerships have operated with a low level of inventory and personnel. As a result of the modest staffing level, the new dealership manager performs a variety of duties (i.e., selling, collecting and administrative tasks) during the early stages of his or her dealership’s operations. As the dealership develops and the customer base grows, additional staff isare hired. Some of the recent dealership openings have been in markets that support a higher volume of sales and these dealerships have opened with a higher level of inventory and staffing to accommodate the higher volumes.

Monthly sales levels at new dealerships are typically substantially less than sales levels at mature dealerships. Over time, new dealerships gain recognition in their communities, and a combination of customer referrals and repeat business generally facilitates sales growth. Historically, sales growth at new dealerships could exceed 10% per year for a number of years, whereas mature dealerships typically experience annual sales growth but at a lower percentage than new dealerships. Due to continual operational initiatives, the Company is able to support higher sales levels, and recently the Company has raised its volume expectation level of new locations somewhat as infrastructure improvements related to new dealership openings have improved.

New dealerships are generally provided with approximately $1.5 million to $2.5 million in capital from the corporate office during the first few years of operation. These funds are used principally to fund receivables growth. After this start-up period, new dealerships can typically begin generating positive cash flow, allowing for some continuing growth in receivables without additional capital from the corporate office. As these dealerships become cash flow positive, a decision is made by senior management to either increase the investment due to favorable return rates on the invested capital, or to deploy capital elsewhere. This limitation of capital to new, as well as existing, dealerships serves as an important operating discipline. Dealerships must be profitable in order to grow and typically new dealerships arecan be profitable within the first year of opening.

In addition to opening new dealerships, the Company believes that strategic acquisitions of existing dealerships can complement the Company’s business and increase its profitability. In March 2020, the Company acquired the ongoing dealership assets of Taylor Motor Company and Auto Credit of Southern Illinois (collectively, “Taylor Motors”) based in Benton, Illinois, through which the Company acquired three dealerships located in Illinois. In January 2022, the Company purchased the ongoing dealership assets of Smart Auto Johnson City, Inc. in Johnson City, Tennessee and agreed to purchase ongoing dealership assets in Knoxville, TN by the end of calendar year 2022. These dealerships are established businesses with an expectation of sales levels similar to mature dealerships. As part of its growth strategy, the Company will continue to evaluate other acquisitions and intends to consider and pursue future strategic acquisition opportunities that the Company believes will enhance our franchise and maximize the return to our shareholders.

Corporate Office Oversight and Management. The corporate office, based in Bentonville,Rogers, Arkansas, consists of regional vice presidents, area operations managers, regional vice presidents, regionalinventory purchasing directors, a purchasing director, a sales director, a directorvice president of collection services,collections, a supportvice president inventory operations, officer, a director of audit and compliance and compliance auditors, a directorvice president of human resources, a director of general manager recruitment and development, associate and management development personnel, accounting and management information systems personnel, administrative personnel and senior management. The corporate office monitors and oversees dealership operations. The corporate office receiveshas access to operating and financial information and reports on each dealership on a daily, weekly and monthly basis. This information includes cash receipts and disbursements, inventory and receivables levels and statistics, receivables agingsaging and sales and account loss data. The corporate office uses this information to compile Company-wide reports, plan dealership visits and prepare monthly financial statements.

Periodically, area operations managers, regional vice presidents, compliance auditors and senior management visit the Company’s dealerships to inspect, review and comment on operations. The corporate office assists in training new managers and other dealership level associates. Compliance auditors 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 in an effort 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 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 with 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. Management believes that there was constriction in the financing sources that existed for the deep sub-prime automobile market after the financial crisis in 2008. Since the Company doesdid not rely on securitizations, at that time, as a financing source, it was largely unaffected by the credit constrictions during the crisis and was able to continue to grow its revenue level and receivable base. More recently,Beginning in 2012, funding for the deep subprime automobile market has increased significantly. Management attributesattributed the increase to the ultra-low interest rate environment combined with the historical credit performance of the used automobile financing market during and after the recession. ManagementAt this time, it is unclear what long term impact COVID-19 will have on the availability of consumer credit; however management expects the availability of consumer credit within the automotive industry to continue to be higher over the near and mid- termremain high when compared to recent history.historical trends.  

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 increased funding to the used automobile industry and the tight supply of used vehicles in our market has led to increased competitive pressures and 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, as well as to the higher charge-off levels experienced by the Company in recent periods.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 a paymentan 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.advantages, specifically related to the provision of strong customer service. 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. Tax refund anticipation sales efforts during the Company’s third fiscal quarter have increased sales levels during the third fiscal quarter in some past years; however, due to the timing of actual tax refund dollars in the Company’s markets, these sales and collections have primarily occurred in the fourth quarter in each of the last four fiscal years. The Company expects this pattern to continue in future years.

If conditions arise that impair vehicle sales during the first third 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 a CFPB rule adopted in 2015, 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.

We are subject to a variety of federal, state and local laws and regulations that pertain to the environment, including compliance with regulations concerning the use, handing 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.

EmployeesHuman 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, 2016,2022, the Company, including its consolidated subsidiaries, employed a diverse associate base of approximately 1,4202,100 full time associates. None of the Company'sCompany’s employees are covered by a collective bargaining agreement, and the Company believes that its relations with its employees are good.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, 2022, 50% of the Company’s associates were women and 35% 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 Risk Manager is 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. Lastly, since the beginning of the COVID-19 pandemic, we have enhanced our cleaning procedures and implemented additional sanitizing measures, and we continue to follow recommendations from the CDC to keep our facilities clean, safe and sanitized.

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’ health and general well-being.

Talent and Development

The Company is committed to building a working environment and a culture that attracts, develops and retains motivated and high-performing 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 complete orientation courses in culture, safety, discrimination, sexual harassment and other topics. Associates also have access to online training programs for the development of job-specific skills and leadership qualities. For example, the Company’s Future Managers training program allows associates to learn all facets of operating a Car-Mart store from vehicle inventory and facility management to profit and loss statements, while acquiring management techniques and soft leadership skills. In addition, the Company created its “Car-Mart U” training program to build on the foundation established in the Future Managers program by providing a series of classes that prepare Assistant Managers for a General Manager or other management role by introducing new curriculum focused on 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.

Executive Officers of the Registrant

The following table provides information regarding the executive officers of the Company as of April 30, 2016:2022:

William H. HendersonJeffrey A. Williams has served as Chief Executive Officer of the Company since October 2007 and served as President of the Company from May 2002 to March 2016. Mr. Henderson has also served as a director of the Company since September 2002. From 1999 until May 2002, Mr. Henderson served as Chief Operating Officer of Car-Mart. From 1992 through 1998, Mr. Henderson served as General Manager of Car-Mart. From 1987 to 1992, Mr. Henderson primarily held the positions of District Manager and Regional Manager at Car-Mart.

Jeffrey A. Williams has served asJanuary 2018, President of the Company since March 2016, and as a director since 2011. Before becoming President in March 2016, Mr. Williams served as Chief Financial Officer, Secretary and SecretaryVice President Finance of the Company since October 2005. Mr. Williams has also served as a director of the Company since August 2011. 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.

Vickie D. Judy has served as Chief Financial Officer of the Company since January 2018 and served as Secretary of the Company from May 2018 to August 2019. Before becoming Chief Financial Officer, Ms. Judy served as Principal Accounting Officer since March 2016 and Vice President of Accounting since August 2015. She joined the Company in May 2010, serving 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 Center, Inc., a home improvement products and building materials retailer, most recently as Vice President of Financial Reporting.

Leonard L. Walthall has served as Chief Operating Officer of the Company since August 2019. Before becoming Chief Operating Officer, Mr. Walthall served as the Company’s Field Operations Officer since March 2016, and previously served as the Company’s Vice President of Operations since March 2009 and as a store manager for approximately 20 years.

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 COVID-19 Pandemic

The Company maycontinuing effects of, and any future adverse developments relating to, the COVID-19 pandemic or similar health crises could have a higher risk of delinquency and default than traditional lenders because it finances itssignificant negative impact on our business, 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 Company’s allowance for credit losses may not be sufficient to cover actual credit losses, which could adversely affect its financial condition and operating results.condition.

From timeThe global outbreak of COVID-19 led to time,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 Company hasoverall health of the U.S. economy. The continuing effects of these conditions or 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 ongoing or future adverse public health developments relating to recognize lossesthe COVID-19 outbreak 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 resulting from the inabilitypandemic were to once again deteriorate, which could require us to pursue additional sources of certain borrowersfinancing to pay contractsobtain 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.

The extent to which the COVID-19 pandemic or any similar public health crisis ultimately impacts our business, sales, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and future spread of the outbreak, the distribution of vaccines, and the insufficient realizable value of the collateral securing contracts. The Company maintains an allowance for credit losses in an attemptextent to cover credit losses inherent in its contract portfolio. Additional credit losses will likely occur in thewhich economic and operating conditions are affected by any future and may occur at a rate greater than the Company has experienced to date. The allowance for credit losses is based primarily upon historical credit loss experience, with consideration given to delinquency levels, collateral values, economic conditions and underwriting and collections practices. 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 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 affectrelating to the Company’s financial conditionpandemic.

Risks Related to the Company’s Business, Industry, and results of operations.Markets

A reduction in the availability or access to sources of inventory wouldcould adversely affect the Company’sCompany’s 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 wouldcould 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, inwhich were negatively impacted by the United States duringbusiness and economic disruptions following the outbreak of the COVID-19 pandemic and have historically been materially and adversely affected by prior economic recession of 2008 decreased dramatically from peak sales years. While sales levels for new vehicles have risen steadily since 2009 and new vehicle sales returned to near pre-recession levels during fiscal 2016, the reduceddownturns. Any future decline in new car sales have hadcould further adversely affect the Company’s access to and costs of inventory. Our ability to source vehicles could continue to havealso be impacted by the closure of auctions and wholesalers as a significant negative effect on the supplyresult of vehicles available to the Company inany future periods.public health crisis, adverse economic conditions, or other factors.

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.

Inclement weather can adversely impact Additionally, the Company’s operating results.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 occurrence of weather events, such as rain, snow, wind, storms, hurricanes, or other natural disasters, which adversely affect consumer traffic at the Company’s automotive dealerships, could negatively impact the Company’s operating results.

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 gasoline and grocery prices and interest rate increases, or significant changes in the political environment (such as the ongoing military conflict between Ukraine and Russia) 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 United States has experienced a recession as a result of the outbreak of COVID-19 and the outlook for the U.S. economy 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 economic conditions on consumer demand in our markets or on the Company’s costs.

The Company’sCompany’s business is geographically concentrated; therefore, the Company’sCompany’s 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 eleventwelve 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 31%27.4% 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.

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The Company’s growth strategy is dependent upon the following factors:

●

Favorable operating performance.  Our ability to 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 open and operate or acquire new locations.

●

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 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. In addition, new dealerships may experience higher than anticipated credit losses, which 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.

●

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; or the effect of any government regulations which relate to the businesses acquired.

The Company’s 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.

Risks Related to the Company’s 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 Company’s 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 credit losses expected to be incurred on 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 and other quantitative considerations, such as delinquency levels, collateral values, current economic conditions and underwriting and collections practices. 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 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. In the fourth quarter of fiscal 2021, the Company decreased its allowance for credit losses from 26.5% to 24.5% of the principal balance of our finance receivables, primarily due to improved credit losses and delinquencies, as well as changes in our outlook for projected losses. The allowance for credit losses remains at 24.5% at April 30, 2022. Any future deterioration in economic conditions may result in additional future credit losses that may not be fully reflected in the allowance for credit losses.

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The Company’s 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 buying 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.unemployment or times of increased competition for labor.

The Company’sCompany’s 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.

 

Changes in the availability or cost of capital and working capital financing could adversely affect the Company’s 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 Company’s 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, generally the Company increases its borrowings under its revolving credit facilities 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 fixed interest term loans. Any adverse changes in the Company’s ability to borrow under revolving credit facilities or fixed interest term loans, or any increase in the cost of such borrowings, would likely have a negative impact on the Company’s ability to fund finance receivables growth which would adversely affect the Company’s growth and business strategies. Further, the Company’s current credit facilities contain various reporting and financial performance covenants. Any failure of the Company to comply with these covenants could have a material adverse effect on the Company’s ability to implement its business strategy.

The capital and credit markets have remained somewhat constricted as a result of adverse economic conditions that caused the failure and near failure of a number of large financial services companies in recent years. While the adverse conditions in recent years have not impaired the Company’s ability to access the credit markets and finance its operations, there can be no assurance that there will not be a future deterioration in the financial markets. If the capital and credit markets experience disruptions and the availability of funds remains low, 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 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.

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The Company’s growth strategy is dependent upon the following factors:

• Favorable operating performance. Our ability to expand our business through additional dealership openings is dependent on a sufficiently favorable level of operating performance to support the management, personnel and capital resources necessary to successfully open and operate new locations. Due to the decline in operating results during fiscal 2016 caused by the difficult competitive environment and elevated credit losses, the Company elected to defer additional dealership openings in order to focus on making operational improvements to ensure all existing lots are performing at a high level. Management expects to return to expansion efforts in the future after overall operating performance improves. If our overall operating performance does not improve, management may be unable to devote the resources necessary to implement its expansion plans or may determine that its focus should continue to be on efforts to improve the Company’s existing business in lieu of further dealership openings.

• 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 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 overall new car sales volumes in the United States have decreased dramatically from peak sales years. While sales levels for new vehicles have risen steadily since 2009, new vehicle sales volumes are just now back to pre-recession levels. This 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. In addition, new dealerships may experience higher than anticipated credit losses, which 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 Company’s 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. Tax refund anticipation sales efforts during the Company’s third fiscal quarter have increased sales levels during the third fiscal quarter in some past years; however, due to the timing of actual tax refund dollars in the Company’s markets, these sales and collections have primarily occurred in the fourth quarter in each of the last four fiscal years. The Company expects this pattern to continue in future years.

15

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

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 including bank account 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.

 

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.

20

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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 Company’s 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 Company’s 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, generally the Company increases its borrowings under its revolving credit facilities and more recently, accessing the securitization market, 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 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 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 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.

21

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General Risk Factors

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 Company’s 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 adversely affect consumer traffic at the Company’s automotive dealerships, 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.

 

Item 1B. Unresolved Staff Comments

 

Not applicable.

 

Item 2. Properties

 

As of April 30, 2016,2022, the Company leased approximately 85%81% 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 12,00050,000 square feet of leased space in Bentonville,Rogers, Arkansas. For additional information regarding the Company’s properties, see “Operations-Dealership Locations and Facilities” under Item 1 above and “Contractual Payment Obligations” and “Off-Balance Sheet Arrangements” under Item 7 of Part II.

 

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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.

17

PART II

 

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

 

General

 

The Company'sCompany’s common stock is traded on the NASDAQ Global Select Market under the symbol CRMT. The following table sets forth, by fiscal quarter, the high and low sales prices reported by NASDAQ for the Company's common stock for the periods indicated.

		Fiscal 2016								Fiscal 2015
		High				Low				High				Low
First quarter		$	56.59			$	44.07			$	41.43			$	35.29
Second quarter			48.10				31.00				46.74				36.14
Third quarter			38.00				20.67				55.64				43.50
Fourth quarter			27.85				21.82				57.55				41.80

As of June 10, 2016,July 5, 2022, there were approximately 848887 shareholders of record. This number excludes stockholders holding the Company’s common stock as “beneficial owners” under nominee security position listings.

 

We currently maintain two compensation plans, the Amended and Restated Stock Incentive Plan and the Amended and Restated Stock Option Plan, which provide for the issuance of stock-based compensation to directors, officers and other employees. These plans have been approved by the stockholders. The following table sets forth information regarding outstanding options and shares reserved for future issuance under the foregoing plans as of April 30, 2016:

		Number of securities to be issued upon exercise of outstanding options, warrants and rights				Weighted-average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a))
Plan Category		(a)				(b)				(c)
Equity compensation plans approved by the stockholders			1,278,250			$	30.57				440,377
Equity compensation plans not approved by the stockholders			-				-				-

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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 Hemscott Group 744 Index – Auto Dealerships (“Automobile Index”), for the period of five fiscal years commencing on May 1, 20112017 and ending on April 30, 2016. 2022.

The graph assumes that the value of the investment in the Company’s common stock and each index was $100 on April 30, 2011.2017.

 

* $100 invested on 4/30/2017 in stock or index, including reinvestment of dividends. Fiscal year ending April 30.

23

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The dollar value at April 30, 20162022 of $100 invested in the Company’s common stock on April 30, 20112017 was $108.54,$216.76, compared to $176.11$246.98 for the Automobile Indexautomobile index described above and $178.99$213.67 for the NASDAQ Market Index (U.S. Companies).

 

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 up to one million shares of its common stock under theits common stock repurchase program as amended and approved byprogram. 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 19, 2014.16, 2017. The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of the Company’s common stock during the periods indicated:

Period		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)				Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)
February 1, 2022 through February 28, 2022			25,500			$	95.35				25,500				780,815
March 1, 2022 through March 31, 2022			34,500			$	90.59				34,500				746,315
April 1, 2022 through April 30, 2022			32,000			$	82.45				32,000				714,315
Total			92,000			$	89.08				92,000				714,315

 

Period		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)				Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)
February 1, 2016 through February 29, 2016			73,418			$	24.12				73,418				406,444
March 1, 2016 through March 31, 2016			53,484			$	25.35				53,484				352,960
April 1, 2016 through April 30, 2016			24,000			$	25.13				24,000				328,960
Total			150,902			$	24.72				150,902				328,960

(1)    The above described stock repurchase program has no expiration date.

 

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Item 6. Selected Financial Data[Reserved]

The financial data set forth below was derived from the audited consolidated financial statements of the Company and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto contained in Item 8, and the information contained in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations”.

		Years Ended April 30,
		(In thousands, except per share amounts)
		2016				2015				2014				2013				2012
Revenues		$	567,906			$	530,321			$	489,187			$	464,676			$	430,177
Net income attributable to common stockholders		$	11,556			$	29,450			$	21,089			$	32,125			$	32,947
Diluted earnings per share from continuing operations		$	1.33			$	3.25			$	2.25			$	3.36			$	3.24

		April 30,
		(In thousands)
		2016				2015				2014				2013				2012
Total assets		$	406,296			$	400,361			$	363,297			$	358,265			$	310,940
Total debt		$	107,902			$	102,685			$	97,032			$	99,563			$	77,900
Mandatorily redeemable preferred stock		$	400			$	400			$	400			$	400			$	400
Total equity		$	228,817			$	229,132			$	213,006			$	202,268			$	184,473
Shares outstanding			8,074				8,529				8,736				9,023				9,378

 

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, 2016,2022, the Company operated 143154 dealerships located primarily in small cities throughout the South-Central United States.

24

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Car-Mart has been operating since 1981. Car-Mart has grown its revenues between approximately 3%4% and 14%32% per year over the last ten years (average 9%11%). Growth results from same dealership revenue growth and the addition of new dealerships. Revenue increased 7.1%32.0% for the fiscal year ended April 30, 20162022 compared to fiscal 20152021 primarily due to a 7.0%22.2% increase in average retail sales price, a 6.7% increase in units sold and a 6.3%37.4% increase in interest income. The Company added three new dealerships in fiscal 2022.

 

20

The Company earns revenue from the sale of used vehicles, and in most cases a related service contract and a paymentan 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. Revenues 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 proprietary 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.

 

A challenging competitive environment puts pressure on sales volumes especially at older dealerships which tend to have higher overall sales volumes and more repeat customers. Additionally, as theThe Company attempts to attract and retain target customers, increased competition can contribute to lower down payments and longer contract terms which can have a negative effect on collection percentages, liquidity and credit losses. Management believes that the ultra-low interest rate environment combined with a lack of other investment alternatives has been attracting excess capital into the sub-prime automobile market and increasing competition. In an effort to combat the increased competition the Company will continue to focusfocuses on the benefits of excellent customer service and its “local” face to faceface-to-face offering in an effort to help customers succeed.succeed, while continuing to enhance the Company’s digital services and offerings to meet growing demands for an online sales experience. The Company, over recent years, has also focused additional attention on selling lower pricedproviding a good mix of vehicles in various price ranges to increase affordability for customers, to address sales volume challenges and to improve credit performance in the future by improving the equity position of customers who may be tempted to default on their contracts especially when competition on the lending side is elevated.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. As we have seen in recent years, decreasesDecreases in the overall volume of new car sales, particularly domestic brands, leadslead to decreased supply and generally increased prices in the 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.

 

The Company’s primary focus isCOVID-19 pandemic and the resulting economic effects have had an impact on the availability and prices of the vehicles the Company purchases. Over the past two years, the reduction in new car production, fewer off-lease vehicles and fewer repossessions in the overall market have negatively impacted the availability of product and resulted in higher purchase costs. The Company constantly reviews and adjusts purchasing avenues in order to obtain 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 credit losses as a percentage of sales have ranged from approximately 21.1%20.3% in fiscal 20122021 to 28.5%28.7% in fiscal 20162018 (average of 25.1%24.4%). The Company’s credit losses for fiscal 2012 were 21.1% of sales which was within the range of credit losses that the Company targeted annually at that time. Credit losses as a percentage of sales have steadily improved on an annual basis in each of the past five fiscal years from a historical high in fiscal 2013, however, increased2018, as improvements in collection processes and higher recovery rates on repossessions have progressively offset continuing competitive pressures. The Company’s credit loss results were temporarily negatively impacted during the fourth quarter of fiscal 2020 by the impacts of COVID-19, including the Company’s suspension of certain collection activities for a period of time and the Company’s decision to 23.1%increase the allowance for credit losses as a result of the pandemic from 24.5% to 26.5%, primarilyresulting in a $9.1 million pretax charge to the provision for credit losses. However, credit loss results improved substantially in fiscal 2021 due to increased contract term lengthsa lower frequency of losses and lower down payments resulting from increased competitive pressuresseverity of loss amounts relative to the principal balance as well as higher charge-offs caused, to an extent, by negative macro-economic factors affectingthe CARES Act enhanced unemployment and stimulus funds, combined with the Company’s customer base. These competitive pressures intensifiedcommitment to working with customers, aided customers’ ability to make their vehicle payments. The improvement in fiscal 2014 and, along with a continued challenging macro-economic environment for our customers, further impacted the Company’s credit losses in fiscal 2014 through lower finance receivables collections and higher charge-offs, coupled with the effect of lower wholesale sales. Credit losses as a percentage of sales for fiscal 2015 and 2016 were 25.5% and 28.5% (27.6% excluding2021 was further accelerated by the effectCompany’s decision during the fourth quarter of the increase infiscal 2021 to reduce the allowance for credit losses in the second quarter of fiscal 2016), respectively, as competitive pressures remained elevated and the increased number of newer dealerships weighed on credit loss results.

21

The Company maintains an allowance for credit losses in an attemptback to cover credit losses inherent in its contract portfolio. The allowance for credit losses historically remained at 22.0% of finance receivables from October 2006 until April 30, 2012, when management reduced the allowance to 21.5% of finance receivables based on the Company’s then recent credit loss experience. However, as a result of the increased credit losses during fiscal 2013 and with the expectation that charge-offs would remain elevated, management increased the allowance for credit losses to 23.5% of the finance receivables principal balance, net of deferred payment protection plan revenue, at January 31, 2014. The allowance for credit losses at April 30, 2015 was 23.8%24.5% of finance receivables, net of deferred payment protection plan revenue, and deferred service contract revenue.which resulted in a $15.1 million pretax decrease in the provision for credit losses. The calculationfiscal 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. Based on the Company’s current analysis of loan losses, the allowance for credit losses did not previously include a reduction for the deferred service contract revenue. This change did not have a material impact on net income or earnings per share and was not significant to any prior period. As of October 31, 2015, management increased the allowance to 25.0% due to continued increased credit losses and the expectation that such activity would continue.remains at 24.5% at April 30, 2022.

25

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Historically, credit losses, on a percentage basis, tend to be higher at new and developing dealerships than at mature dealerships. Generally, this is the case 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. Normally 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 gasoline, groceries and other staple items and overall unemployment levels, as well as the personal income levels of the Company’s customers. 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. The Company does believe, however, that general inflation, particularly within staple items such as groceries and gasoline, as well as overall unemployment levels and potentially lower or stagnant personal income levels affecting customers can have, and has had in recent years, a negative impact on collections. Additionally, increased competition for used vehicle financing can have, and management believes is currently having, a negative effect on collections and charge-offs.

 

In an effort to offset the elevated credit losses and lower collection levels and to operate more efficiently, the Company continues to look for improvements to its business practices, including better underwriting and better 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 has implementedalso uses credit reporting and the use of global positioning system (“GPS”) units on vehicles. Additionally, the Company has placed significant focus on the collection area as the Company’s training department continues to spend significant time and effort on collections improvements. The Support Operations OfficerCompany’s vice president of collections oversees the collections department and provides timely oversight and additional accountability on a consistent basis. In addition, the Company has a Director of Collection Services who assists with managing the Company’s servicing and collections practices and provides additional monitoring and training. Also, turnover at the dealership level for collections positions is down compared to historical levels, which management believes has a positive effect on collection results. The Company believes that the proper execution of its business practices is the single most important determinant of its long termlong-term credit loss experience.

 

22

Historically, the Company’s gross marginsmargin as a percentage of sales havehas been fairly consistent from year to year. Overyear at approximately 40% or 41% over each of the previous five fiscal years, the Company’s gross margins as a percentage of sales ranged between approximately 40% and 43%. Gross margin as a percentage of sales for fiscal 2016 was 39.8%.years. The Company’s gross margins aremargin is based upon the cost of the vehicle purchased, with lower-priced vehicles typically having higher gross margin percentages. Gross margins in recent years have been negativelypercentages but lower gross profit dollars, and is also affected by the increase in the average retail sales price (a function of a higher purchase price) and higher operating costs, mostly related to increased vehicle repair costs and higher fuel costs. Additionally, the percentage of wholesale sales to retail sales, which relaterelates for the most part to repossessed vehicles sold at or near cost, can have a significant effect on overall gross margins.cost. The gross margin percentage decreased in fiscal 2012 was negatively affected2022 to 37.4% from 40.7% in the prior fiscal year, while gross margin dollars per retail unit sold increased by $760, primarily as a result of the Company selling on average a higher wholesale sales, increased average retail selling price, higher inventory repair costs and lower margins on the payment protection plan and service contract products. Gross margin improved slightlypriced vehicle in fiscal 2013 due to improved wholesale results partially offset by higher losses under the payment protection plan. The gross margin for fiscal 2014 was affected by higher inventory repair costs resulting from continued efforts to help our customers succeed and to meet competitive pressures and higher claims under the payment protection plan. Gross margins as a percentage of sales for fiscal 2015 remained relatively flat compared to fiscal 2014. For fiscal 2016, gross margin decreased to 39.8% of sales primarily due to the high level of repossession activity, as both the volume of wholesale sales and the prices received from wholesale sales had a negative effect on overall gross margins, as did higher repair expenses.2022. The Company expects that increasing vehicle purchase costs and sales prices will continue to put pressure on its gross margin percentage will continue to remain under pressure over the near term.term as the demand for the vehicles the Company purchases will remain high. The Company successfully manages the business based upon gross margin dollars as demonstrated with the increase during the last three fiscal years in the gross margin dollars per retail unit sold.

 

Hiring, training and retaining qualified associates is critical to the Company’s success. The rate at which the Company adds new dealerships and is able to implement operating initiatives is limited by the number of trained managers and support personnel the Company has at its disposal. 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 as the business activity and workforce participation continue to adjust post-pandemic. The Company has addedcontinued 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.

 

 

23

Consolidated Operations

(Operating Statement Dollars in Thousands)

 

														% Change
														2016				2015
		Years Ended April 30,												vs.				vs.				As a % of Sales
		2016				2015				2014				2015				2014				2016				2015				2014
Operating Statement:
Revenues:
Sales		$	506,517			$	472,569			$	434,504				7.2	%			8.8	%			100.0	%			100.0	%			100.0	%
Interest and other income			61,389				57,752				54,683				6.3				5.6				12.1				12.2				12.6
Total			567,906				530,321				489,187				7.1				8.4				112.1				112.2				112.6
Costs and expenses:
Cost of sales, excluding depreciation shown below			304,886				272,446				251,319				11.9	%			8.4	%			60.2				57.7				57.8
Selling, general and administrative			92,242				83,802				78,591				10.1				6.6				18.2				17.7				18.1
Provision for credit losses			144,397				120,289				119,247				20.0				0.9				28.5				25.5				27.4
Interest expense			3,306				2,903				2,997				13.9				(3.1	)			0.7				0.6				0.7
Depreciation and amortization			4,208				3,830				3,285				9.9				16.6				0.8				0.8				0.8
Loss on disposal of property and equipment			369				17				76				2070.6				(77.6	)			-				-				-
Total			549,408				483,287				455,515				13.7				6.1				108.4				102.3				104.8
Income before income taxes		$	18,498			$	47,034			$	33,672				(60.7	)			39.7				3.7	%			10.0	%			7.7	%
Operating Data (Unaudited):
Retail units sold			46,483				46,760				42,551				(0.6	)%			9.9	%
Average dealerships in operation			145				137				128				5.8				7.0
Average units sold per dealership			321				341				332				(5.9	)			2.7
Average retail sales price		$	10,361			$	9,680			$	9,768				7.0				(0.9	)
Same store revenue growth			2.7	%			2.9	%			(0.8	)%
Receivables average yield			14.2	%			14.2	%			14.2	%

														% Change
														2022				2021
		Years Ended April 30,												vs.				vs.				As a % of Sales
		2022				2021				2020				2021				2020				2022				2021				2020
Operating Statement:
Revenues:
Sales		$	1,060,512			$	808,065			$	652,992				31.2	%			23.7	%			100.0	%			100.0	%			100.0	%
Interest and other income			151,853				110,545				91,619				37.4				20.7				14.3				13.7				14.0
Total			1,212,365				918,610				744,611				32.0				23.4				114.3				113.7				114.0
Costs and expenses:
Cost of sales, excluding depreciation shown below			663,631				479,153				388,475				38.5	%			23.3	%			62.6				59.3				59.5
Selling, general and administrative			156,130				130,855				117,762				19.3				11.1				14.7				16.2				18.0
Provision for credit losses			257,101				163,662				162,246				57.1				0.9				24.2				20.3				24.8
Interest expense			10,919				6,820				8,052				60.1				(15.3	)			1.0				0.8				1.2
Depreciation and amortization			4,033				3,719				3,839				8.4				(3.1	)			0.4				0.5				0.6
Gain on disposal of property and equipment			149				(40	)			(114	)			-				-				-				-				-
Total			1,091,963				784,169				680,260				39.3				15.3				103.0				97.0				104.1
Income before income taxes		$	120,402			$	134,441			$	64,351												11.4	%			16.6	%			9.9	%
Operating Data (Unaudited):
Retail units sold			60,595				56,806				52,914				6.7	%			7.4	%
Average dealerships in operation			152				150				146				1.3				2.7
Average units sold per dealership per month			33.2				31.6				30.2				5.1				4.6
Average retail sales price		$	16,649			$	13,621			$	11,793				22.2				15.5
Gross profit per retail unit sold		$	6,550			$	5,790			$	4,999				13.1				15.8
Same store revenue growth			30.5	%			18.7	%			9.3	%
Receivables average yield			15.8	%			15.9	%			15.7	%

 

20162022 Compared to 20152021

 

Total revenues increased $37.6$293.8 million, or 7.1%32.0%, in fiscal 2016,2022, as compared to revenue growth of 8.4%23.4% in fiscal 2015,2021, principally as a result of (i) revenue growth from dealerships that operated a full twelve months in both fiscal years ($14.0276.7 million), and (ii) revenue growth from dealershipsstores opened or acquired during or after the fiscal year ended April 30, 20152021 ($14.617.1 million), andpartially offset by (iii) decreased revenue from dealerships openedclosed during or after the year ended April 30, 20152021 ($9.0 million)86,000). The increase in revenue for fiscal 20162022 is attributable to (i) a 7.0%22.2% increase in average retail sales price, and (ii) a 6.3%6.7% increase in retail units sold and (iii) a 37.4% increase in interest and other income.income, due to the $265.1 million increase in average finance receivables.

 

Cost of sales, as a percentage of sales, increased to 60.2%62.6% compared to 59.3% in fiscal 2016 from 57.7%2021, resulting in a decrease in the gross margin percentage to 37.4% of sales in fiscal 2015, primarily due2022 from 40.7% of sales in fiscal 2021. On a dollar basis, our gross margin per retail unit sold increased by $760 in fiscal 2022 compared to an increase in the average purchase cost of vehicles sold relative to the increase in average retail sales price, along with higher repair costs.fiscal 2021. The average retail sales price for fiscal 20162022 was $10,361,$16,649, a $681$3,028 increase over the prior fiscal year.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 ason a percentage basis because the Company must offer affordable prices to our customers. The increased purchase costs are the result of a combination of consumer demandDemand for the types of vehicles the Company purchases for resale, which remains high relative to supply, and a strategic management decision to purchase higher quality vehicles for our customers. The high demand and tight supply of the vehicles we purchase for resale are largely related to excess funding to the used vehicle financing markethas remained high and the depressedsupply has continued to be restricted due to lower repossessions and lower levels of new car sales duringproduction. While the long-term impact of COVID-19 and after the recession, although more robustongoing microchip supply shortages on new car production and sales and the availability of used vehicles in recent years have begun to bolsterour market is undetermined at this time, the Company has seen disruptions in the supply of used vehicles. Finally, increasesvehicles since the beginning of the pandemic and expects the supply to be tighter in the volumenear-term relative to demand, resulting in the continuation of wholesales sales, resulting from higher credit losses, also increase our cost of sales and thus negatively affect our gross margin percentages. We will continue to focus efforts on minimizing the average retail sales price of our vehicles in order to help keep contract terms shorter, which helps customers to maintain appropriate equity in their vehicles and reduces credit losses and resulting wholesale volumes.elevated purchase costs.

 

24

Selling, general and administrative expenses, as a percentage of sales increased 0.5%decreased to 18.2%14.7% in fiscal 20162022 from 17.7% in16.2% for fiscal 2015.2021. Selling, general and administrative expenses are, for the most part, more fixed in nature. However, we have recently made increasing investments in several areas including recruiting, training and retention, inventory procurement and management, customer experience and digital efforts. In dollar terms, overall selling, general and administrative expenses increased $8.4$25.3 million from fiscal 2015, which consisted2021. The increase is primarily focused on continued investments in our associates in the wages and benefit areas and building our customer experience team and investing in procurement. We continue to focus on controlling costs, while at the same time ensuring a solid infrastructure to ensure a high level of increased payroll costs, incremental costs related to new dealerships and higher infrastructure costs to support for our growth, primarily in technology and compliance.customers.

 

Provision for credit losses as a percentage of sales increased to 28.5% (27.6% excluding the effect of the increase in the allowance for credit losses made in the second quarter)24.2% for fiscal 20162022 compared to 25.5%20.3% for fiscal 2015.2021. Net charge-offs as a percentage of average finance receivables increased to 31.3%20.2% for fiscal 20162022 compared to 27.8%19.3% for the prior year. Continuing macro-economic challenges and competitive conditions continue to put pressure on our customers and the resulting collections of our finance receivables, although the lower gas pricesThe stimulus payments during fiscal 2016 have provided some relief2021 had positive impacts on collections and net charge-off metrics. From a long-term historical perspective, the current fiscal year net charge-offs were much improved and below historical levels despite the increase in the average retail sales price. The frequency of losses increased compared to our customers.the prior year as credit losses began to normalize to pre-pandemic levels. The Company has implementeduses several operational initiatives (including credit reporting and the use of GPS units on vehicles) to improve collections and continually pushes for improvements and better execution of its collection practices. The Company believes that the proper execution of its business practices is the single most important determinant of credit loss experience and that the negative impactwill continue to focus on credit losses in both the current and prior year periods resulting from negative macro-economic and competitive pressures has been somewhat mitigated by the improvements in oversight and accountability provided by the Company’s investments in our corporate infrastructure within the collections area.

 

Interest expense for fiscal 20162022 as a percentage of sales increased slightly to 0.7% compared1.0% in fiscal 2022 from 0.8% in fiscal 2021. The increase in interest expense is primarily due to 0.6% for fiscal 2015, due tothe higher average borrowings during thein fiscal year 20162022 ($109.0331.6 million in fiscal 2022 compared to $102.2$215.0 million in the prior year)for fiscal 2021).

 

20152021 Compared to 20142020

 

Total revenues increased $41.1$174.0 million, or 8.4%23.4%, in fiscal 2015,2021, as compared to revenue growth of 5.3%11.3% in fiscal 2014,2020, principally as a result of (i) revenue growth from dealerships that operated a full twelve months in both fiscal years ($13.7137.6 million), and (ii) revenue growth from dealershipsstores opened or acquired during or after the fiscal year ended April 30, 20142020 ($20.436.7 million), andpartially offset by (iii) decreased revenue from dealerships openedclosed during or after the year ended April 30, 20142020 ($7.0 million)333,000). The increase in revenue for fiscal 20152021 is attributable to (i) a 9.9%15.5% increase in average retail sales price, (ii) a 7.4% increase in retail unit volumes,units sold and (ii)(iii) a 5.6%20.7% increase in interest and other income.

 

Cost of sales, as a percentage of sales, remained flat at 57.7%decreased slightly to 59.3% compared to 59.5% in fiscal 2015 from 57.8%2020, resulting in a slight improvement in the gross margin percentage to 40.7% of sales in fiscal 2014.2021 from 40.5% of sales in fiscal 2020. On a dollar basis, our gross margin per retail unit sold increased by $791 in fiscal 2021 compared to fiscal 2020. The average retail sales price for fiscal 20152021 was $9,680, an $88 decrease$13,621, a $1,828 increase over the prior fiscal year. Average sellingyear, 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 and top lineto our customers. However, during fiscal 2021, the pressure on the cost of sales levels in relation to wholesale volumes, resulting from credit loss experience, can have a significant effect onand gross margin percentages.percentages from the increase in average purchase costs was more than offset by improved wholesale margins, strong demand and low supply of lower priced units, and reduced repair expenses to prepare purchased vehicles for resale. Demand for the vehicles we purchase for resale remained high during fiscal 2021 and the supply continued to be restricted due to lower repossessions, lower levels of new car production and sales and additional demand due to stimulus money.

 

Selling, general and administrative expenses, as a percentage of sales decreased 0.4% to 17.7%16.2% in fiscal 20152021 from 18.1%18.0% for fiscal 2020. Selling, general and administrative expenses remained, for the most part, more fixed in fiscal 2014.nature. In dollar terms, overall selling, general and administrative expenses increased $5.2$13.1 million from fiscal 2014, which consisted2020. The increase was primarily offocused on investments in our associates, especially building our customer experience team and investing in procurement, combined with increased payroll costs, incremental costs relatedcommissions due to new dealerships and higher infrastructure costs to support our growth, primarily in technology and compliance.net income.

28

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Provision for credit losses as a percentage of sales decreased to 25.5%20.3% for fiscal 20152021 compared to 27.4% (25.7% excluding the effect of the increase in the allowance for credit losses made in the third quarter)24.8% for fiscal 2014.2020. Net charge-offs as a percentage of average finance receivables were 27.8%decreased to 19.3% for fiscal 20152021 compared to 28.2%23.1% for the prior year. The decrease in net charge-offs for fiscal 2021 primarily resulted from a lower frequency of losses partially offset by an increase in the severity of losses. The highercombined with a lower severity of losses, primarily resulteddue to improvements in collections as a result of the stimulus money and enhanced unemployment, as well as higher recovery rates on repossessions. As a result of the improved credit losses, improved delinquencies at yearend, as well as our outlook for projected losses, the Company decreased the allowance for credit losses during the fourth quarter of fiscal 2021 from lower wholesale values at time of repossession.26.5% to 24.5%, a $15.1 million pretax decrease to the provision for credit losses. The Company believes the somewhat improved macro-economic environment prior to the pandemic mitigated the competitive pressures and positively impacted credit loss results for fiscal 2021.

 

25

Interest expense for fiscal 20152021 as a percentage of sales decreased slightly to 0.6%0.8% in fiscal 2021 from 1.2% in fiscal 2020. Although the Company had higher average borrowings in fiscal 2021 ($215.0 million in fiscal 2021 compared 0.7%to $179.9 million for fiscal 2014. Lower average borrowings during2020), the fiscal year 2015 ($102.2 million compared to $103.0 million in the prior year) were partially offset by higherlower interest rates offset the interest on the Company’s variable rate debt.higher debt balances.

 

Financial Condition

 

The following table sets forth the major balance sheet accounts of the Company at April 30, 2016, 20152022, 2021 and 20142020 (in thousands):

 

		April 30,
		2022				2021				2020
Assets:
Finance receivables, net		$	854,290			$	625,119			$	466,141
Inventory			115,302				82,263				36,414
Income taxes receivable, net			274				-				-
Property and equipment, net			51,438				34,719				30,140
Liabilities:
Accounts payable and accrued liabilities			52,685				49,486				32,846
Deferred revenue			92,491				56,810				36,121
Income taxes payable, net			-				150				3,841
Deferred income tax liabilities, net			28,233				20,007				12,979
Non-recourse notes payable			395,986				-				-
Revolving line of credit			44,670				225,924				215,568

		April 30,
		2016				2015				2014
Assets:
Finance receivables, net		$	334,793			$	324,144			$	293,299
Inventory			29,879				34,267				30,115
Property and equipment, net			34,755				33,963				33,913
Liabilities:
Accounts payable and accrued liabilities			23,558				23,730				19,366
Deferred revenue			27,339				25,236				17,467
Income taxes payable (receivable), net			(894	)			(645	)			782
Deferred income tax liabilities, net			18,280				19,178				15,244
Revolving credit facilities and notes payable			107,902				102,685				97,032

 

The following table shows receivables growth compared to revenue growth during each of the past three fiscal years. For fiscal year 2016,2022, growth in finance receivables, net of deferred revenue, of 34.1% exceeded revenue growth exceeded growth in net finance receivables primarily due to higher charge-offs and the resulting increase in wholesale sales, which weighed on finance receivables growth, while higher interest income augmented growth in revenue.of 32.0%. The Company currently anticipates going forward 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 in recent years, 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, 20162022 was 31.642.9 months, compared to 30.237.3 months atfor April 30, 2015.2021.

 

		Years Ended April 30,
		2016				2015				2014
Growth in finance receivables, net of deferred revenue			4.5	%			8.4	%			4.3	%
Revenue growth			7.1	%			8.4	%			5.3	%

		Years Ended April 30,
		2022				2021				2020
Growth in finance receivables, net of deferred revenue			34.1	%			28.7	%			14.4	%
Revenue growth			32.0	%			23.4	%			11.3	%

 

InAt fiscal 2016,year-end 2022, inventory decreased 12.8%increased 40.2% ($4.433.0 million). The decrease resulted, compared to fiscal year-end 2021, primarily fromdue to increasing our investment in inventory quantities to accommodate the higher sales volumes and provide customers a concerted company-wide effort to retain onlyquality mix of vehicles, combined with the best quality vehicles.higher cost of the vehicles we purchase. The Company will continuestrives to manageimprove the quality of the inventory and maintain adequate turns while maintaining inventory levels in the future to ensure adequate supply of vehicles, in volume and mix, and to meet sales demand.

 

26

Property and equipment, net, increased by approximately $792,000 in fiscal 2016$16.7 million as of April 30, 2022 as compared to fiscal 2015. The Company2021. We incurred $4.5approximately $20.9 million in expenditures during fiscal year 2022, primarily related to new dealerships as well astechnology investments, designed to refurbishattract additional sales opportunities, and expand a number ofremodeling or relocating existing locations,locations. The net increase to property and equipment, net, was partially offset by depreciation expense.expense of $4.0 million and disposals of approximately $200,000 in furniture and equipment.

 

Accounts payable and accrued liabilities decreasedincreased by approximately $172,000$3.2 million at April 30, 20162022 as compared to April 30, 2015 due primarily to decreased payables related to decreased inventory levels as well as the amount and timing of cash overdrafts.

Income taxes receivable, net, increased approximately $249,000 at April 30, 2016 compared to April 30, 20152021 primarily due to higher accounts payable related to increased inventory and sales activity, and higher deferred sales tax related to the timing of income tax payments and refunds.increase in sales.

 

Deferred revenue increased $2.1$35.7 million in fiscal 2016at April 30, 2022 over fiscal 2015,April 30, 2021, primarily resulting from the longer term onincrease in sales of the paymentaccident protection product due to increasedplan and service contract terms,products, as well as the increase in the term and pricing ofincreased terms on the service contract product.contracts.

 

Deferred income tax liabilities, net, decreasedincreased approximately $898,000$8.2 million at April 30, 20162022 as compared to April 30, 20152021, due primarily to the changeincrease in finance receivables, net.

On April 27, 2022, the Company completed an asset-backed securitization offering through which an indirect subsidiary of the Company issued four classes of non-recourse notes payable in an aggregate principal amount of $400.0 million, with a weighted average fixed coupon rate of 5.14% per annum and scheduled maturities through April 20, 2029. The notes are collateralized by auto loans directly originated by us. Net proceeds from the offering (after deducting the underwriting discount payable to the initial purchasers and other fees) were approximately $396.0 million, a portion of which were used to pay outstanding debt under our revolving line of credit and to make the initial deposit into a reserve account for the notes and the book/tax differenceremainder of which are being used for other general purposes. See Note F for further details on stock based compensation.these non-recourse notes payable.

 

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) income taxes, (iv) capital expenditures, and (v) common stock repurchases.repurchases and (vi) other sources of financing, such as our recent issuance of asset-backed non-recourse notes. 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.

In fiscal 20162022, the Company had a $4.7$175.0 million net increase in total revolving debt, net of cash, used to contribute to the funding of finance receivables growth of $19.9$292.0 million, an inventory increase of $33.0 million, net capital expenditures of $4.5$20.9 million and common stock repurchases of $14.2$34.7 million.

These investments reflect our commitment to providing the necessary inventory and facilities to support a growing customer base.

 

27

30

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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,
		2016				2015				2014
Operating activities:
Net income		$	11,596			$	29,490			$	21,129
Provision for credit losses			144,397				120,289				119,247
Losses on claims for payment protection plan			13,521				10,588				9,586
Depreciation and amortization			4,208				3,830				3,285
Amortization of debt issuance costs			214				188				209
Stock based compensation			1,519				780				1,391
Deferred income taxes			(898	)			3,934				(2,923	)
Finance receivable originations			(460,499	)			(445,405	)			(404,918	)
Finance receivable collections			248,166				238,845				223,538
Accrued interest on finance receivables			286				(172	)			(46	)
Inventory			48,154				40,686				50,009
Accounts payable and accrued liabilities			1,115				3,862				(1,675	)
Deferred payment protection plan revenue			1,653				2,419				323
Deferred service contract revenue			450				5,350				770
Income taxes, net			(11	)			200				3,313
Other			415				(2,497	)			(1,363	)
Total			14,286				12,387				21,875
Investing activities:
Purchase of property and equipment			(4,526	)			(4,009	)			(7,095	)
Proceeds from sale of property and equipment			7				112				2
Total			(4,519	)			(3,897	)			(7,093	)
Financing activities:
Debt facilities, net			5,062				5,653				(2,531	)
Change in cash overdrafts			(1,587	)			502				(452	)
Purchase of common stock			(14,214	)			(20,020	)			(12,754	)
Dividend payments			(40	)			(40	)			(40	)
Exercise of stock options and warrants, including tax benefits and issuance of common stock			824				5,916				1,012
Total			(9,955	)			(7,989	)			(14,765	)
Increase (decrease) in cash		$	(188	)		$	501			$	17

		Years Ended April 30,
		2022				2021				2020
Operating activities:
Net income		$	93,307			$	104,139			$	51,343
Provision for credit losses			257,101				163,662				162,246
Losses on claims for accident protection plan			21,871				18,954				17,966
Depreciation and amortization			4,033				3,719				3,839
Amortization of debt issuance costs			775				391				273
Stock based compensation			5,496				5,962				4,732
Deferred income taxes			8,226				7,028				(1,280	)
Finance receivable originations			(1,009,859	)			(762,716	)			(604,497	)
Finance receivable collections			417,796				370,254				322,180
Accrued interest on finance receivables			(1,559	)			(269	)			(750	)
Inventory			50,881				5,019				53,827
Accounts payable and accrued liabilities			5,166				14,766				1,009
Deferred accident protection plan revenue			11,232				8,224				3,113
Deferred service contract revenue			24,449				12,465				1,049
Income taxes, net			(424	)			(3,691	)			5,788
Other			(2,775	)			(1,719	)			79
Total			(114,284	)			(53,812	)			20,917
Investing activities:
Purchase of investments			(1,343	)			-				(4,648	)
Purchase of property and equipment			(20,921	)			(8,952	)			(5,422	)
Proceeds from sale of property and equipment			20				694				184
Total			(22,244	)			(8,258	)			(9,886	)
Financing activities:
Debt facilities, net			(186,037	)			9,965				62,377
Non-recourse debt, net			399,994				-				-
Change in cash overdrafts			(1,802	)			1,802				(1,274	)
Purchase of common stock			(34,698	)			(10,616	)			(16,009	)
Dividend payments			(40	)			(40	)			(40	)
Exercise of stock options, including  tax benefits and issuance of common stock			(1,195	)			4,292				1,723
Total			176,222				5,403				46,777
Increase (decrease) in cash, cash equivalents, and restricted cash		$	39,694			$	(56,667	)		$	57,808

 

The primary drivers of operating profits and cash flows include (i) top line sales (ii) interest ratesincome 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. The Company generates cash flow from income from operations. Historically, most or all of thisthe cash isgenerated from operations has been used to fund finance receivables growth, capital expenditures and common stock repurchases. To the extent finance receivables growth, capital expenditures and common stock repurchases and capital expenditures exceed income from operations the Company generally increases itswe historically increased our borrowings under itsour revolving credit facilities.facilities and most recently also utilized the securitization market. During April 2022, we completed our first asset-backed securitization transaction that diversified our funding sources. The majority of the Company’s growth has been self-funded.

 

Cash flows from operations in fiscal 2016 compared to fiscal 2015 increased primarily as a result of (i) a higher non-cash charge for credit losses and (ii) higher finance receivable collections, partially offset by (iii) lower net income and (iv) an increase in finance receivables originations. Finance receivables, net, increased by $19.9 million during fiscal 2016.

 

28

Cash flows from operations in fiscal 20152022 compared to fiscal 2014 were positively impacted by2021 decreased primarily as a result of (i) higher net income,an increase in finance receivable originations and (ii) an increase in inventory, partially offset by increases in (iii) finance receivable collections and (iv) deferred revenue. Finance receivables, net, increased by $229.2 million during fiscal 2022.

Cash flows from operations in fiscal 2021 compared to fiscal 2020 decreased primarily as a result of (i) an increase in finance receivable originations, (ii) an increase in inventory and (iii) a decrease in income taxes (iii) higherpayable, partially offset by (iv) an increase in finance receivable collections, (v) an increase in accounts payable and accrued liabilities (iv) higher non-cash charges including credit losses, depreciation, and losses on claims for payment protection plan, partially offset by (v) an increase in finance receivables, net and (vi) an increase in inventory.deferred revenue. Finance receivables, net, increased by $30.8$159.0 million during fiscal 2015.2021.

 

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 increased 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, results in increased used vehicle prices and thus higher purchase costs for the Company.

 

New vehicle sales decreased dramatically beginning with the economic recession of 2008. While sales levels for new vehicles have risen steadily since 2009, new vehicle sales volumes only returned to pre-recession levels during fiscal 2016. In addition, the challengingSustained macro-economic environment, together with the constriction in consumer credit starting in 2008, contributed to increased demand for the types of vehicles the Company purchases and a resulting increase in used car prices. These negative macro-economic conditions have continued to affectpressures affecting our customers in the years since the recession and, in turn, have helped keep demand high in recent years for the types of vehicles we purchase. This increasedstrong demand, coupled with depressedmodest levels of new vehicle sales in recent years, negatively impactedhave led to a generally ongoing tight supply of used vehicles available to the Company in both the quality and quantity. The impacts of the COVID-19 pandemic on the business operations of auctions and wholesalers as well as slowdowns in new car production and sales during the past fiscal year due to the pandemic and other supply chain issues further increased the price and reduced the quantity of used cars available for purchase by the Company. The Company expects these effects on used vehicle supply available to the Company. Management expects the tight supply of vehicles and resulting increases in vehicle purchase costs to continue although some relief is expected as a result of steady increases in new car sales levels in recent periods.for the short term.

 

The Company has devoted significant efforts to improving its purchasing processes to ensure adequate supply at appropriate prices, including expanding its purchasing territories to larger cities in close proximity to its dealerships and increasing its efforts to purchase vehicles from individuals at the dealership level as well as via the internet. The Company has also increased the level of accountability for its purchasing agents including the establishment ofupdates to sourcing and pricing guidelines. The Company continues to make corporate level purchases and form relationships with national vendors that can supply a large quantity of high-quality vehicles. Even with these efforts, the Company expects gross margin percentages to remain under pressure over the near term.  

 

The Company believes that the amount of credit available for the sub-prime auto industry has increasedwill remain relatively consistent with levels in recent years, andwhich management expects the availability of consumer credit within the automotive industry to be higher over the near term when compared to historical levels. This is expected towill contribute to continued strong overall demand for most, if not all, of the vehicles the Company purchases for resale.  Increased competition resulting from availability of funding to the sub-prime auto industry has contributedgenerally contributes to lower down payments and longer terms, which can have had a negative effect on collection percentages, liquidity and credit losses when compared to priorhistorical periods. The availability of credit was somewhat dampened for consumers during fiscal year 2022, although with the high demand of used vehicles and related financing, the availability of credit has loosened more recently.

 

The Company’s liquidity is also impacted by our credit losses. Macro-economic factors can have an effect on credit losses and resulting liquidity. General inflation, particularly within staple items such as groceries, as well as overall unemployment levels and general inflation can have a significant effect onsignificantly affect our collection results and ultimately credit losses. Currently, as our customers look to cover rising costs of non-discretionary items, such as groceries and gasoline, it may impact their ability to make their car payments. Additionally, the long-term economic impact of the COVID-19 pandemic and the resulting effects on the Company’s collections and credit loss results remains uncertain. The Company has made improvements to its business processes within the last few years to strengthen controls and provide stronger infrastructure to support its collections efforts. The Company anticipates thatcontinues to strive to reduce credit losses in spite of the near term will be higher than historical ranges due to significantcurrent economic challenges and continued macro-economic challenges for the Company’s customer base as well as increased competitive pressures.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.

 

29

The Company has generally leased the majority of the properties where its dealerships are located. As of April 30, 2016,2022, the Company leased approximately 85%81% of its dealership properties. At April 30, 2022, the Company had $81.9 million of operating lease commitments, including $18.0 million of non-cancelable lease commitments under the lease terms, and $63.9 million of lease commitments for renewal periods at the Company’s option that are reasonably assured. Of the $81.9 million total lease obligations, $48.3 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 Facilitiescredit facilities allow the Company to repurchase the Company’s stock so long as: eitheras either: (a) the aggregate amount of such repurchases after September 30, 2021 does not exceed $40$50 million, beginning October 8, 2014net 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, combined minus the principal balances of all revolver loansin each case after giving effect to such repurchases is equal to or greater than 30% of the sum of the borrowing bases,(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 currently 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, 2016,2022, the Company had approximately $602,000$6.9 million of cash on hand and $61$197.8 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 and borrowings under its revolving credit facilities. On a longer-term basis, the Company expects its principal sources of liquidity to consist of income from operations and borrowings under revolving credit facilities or fixed interest term loans. The Company’s revolving credit facilities mature in October 2017September 2024 and the Company expects that it will be able to renew or refinance its revolving credit facilities on or before the date they mature. The Company has also recently accessed the securitization market with an inaugural issuance in April 2022 of $400 million in aggregate principal amount of non-recourse asset-backed notes. The Company expects that it will continue to access this market in diversifying and growing the business. Furthermore, while the Company has no specific plans to issue further debt or equity securities, the Company believes, if necessary, it could raise additional capital through the issuance of such securities.

 

The Company expects to use cash from operations and borrowings to (i) grow its finance receivables portfolio, (ii) purchase property and equipmentfixed assets of approximately $2.2$25 million in the next 12 months in connection with refurbishingto add technology improvements and to refurbish existing dealerships and adding new dealerships, subject to strong operating results, (iii) repurchase shares of common stock when favorable conditions exist and (iv) reduce debt to the extent excess cash is available. The Company estimates that total interest payments on its outstanding debt facilities as of April 30, 2022, are approximately $240.8 million, assuming an increase in average total debt of approximately $212.0 million with an average annual rate increase of approximately 2%, with approximately $28.0 million in interest payable during fiscal 2023.

 

The Company believes it will have adequate liquidity to continue to grow its revenues and to satisfy its capital needs for the foreseeable future.

 

Contractual Payment Obligations

 

The following is a summary of the Company’s contractual payment obligations as of April 30, 2016, including renewal periods under operating leases that are reasonably assured (in thousands):

		Payments Due by Period
						Less Than												More Than
		Total				1 Year				1-3 Years				3-5 Years				5 Years
Revolving lines of credit		$	107,386				-				107,386				-				-
Notes payable			516				101				203				202				10
Operating leases			46,721				5,927				11,214				9,969				19,611
Total		$	154,623			$	6,028			$	118,803			$	10,171			$	19,621

The above excludes estimated interest payments on the Company’s revolving lines of credit. The $46.7 million of operating lease commitments includes $16.2 million of non-cancelable lease commitments under the lease terms, and $30.5 million of lease commitments for renewal periods at the Company’s option that are reasonably assured.

30

Off-Balance Sheet Arrangements

 

The Company has entered into operating leases for approximately 85% of its dealership and office facilities. Generally these leases are for periods of three to five years and usually contain multiple renewal options. The Company uses leasing arrangements to maintain flexibility in its dealership locations and to preserve capital. The Company expects to continue to lease the majority of its dealership and office facilities under arrangements substantially consistent with the past. For the years ended April 30, 2016, 2015 and 2014, rent expense for all operating leases amounted to approximately $6.1 million, $5.5 million and $5.2 million, respectively.

The Company has atwo standby letter of credit relating to an insurance policypolicies totaling $1 million$750,000 at April 30, 2016.2022.

 

Other than its operating leases and the letter 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.

 

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 by approximately 300250 basis points. 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, 2016.2022.

34

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Critical Accounting Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles 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.

 

31

The Company maintains an allowance for credit losses on an aggregate basis at a level it considers sufficient to cover estimated losses inherent inexpected to be incurred on the portfolio at the balance sheetmeasurement date in the collection of its finance receivables currently outstanding. At April 30, 2016,2022, the weighted average total contract term was 31.642.9 months with 23.234.2 months remaining. The reserve amount in the allowance for credit losses at April 30, 2016, $102.52022, $247.2 million, was 25.0%24.5% of the principal balance in finance receivables of $437.3 million,$1.1 billion, less unearned paymentaccident protection plan revenue of $17.3$48.6 million and unearned service contract revenue of $10.0$43.9 million. In the fourth quarter of fiscal 2021, the Company decreased the allowance for credit losses as a percentage of finance receivables from 26.5% to 24.5% as a result of improved credit losses and delinquencies, as well as changes in our outlook for projected losses. The decrease resulted in a $15.1 million pretax decrease to the provision for credit losses. The allowance for credit losses remained at 24.5% at April 30, 2022.

 

The estimated reserve amount is the Company’s anticipated future net charge-offs for losses expected to be incurred throughon the balance sheetportfolio at the measurement date. The allowance takes into account historical credit loss experience (both timing and severity of losses), with consideration given to recent credit loss trends and changes in contract characteristics (i.e., average amount financed, months outstanding at loss date, term and age of portfolio), delinquency levels, collateral values, economic conditions and underwriting and collection practices. The allowance for credit losses is reviewed at least quarterly by management with any changes reflected in current operations. The calculation of the allowance for credit losses uses the following primary factors:

 

· ●

The number of units repossessed or charged-off as a percentage of total units financed over specific historical periods of time from one year to five years.

 

· ●

The average net repossession and charge-off loss per unit during the last eighteen months, segregated by the number of months since the contract origination date, and adjusted for the expected future average net charge-off loss per unit. Approximately 50% of the unit charge-offs that will ultimately occur in the portfolio are expected to occur within 10-1110-12 months following the balance sheet date. The average age of an account at charge-off date is 11.712 months.

 

· ●

The timing of repossession and charge-off losses relative to the date of sale (i.e., how long it takes for a repossession or charge-off to occur) for repossessions and charge-offs occurring during the last eighteen months.

●

An adjustment to the first twelve months to reflect the significant increase in the average amount financed and the resulting monthly payment and term length.

●

A forecast of expected losses for a period of one year, including considerations for the impact of forecasted levels of inflation and the discontinuation of COVID-19 pandemic government provided benefits.

 

A historical point estimateloss rate is produced by this analysis which is then supplemented byadjusted to reflect current conditions and the Company’s reasonable and supportable forecast of expected losses for a period of one year, including the review of static pools coupled with any positive or negative subjective factors to arrive at an overall reserve amount that management considers to be a reasonable estimate of losses inherent into be incurred on the portfolio at the balance sheet date that will be realized via actual charge-offs in the future. Although it is at least reasonably possible that events or circumstances could occur in the future that are not presently foreseen which could cause actual credit losses to be materially different from the recorded allowance for credit losses, the Company believes that it has given appropriate consideration to all relevant factors and has made reasonable assumptions in determining the allowance for credit losses.measurement date. While challenging economic conditions can negatively impact credit losses, the effectiveness of the execution of internal policies and procedures within the collections area and the competitive environment on the fundinglending side have historically had a more significant effect on collection results than macro-economic issues. A 1% change, as a percentage of Finance receivables, in the allowance for credit losses would equate to an approximate pre-tax change of $4.1 million.

 

Recent Accounting Pronouncements

 

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

 

Debt Issuance Costs. Recently Adopted Accounting Pronouncements

In April 2015,March 2020, the FASB issued ASU 2015-03, Simplifying2020-04, Reference Rate Reform. The pronouncement provides optional guidance for a limited period of time to ease the Presentationpotential burden of Debt Issuance Costs, to require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, instead of as an asset.accounting for reference rate reform. This accounting standard was implemented by the Company in the third quarter of fiscal 2016. As a result of the application of this accounting standard, the Company has provided additional disclosures in Note F to the Consolidated Financial Statements.

32

Revenue Recognition. In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes existing revenue recognition guidance. The new guidance in ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, to provide entities with an additional year to implement ASU 2014-09. As a result, the guidance in ASU 2014-09 is effective for annual and interim reporting periods beginning afterall entities as of March 12, 2020, through December 15, 2017, using one31, 2022. During April 2022, the Company replaced LIBOR as the applicable benchmark interest rate on its revolving line of two retrospective application methods.credit with the daily simple Secured Overnight Financing Rate (“SOFR”). The Company is currently evaluating the potential effectsreplacement of the adoption of this update on the Consolidated Financial Statements.

Leases. In February 2016, the FASB issued ASU 2016-02, Leases. The new guidance requires that lessees recognize all leases, including operating leases, withrate to SOFR did not have a term greater than 12 months on-balance sheet and also requires disclosure of key information about leasing transactions. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. The Company is currently evaluating the potential effects of the adoption of this guidance on the Consolidated Financial Statements.

Impact of Inflation

Inflation has not historically been a significant factor impacting the Company’s results; however, recent purchase price increases for vehicles, most pronounced over the last four fiscal years, have had a negative effectmaterial impact on the Company’s gross margin percentages when comparedfinancial position or results of operations.

Non-GAAP Financial Measure

The reconciliation between the Company’s debt to past years. Thisequity ratio and adjusted debt, net of cash, to equity ratio for fiscal year ending April 30, 2022, is due tosummarized in the fact that the Company focuses on keeping payments affordable for its customer base and at the same time ensuring that the term of the contract matches the economic life of the vehicle.table below.

April 30, 2022
Debt to Equity			0.94
Cash to Equity			0.09
Debt net of Cash to Equity			0.85

 

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 has exposure to changes in the prime interest rate of its lender.  The Company does not use financial instruments for trading purposes but has in the past entered into 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 totalan outstanding balance on its revolving debtline of $107.4credit of $46.7 million outstanding at April 30, 2016.2022. The impact of a 1% increase in interest rates on this amount of debt would result in increased annual interest expense of approximately $1.1 million$467,000 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. The Company’s finance receivables generally bear interest atcarry a fixed interest rate of 15%16.5% per annum (19.5% to 21.5% in Illinois), 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. Subsequent to year-end, in May 2016 the Company increased the contract interest rate from 15.0% to 16.5%.

33

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

Consolidated Balance Sheets as of April 30, 2016 and 2015

Consolidated Statements of Operations for the years ended April 30, 2016, 2015 and 2014

Consolidated Statements of Cash Flows for the years ended April 30, 2016, 2015 and 2014

Consolidated Statement of Equity for the years ended April 30, 2016, 2015 and 2014

Notes to Consolidated Financial Statements

	Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
	Consolidated Balance Sheets as of April 30, 2022 and 2021
	Consolidated Statements of Operations for the years ended April 30, 2022, 2021 and 2020
	Consolidated Statements of Cash Flows for the years ended April 30, 2022, 2021 and 2020
	Consolidated Statements of Equity for the years ended April 30, 2022, 2021 and 2020
	Notes to Consolidated Financial Statements

 

 

 

34

Report of Independent Registered Public Accounting Firm

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, 20162022 and 2015, and2021, the related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended April 30, 2016. 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2022, 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, 2022, 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 8, 2022 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 thesethe 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 Public Company Accounting Oversight Board (United States).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. An audit includesmisstatement, 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 supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

 

InCritical 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 consolidated financial statements, referredtaken 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 above present fairly,which it relates.

Allowance for credit losses

As described in all material respects,Note C to the financial positionstatements, the Company had finance receivables of America’s Car-Mart, Inc. and subsidiaries$1.1 billion, for which an allowance of $247.2 million was recorded as of April 30, 20162022. Management estimates the allowance for credit losses on finance receivables by applying a loss-rate method using historical credit loss experience (both timing and 2015,severity of losses) and collateral values. The estimate is adjusted for current conditions and reasonable and supportable forecasts to reflect management’s expectations for credit losses on the finance receivables, which include factors such as current and expected changes in the fair market value of repossessed vehicles, the effects of macroeconomic factors such as changes in inflation, and the resultsdiscontinuation of their operationsCOVID-19 pandemic government provided benefits. 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 were the significant judgments made by management, including the adjustment for the forecasted effects on expected losses from projected levels of inflation and their cash flows for eachthe discontinuation of the three yearsCOVID-19 pandemic government provided benefits. These judgements led to a high degree of auditor judgment and subjectivity in the period ended April 30, 2016, in conformity with accounting principles generally accepted in the United States of America.performing procedures over these assumptions.

 

As discussed in Note F to the consolidated financial statements, the Company adopted new accounting guidance in 2016 and 2015,Our audit procedures related to the presentation of debt issuance costs.allowance for credit losses included the following, among others:

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of April 30, 2016, based on criteria established in the 2013Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 17, 2016 expressed an unqualified opinion.

●

We tested the design and operating effectiveness of controls relating to management’s allowance for credit losses estimation process, which included controls over the judgements related to its forecast for the effects on expected losses from projected levels of inflation and the discontinuation of COVID-19 pandemic government provided benefits.

●

We tested management’s process for determining the allowance for credit losses, including its forecast for the effects of expected losses from projected levels of inflation and the discontinuation of COVID-19 pandemic government provided benefits.

 

/s/ GRANT THORNTON LLP

 

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

 

Tulsa, Oklahoma

June 17, 2016July 8, 2022

 

 

35

 

Consolidated Balance Sheets

America’sAmerica’s Car-Mart, Inc.

(Dollars in thousands)

 

		April 30, 2016				April 30, 2015				April 30, 2022				April 30, 2021
Assets:
Cash and cash equivalents		$	602			$	790			$	6,916			$	2,893
Restricted cash											35,671				0
Accrued interest on finance receivables			1,716				2,002				4,926				3,367
Finance receivables, net			334,793				324,144				854,290				625,119
Inventory			29,879				34,267				115,302				82,263
Income taxes receivable, net											274				0
Prepaid expenses and other assets			3,302				3,731				9,044				6,120
Income taxes receivable, net			894				645
Right-of-use asset											58,828				60,398
Goodwill			355				355				8,623				7,280
Property and equipment, net			34,755				33,963				51,438				34,719
Total Assets		$	406,296			$	399,897			$	1,145,312			$	822,159
Liabilities, mezzanine equity and equity:
Liabilities:
Accounts payable		$	12,313			$	11,022			$	20,055			$	18,208
Deferred revenue			27,339				25,236
Income taxes payable, net											0				150
Deferred accident protection plan revenue											43,936				32,704
Deferred service contract revenue											48,555				24,106
Accrued liabilities			11,245				12,708				32,630				31,278
Deferred income tax liabilities, net			18,280				19,178				28,233				20,007
Revolving credit facilities and notes payable			107,902				102,221
Lease liability											61,481				62,886
Non-recourse notes payable											395,986				0
Revolving line of credit											44,670				225,924
Total liabilities			177,079				170,365				675,546				415,263
Commitments and contingencies (Note L)
Mezzanine equity:
Mandatorily redeemable preferred stock			400				400				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; 12,726,560 and 12,688,890 issued at April 30, 2016 and April 30, 2015, respectively, of which 8,073,820 and 8,529,223 were outstanding at April 30, 2016 and April 30, 2015, respectively			127				127
Preferred stock, par value $.01 per share, 1,000,000 shares authorized; none issued or outstanding											0				0
Common stock, par value $.01 per share, 50,000,000 shares authorized; 13,642,185 and 13,591,889 issued at April 30, 2022 and April 30, 2021, respectively, of which 6,371,977 and 6,625,885 were outstanding at April 30, 2022 and April 30, 2021, respectively											136				136
Additional paid-in capital			64,771				62,428				103,113				98,812
Retained earnings			305,354				293,798				658,242				564,975
Less: Treasury stock, at cost, 4,652,740 and 4,159,667 shares at April 30, 2016 and April 30, 2015, respectively			(141,535	)			(127,321	)
Less: Treasury stock, at cost, 7,270,208 and 6,966,004 shares at April 30, 2022 and April 30, 2021, respectively											(292,225	)			(257,527	)
Total stockholders' equity			228,717				229,032				469,266				406,396
Non-controlling interest			100				100				100				100
Total equity			228,817				229,132				469,366				406,496
Total Liabilities, mezzanine equity and equity		$	406,296			$	399,897			$	1,145,312			$	822,159

 

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

 

36

 

Consolidated Statements of Operations

America’sAmerica’s Car-Mart, Inc.

(Dollars in thousands except per share amounts)

 

		Years Ended April 30,												Years Ended April 30,
		2016				2015				2014				2022				2021				2020
Revenues:
Sales		$	506,517			$	472,569			$	434,504			$	1,060,512			$	808,065			$	652,992
Interest and other income			61,389				57,752				54,683				151,853				110,545				91,619
Total revenues			567,906				530,321				489,187				1,212,365				918,610				744,611
Costs and expenses:
Cost of sales, excluding depreciation			304,886				272,446				251,319				663,631				479,153				388,475
Selling, general and administrative			92,242				83,802				78,591				156,130				130,855				117,762
Provision for credit losses			144,397				120,289				119,247				257,101				163,662				162,246
Interest expense			3,306				2,903				2,997				10,919				6,820				8,052
Depreciation and amortization			4,208				3,830				3,285				4,033				3,719				3,839
Loss on disposal of property and equipment			369				17				76
Loss (gain) on disposal of property and equipment															149				(40	)			(114	)
Total costs and expenses			549,408				483,287				455,515				1,091,963				784,169				680,260
Income before income taxes			18,498				47,034				33,672				120,402				134,441				64,351
Provision for income taxes			6,902				17,544				12,543				27,095				30,302				13,008
Net income		$	11,596			$	29,490			$	21,129			$	93,307			$	104,139			$	51,343
Less: Dividends on mandatorily redeemable preferred stock			40				40				40				40				40				40
Net income attributable to common stockholders		$	11,556			$	29,450			$	21,089			$	93,267			$	104,099			$	51,303
Earnings per share:
Basic		$	1.38			$	3.42			$	2.36			$	14.33			$	15.70			$	7.74
Diluted		$	1.33			$	3.25			$	2.25			$	13.67			$	14.95			$	7.39
Weighted average number of shares outstanding:
Basic			8,370,478				8,617,864				8,930,592				6,509,673				6,628,749				6,630,023
Diluted			8,666,031				9,048,957				9,391,667				6,823,481				6,961,575				6,945,652

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

 

37

 

Consolidated Statements of Cash Flows

America’sAmerica’s Car-Mart, Inc.

(In thousands)

 

		Years Ended April 30,												Years Ended April 30,
Operating activities:		2016				2015				2014				2022				2021				2020
Net income		$	11,596			$	29,490			$	21,129			$	93,307			$	104,139			$	51,343
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses			144,397				120,289				119,247				257,101				163,662				162,246
Losses on claims for payment protection plan			13,521				10,588				9,586
Losses on claims for accident protection plan															21,871				18,954				17,966
Depreciation and amortization			4,208				3,830				3,285				4,033				3,719				3,839
Amortization of debt issuance costs			214				188				209				775				391				273
Loss on disposal of property and equipment			369				17				76
Loss (gain) on disposal of property and equipment															149				(40	)			(114	)
Stock-based compensation			1,519				780				1,391				5,496				5,962				4,732
Deferred income taxes			(898	)			3,934				(2,923	)			8,226				7,028				(1,280	)
Excess tax benefit from stock based compensation			(238	)			(1,627	)			(141	)
Change in operating assets and liabilities:
Finance receivable originations			(460,499	)			(445,405	)			(404,918	)			(1,009,859	)			(762,716	)			(604,497	)
Finance receivable collections			248,166				238,845				223,538				417,796				370,254				322,180
Accrued interest on finance receivables			286				(172	)			(46	)			(1,559	)			(269	)			(750	)
Inventory			48,154				40,686				50,009				50,881				5,019				53,827
Prepaid expenses and other assets			284				(887	)			(1,298	)			(2,924	)			(1,679	)			193
Accounts payable and accrued liabilities			1,115				3,862				(1,675	)			5,166				14,766				1,009
Deferred payment protection plan revenue			1,653				2,419				323
Deferred accident protection plan revenue															11,232				8,224				3,113
Deferred service contract revenue			450				5,350				770				24,449				12,465				1,049
Income taxes, net			(11	)			200				3,313				(424	)			(3,691	)			5,788
Net cash provided by operating activities			14,286				12,387				21,875
Net cash (used in) provided by operating activities															(114,284	)			(53,812	)			20,917
Investing Activities:
Purchase of investments															(1,343	)			0				(4,648	)
Purchases of property and equipment			(4,526	)			(4,009	)			(7,095	)			(20,921	)			(8,952	)			(5,422	)
Proceeds from sale of property and equipment			7				112				2				20				694				184
Net cash used in investing activities			(4,519	)			(3,897	)			(7,093	)			(22,244	)			(8,258	)			(9,886	)
Financing Activities:
Exercise of stock options and warrants			400				4,143				720
Excess tax benefits from stock based compensation			238				1,627				141
Exercise of stock options															(1,488	)			4,034				1,533
Issuance of common stock			186				146				151				293				258				190
Purchase of common stock			(14,214	)			(20,020	)			(12,754	)			(34,698	)			(10,616	)			(16,009	)
Dividend payments			(40	)			(40	)			(40	)			(40	)			(40	)			(40	)
Debt issuance costs			146				(256	)			(207	)			(6,108	)			(282	)			(505	)
Change in cash overdrafts			(1,587	)			502				(452	)			(1,802	)			1,802				(1,274	)
Prinicipal payments on notes payable			(34	)			-				-
Issuances of non-recourse notes payable															399,994				0				0
Principal payments on notes payable															0				(524	)			(509	)
Proceeds from revolving credit facilities			374,214				377,225				329,424				331,113				73,337				442,490
Payments on revolving credit facilities			(369,264	)			(371,316	)			(331,748	)			(511,042	)			(62,566	)			(379,099	)
Net cash used in financing activities			(9,955	)			(7,989	)			(14,765	)
Net cash provided by financing activities															176,222				5,403				46,777
Increase (decrease) in cash and cash equivalents			(188	)			501				17
Cash and cash equivalents, beginning of period			790				289				272
Increase (decrease) in cash, cash equivalents, and restricted cash															39,694				(56,667	)			57,808
Cash, cash equivalents, and restricted cash beginning of period															2,893				59,560				1,752
Cash and cash equivalents, end of period		$	602			$	790			$	289
Cash, cash equivalents, and restricted cash end of period														$	42,587			$	2,893			$	59,560