Car-Mart(CRMT) - 2020 Q2 - Quarterly Report

Part I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and equity, along with detailed notes explaining the company's organization, significant accounting policies, and specific financial line items Condensed Consolidated Balance Sheets The balance sheet shows an increase in total assets from $492,542 thousand at April 30, 2019, to $575,367 thousand at October 31, 2019, primarily driven by growth in finance receivables and inventory. Total liabilities also increased significantly, mainly due to higher debt facilities and the recognition of lease liabilities under new accounting standards Balance Sheet Metrics (in thousands) | Metric | Oct 31, 2019 (in thousands) | Apr 30, 2019 (in thousands) | | :---------------------- | :-------------------------- | :-------------------------- | | Total Assets | $575,367 | $492,542 | | Finance Receivables, net| $451,606 | $415,486 | | Inventory | $48,103 | $37,483 | | Total Liabilities | $296,608 | $231,632 | | Debt Facilities | $176,970 | $152,918 | | Total Equity | $278,359 | $260,510 | Condensed Consolidated Statements of Operations For the three and six months ended October 31, 2019, the company reported increased revenues and net income compared to the prior year periods. Sales and interest income grew, while the provision for credit losses as a percentage of sales decreased, contributing to improved profitability Statements of Operations Metrics (in thousands) | Metric (in thousands) | 3 Months Ended Oct 31, 2019 | 3 Months Ended Oct 31, 2018 | 6 Months Ended Oct 31, 2019 | 6 Months Ended Oct 31, 2018 | | :------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenue | $190,310 | $167,171 | $362,188 | $331,186 | | Net Income | $13,887 | $11,281 | $29,398 | $22,164 | | Basic EPS | $2.10 | $1.64 | $4.42 | $3.21 | | Diluted EPS | $2.00 | $1.58 | $4.21 | $3.11 | Condensed Consolidated Statements of Cash Flows For the six months ended October 31, 2019, net cash used in operating activities increased significantly compared to the prior year, primarily due to larger finance receivable originations despite improved collections and higher net income. Financing activities provided substantial cash, mainly from revolving credit facilities, offsetting cash used in operations and investing Cash Flow Metrics (in thousands) | Metric (in thousands) | 6 Months Ended Oct 31, 2019 | 6 Months Ended Oct 31, 2018 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(8,379) | $(2,545) |\n| Net cash used in investing activities | $(1,652) | $(1,537) |\n| Net cash provided by financing activities | $10,753 | $3,739 |\n| Increase (decrease) in cash and cash equivalents | $722 | $(343) |\n| Cash and cash equivalents, end of period | $2,474 | $679 | Condensed Consolidated Statements of Equity Total equity increased from $260,510 thousand at April 30, 2019, to $278,359 thousand at October 31, 2019, driven by net income and stock-based compensation, partially offset by treasury stock repurchases Equity Metrics (in thousands) | Metric (in thousands) | Oct 31, 2019 | Apr 30, 2019 | | :------------------------------ | :----------- | :----------- | | Total Equity | $278,359 | $260,510 |\n| Retained Earnings | $438,951 | $409,573 |\n| Treasury Stock, at cost | $(245,598) | $(230,902) | Notes to Consolidated Financial Statements (Unaudited) This section provides detailed explanations of the company's accounting policies, financial instruments, and other relevant information supporting the condensed consolidated financial statements - Financial statements are prepared in accordance with GAAP for interim information, with all intercompany accounts eliminated. The company operates as a single reportable segment due to similar dealership characteristics[17][18][19] A – Organization and Business The company operates 145 dealerships in the South-Central U.S., specializing in used vehicle sales and financing for customers with limited credit histories - The Company operates 145 dealerships in the South-Central U.S., focusing on "Integrated Auto Sales and Finance" for used vehicles, serving customers with limited credit histories[16] B – Summary of Significant Accounting Policies This section outlines the company's key accounting principles, including consolidation, use of estimates, revenue recognition, and treatment of financial instruments General Unaudited interim financial statements are prepared in accordance with GAAP for interim information and Form 10-Q instructions - Unaudited interim financial statements are prepared in accordance with GAAP for interim information and Form 10-Q instructions, not including all footnotes required for complete annual statements[17] Principles of Consolidation Consolidated financial statements include America's Car-Mart, Inc. and its subsidiaries, with all intercompany accounts and transactions eliminated - Consolidated financial statements include America's Car-Mart, Inc. and its subsidiaries, with all intercompany accounts and transactions eliminated[18] Segment Information Individual dealerships are aggregated into one reportable segment due to similar operating characteristics within the "Integrated Auto Sales and Finance" industry - Individual dealerships are aggregated into one reportable segment due to similar operating characteristics within the "Integrated Auto Sales and Finance" industry[19] Use of Estimates Financial statements rely on management estimates and assumptions, with the allowance for credit losses being a significant estimate - Financial statements rely on management estimates and assumptions, with the allowance for credit losses being a significant estimate[20] Concentration of Risk Revenue concentration exists in South-Central U.S. states, with 28% from Arkansas customers, and cash balances periodically exceed federal insurance limits - Revenue concentration exists in South-Central U.S. states, with 28% from Arkansas customers. Cash balances periodically exceed federal insurance limits[21][22] Restrictions on Distributions/Dividends Revolving credit facilities restrict stock repurchases and dividends based on credit availability and consolidated net income - Revolving credit facilities restrict stock repurchases and dividends, allowing repurchases up to $50 million (net of stock option proceeds) if credit availability is >= 20% of borrowing bases, or up to 75% of consolidated net income if >= 12.5% of committed funds remain available[24][79] Cash Equivalents Cash equivalents are highly liquid debt instruments with original maturities of three months or less - Cash equivalents are highly liquid debt instruments with original maturities of three months or less[25] Finance Receivables, Repossessions and Charge-offs and Allowance for Credit Losses Finance receivables are installment contracts for used vehicles, primarily to subprime customers, with an average interest rate of 16.4% - Finance receivables are installment contracts for used vehicles, primarily to subprime customers, with an average interest rate of 16.4%[26][28][61] - Delinquency is defined as one day past due. 3.5% of finance receivables were 30+ days past due at Oct 31, 2019, up from 3.4% at Oct 31, 2018[27][65] - The allowance for credit losses was $135.5 million (24.5% of principal balance) at October 31, 2019, covering estimated future net charge-offs[33][169] Inventory Used vehicle inventory is valued at the lower of cost or net realizable value, with repossessed and trade-in vehicles recorded at fair value - Used vehicle inventory is valued at the lower of cost or net realizable value, with reconditioning costs capitalized. Repossessed and trade-in vehicles are recorded at fair value[37] Goodwill Goodwill is tested annually for impairment, with no impairment occurring in fiscal 2019 or 2020 to date - Goodwill is tested annually for impairment; no impairment occurred in fiscal 2019 or 2020 to date[39] Property and Equipment Property and equipment are stated at cost, depreciated using the straight-line method, and reviewed for impairment - Property and equipment are stated at cost, depreciated using the straight-line method, and reviewed for impairment[40] Cash Overdraft Cash overdrafts, representing outstanding checks net of deposits, are included in accrued liabilities - Cash overdrafts, representing outstanding checks net of deposits, are included in accrued liabilities[41] Deferred Sales Tax Deferred sales tax for installment sales in Alabama and Texas is recognized as payments are collected and included in accrued liabilities - Deferred sales tax for installment sales in Alabama and Texas is recognized as payments are collected and included in accrued liabilities[42] Income Taxes Income taxes are accounted for using the liability method, with tax benefits recognized only when likely to be sustained - Income taxes use the liability method. Effective tax rates for six months ended Oct 31 were 22.2% (2019) and 18.7% (2018)[43] - The company recognizes tax benefits only when it's more likely than not that the position will be sustained. No accrued penalties or interest as of October 31, 2019[45][48] Revenue Recognition Revenues are derived from used vehicle sales, service contracts, payment protection plans, interest income, and late fees, recognized based on specific criteria - Revenues are from used vehicle sales, service contracts, payment protection plans, interest income, and late fees[49] - Vehicle sales recognized at contract signing/possession. Service contracts recognized ratably. Payment protection plans recognized using "Rule of 78's". Interest income recognized using simple effective interest method[50] Revenue by Source (in thousands) | Revenue Source (in thousands) | 3 Months Ended Oct 31, 2019 | 3 Months Ended Oct 31, 2018 | 6 Months Ended Oct 31, 2019 | 6 Months Ended Oct 31, 2018 | | :---------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Sales – used autos | $145,489 | $126,286 | $274,943 | $251,510 |\n| Wholesales – third party | $8,245 | $6,693 | $15,426 | $12,745 |\n| Service contract sales | $7,830 | $7,727 | $15,300 | $15,055 |\n| Payment protection plan revenue | $6,179 | $5,705 | $12,148 | $11,202 |\n| Total Sales | $167,743 | $146,411 | $317,817 | $290,512 | Earnings per Share Basic EPS is calculated by dividing net income by average common shares outstanding, while diluted EPS includes dilutive common stock equivalents - Basic EPS is calculated by dividing net income attributable to common stockholders by the average number of common shares outstanding. Diluted EPS includes dilutive common stock equivalents using the treasury stock method[52] Stock-Based Compensation Stock-based compensation expense is recognized based on fair value at grant date, with forfeitures accounted for as they occur - Stock-based compensation expense is recognized based on fair value at grant date. Total expense for six months ended Oct 31, 2019, was $2.2 million ($1.7 million after tax), up from $1.7 million ($1.3 million after tax) in 2018[53][90] - The company now accounts for forfeitures as they occur and records excess tax benefits/deficiencies from equity awards in the Consolidated Statements of Operations[53][54] Treasury Stock Treasury stock is used for stock-based compensation and corporate purposes, with specific reserves for regulatory requirements in Iowa (10,000 shares) and Arkansas (14,000 shares) - Treasury stock is used for stock-based compensation and corporate purposes, with specific reserves for regulatory requirements in Iowa (10,000 shares) and Arkansas (14,000 shares)[56] Recent Accounting Pronouncements The company adopted ASU 2016-02 (Leases) and is evaluating ASU 2016-13 (Credit Losses) and ASU 2018-15 (Cloud Computing Arrangement) - Adopted ASU 2016-02 (Leases) effective May 1, 2019, increasing total assets and liabilities by $34.5 million[58][177] - Evaluating ASU 2016-13 (Credit Losses) and ASU 2018-15 (Cloud Computing Arrangement), with no material impact expected[59][60][178][179] C – Finance Receivables, Net This section details the composition and quality of finance receivables, including gross contract amounts, allowance for credit losses, and key performance metrics Finance Receivables Data (in thousands) | Metric (in thousands) | Oct 31, 2019 | Apr 30, 2019 | | :------------------------------ | :----------- | :----------- | | Gross contract amount | $682,176 | $631,681 |\n| Less unearned finance charges | $(95,089) | $(88,353) |\n| Principal balance | $587,087 | $543,328 |\n| Less allowance for credit losses| $(135,481) | $(127,842) |\n| Finance receivables, net | $451,606 | $415,486 | Finance Receivables Data | Metric | 6 Months Ended Oct 31, 2019 | 6 Months Ended Oct 31, 2018 | | :-------------------------------------- | :-------------------------- | :-------------------------- | | Net charge-offs as % of average finance receivables | 11.5% | 13.0% |\n| Collections as % of average finance receivables | 26.8% | 26.0% |\n| Delinquencies > 30 days | 3.5% | 3.4% |\n| Average down-payment percentage | 6.2% | 6.0% |\n| Average originating contract term (months)| 30.2 | 29.5 |\n| Portfolio weighted average contract term (months)| 32.3 | 32.1 | - A $2.6 million credit to the provision for credit losses (resulting in a $2.0 million after-tax increase to net income, or $0.29 per diluted share) was made in Q1 fiscal 2020 due to improved net charge-offs and portfolio quality, decreasing the allowance for credit losses from 25% to 24.5%[66][175] D – Property and Equipment This section provides a breakdown of property and equipment, including land, buildings, and accumulated depreciation Property and Equipment Details (in thousands) | Metric (in thousands) | Oct 31, 2019 | Apr 30, 2019 | | :------------------------------ | :----------- | :----------- | | Total Property and Equipment, net | $28,212 | $28,537 |\n| Land | $7,545 | $7,413 |\n| Buildings and improvements | $12,431 | $11,815 |\n| Accumulated depreciation and amortization | $(33,366) | $(31,585) | E – Accrued Liabilities This section details accrued liabilities, including employee compensation, cash overdrafts, and deferred sales tax Accrued Liabilities Details (in thousands) | Metric (in thousands) | Oct 31, 2019 | Apr 30, 2019 | | :------------------------------ | :----------- | :----------- | | Total Accrued Liabilities | $16,715 | $18,837 |\n| Employee compensation | $6,396 | $6,321 |\n| Cash overdrafts | $1,851 | $1,274 |\n| Deferred sales tax | $2,623 | $3,571 | F – Debt Facilities This section outlines the company's debt structure, including revolving lines of credit, notes payable, and compliance with debt covenants Debt Facilities Details (in thousands) | Metric (in thousands) | Oct 31, 2019 | Apr 30, 2019 | | :------------------------------ | :----------- | :----------- | | Revolving lines of credit | $177,062 | $152,440 |\n| Notes payable | $137 | $194 |\n| Capital lease | $646 | $839 |\n| Debt issuance costs | $(875) | $(555) |\n| Total Debt Facilities | $176,970 | $152,918 | - New loan agreement extends revolving credit facilities to September 30, 2022, and increases total permitted borrowings from $215 million to $241 million[76] - Revolving credit facilities are collateralized by finance receivables and inventory, cross-collateralized, and guaranteed by the Company. Interest rate is generally LIBOR plus 2.35% (4.14% at Oct 31, 2019)[77] - The Company was in compliance with all debt covenants at October 31, 2019, with approximately $63 million additional availability under revolving credit facilities[80] G – Fair Value Measurements This section presents the fair value measurements for financial instruments, including cash, finance receivables, accounts payable, and debt facilities Fair Value Measurements (in thousands) | Financial Instrument (in thousands) | Oct 31, 2019 Carrying Value | Oct 31, 2019 Fair Value | Apr 30, 2019 Carrying Value | Apr 30, 2019 Fair Value | | :---------------------------------- | :-------------------------- | :---------------------- | :-------------------------- | :---------------------- | | Cash | $2,474 | $2,474 | $1,752 | $1,752 |\n| Finance receivables, net | $451,606 | $361,059 | $415,486 | $334,147 |\n| Accounts payable | $14,866 | $14,866 | $13,659 | $13,659 |\n| Debt facilities | $176,970 | $176,970 | $152,918 | $152,918 | - Fair value of finance receivables is estimated at a 34% to 39% discount to face value, based on third-party appraisals and internal sales. The company expects to collect more than this net book value by internal collection[88] H – Weighted Average Shares Outstanding This section provides the weighted average shares outstanding for basic and diluted EPS calculations for various periods Weighted Average Shares Outstanding | Metric | 3 Months Ended Oct 31, 2019 | 3 Months Ended Oct 31, 2018 | 6 Months Ended Oct 31, 2019 | 6 Months Ended Oct 31, 2018 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Weighted average shares outstanding-basic | 6,621,562 | 6,865,060 | 6,652,922 | 6,894,547 |\n| Weighted average shares outstanding-diluted | 6,952,667 | 7,132,217 | 6,984,709 | 7,129,451 | I – Stock-Based Compensation This section details stock-based compensation, including expense recognition, stock options, and restricted stock awards - Total stock-based compensation expense for the six months ended October 31, 2019, was $2.2 million ($1.7 million after tax), an increase from $1.7 million ($1.3 million after tax) in the prior year[90] Stock Options Stock options were granted with a specific fair value, and associated compensation expense and unrecognized costs are reported - 25,000 stock options were granted in the six months ended Oct 31, 2019 (vs. 145,000 in 2018), with a grant-date fair value of $974,000[97] - Stock option compensation expense was $1.7 million ($1.3 million after tax) for the six months ended Oct 31, 2019. Unrecognized compensation cost for unvested options is $2.3 million[98] Stock Option Activity (in thousands) | Metric (in thousands) | 6 Months Ended Oct 31, 2019 | 6 Months Ended Oct 31, 2018 | | :------------------------------ | :-------------------------- | :-------------------------- | | Options exercised | 39,000 | 220,750 |\n| Cash received from option exercises | $864 | $4,294 |\n| Intrinsic value of options exercised | $2,083 | $8,317 | Stock Incentive Plan Restricted shares were granted under the Stock Incentive Plan, with associated unrecognized compensation cost and weighted-average vesting period - 3,000 restricted shares were granted in the six months ended Oct 31, 2019[104] - Unrecognized compensation cost for unvested awards under the Stock Incentive Plan is $6.4 million, with a weighted-average remaining vesting period of 6.7 years[105] J – Commitments and Contingencies This section outlines the company's lease commitments and other contingencies, including rent expense and standby letters of credit - The company leases approximately 81% of its dealership and office facilities. Rent expense for operating leases was $3.5 million for the six months ended Oct 31, 2019[107] Operating Lease Payments (in thousands) | Maturity of Lease Liabilities | Total Undiscounted Operating Lease Payments (in thousands) | | :---------------------------- | :------------------------------------------------------- | | 2020 (remaining) | $3,366 |\n| 2021 | $6,543 |\n| 2022 | $6,337 |\n| 2023 | $6,273 |\n| 2024 | $5,703 |\n| Thereafter | $23,030 |\n| Total | $51,252 | - Two standby letters of credit totaling $500,000 are outstanding as of October 31, 2019[108] K – Supplemental Cash Flow Information This section provides supplemental cash flow details, including interest paid, income taxes paid, and inventory acquired through repossessions Supplemental Cash Flow Data (in thousands) | Metric (in thousands) | 6 Months Ended Oct 31, 2019 | 6 Months Ended Oct 31, 2018 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Interest paid | $3,990 | $3,122 |\n| Income taxes paid, net | $5,975 | $4,109 |\n| Inventory acquired in repossession and payment protection plan claims | $24,968 | $23,348 |\n| Net settlement option exercises | $489 | $2,359 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and liquidity, discussing key drivers, trends, and risks Forward-Looking Information This section outlines forward-looking statements and potential risks that could cause actual results to differ materially - Forward-looking statements cover new dealership openings, revenue growth, credit losses, collection results, seasonality, business strategies, and liquidity[113] - Actual results may differ due to risks including credit facility availability, collection effectiveness, competition, management dependence, vehicle availability, regulatory changes, economic conditions, and security breaches[114] Overview This section provides a general overview of the company's operations, revenue drivers, credit loss management, and gross margin performance - The company operates 145 dealerships, primarily selling older model used vehicles and providing financing to customers with limited financial resources[117] - Revenue increased 9.4% for the first six months of fiscal 2020, driven by a 9.1% increase in interest income, a 4.4% increase in average retail sales price, and a 4.3% increase in retail units sold[118] - Credit losses as a percentage of sales decreased to 22.9% for the first six months of fiscal 2020 (vs. 26.2% in 2019), primarily due to improved collections and a $2.6 million credit to the provision for credit losses[119] - The company focuses on reducing credit losses through improved underwriting, collection procedures, proprietary credit scoring, credit reporting, GPS units, and extensive training[121] - Gross margin as a percentage of sales was 40.6% for the first six months of fiscal 2020 (vs. 41.6% in 2019), impacted by higher average retail sales prices due to increased vehicle quality and market strength[123] Results of Operations - Three Months Ended October 31, 2019 vs. 2018 This section analyzes the company's financial performance for the three months ended October 31, 2019, compared to the prior year, highlighting revenue, expenses, and profitability changes Three Months Ended October 31, 2019 vs. 2018 (in thousands) | Metric (in thousands) | 3 Months Ended Oct 31, 2019 | 3 Months Ended Oct 31, 2018 | % Change | | :------------------------------ | :-------------------------- | :-------------------------- | :------- | | Total Revenue | $190,310 | $167,171 | 13.8% |\n| Sales | $167,743 | $146,411 | 14.6% |\n| Interest income | $22,567 | $20,760 | 8.7% |\n| Cost of sales (% of sales) | 59.5% | 58.3% | +1.2 pp |\n| SG&A (% of sales) | 16.9% | 17.9% | -1.0 pp |\n| Provision for credit losses (% of sales) | 24.5% | 26.3% | -1.8 pp |\n| Pretax income (% of sales) | 10.7% | 9.6% | +1.1 pp | - Average retail sales price increased by $559 to $11,589, contributing to the lower gross margin percentage[129] - SG&A expenses increased by $2.1 million, primarily due to payroll and benefits, including stock-based compensation, reflecting investment in associates and performance-based compensation[131] Results of Operations - Six Months Ended October 31, 2019 vs. 2018 This section analyzes the company's financial performance for the six months ended October 31, 2019, compared to the prior year, highlighting revenue, expenses, and profitability changes Six Months Ended October 31, 2019 vs. 2018 (in thousands) | Metric (in thousands) | 6 Months Ended Oct 31, 2019 | 6 Months Ended Oct 31, 2018 | % Change | | :------------------------------ | :-------------------------- | :-------------------------- | :------- | | Total Revenue | $362,188 | $331,186 | 9.4% |\n| Sales | $317,817 | $290,512 | 9.4% |\n| Interest income | $44,371 | $40,674 | 9.1% |\n| Cost of sales (% of sales) | 59.4% | 58.4% | +1.0 pp |\n| SG&A (% of sales) | 17.9% | 18.1% | -0.2 pp |\n| Provision for credit losses (% of sales) | 22.9% | 26.2% | -3.3 pp |\n| Pretax income (% of sales) | 11.9% | 9.4% | +2.5 pp | - Average retail sales price increased by $482 to $11,504[138] - Net charge-offs as a percentage of average finance receivables decreased to 11.5% (vs. 13.0% in 2018) due to improved collections, lower modifications, and increased early payoffs[141] Financial Condition This section reviews the company's financial position, including changes in finance receivables, inventory, and debt facilities Financial Condition Metrics (in thousands) | Metric (in thousands) | Oct 31, 2019 | Apr 30, 2019 | % Change | | :------------------------------ | :----------- | :----------- | :------- | | Finance receivables, net | $451,606 | $415,486 | 8.7% |\n| Inventory | $48,103 | $37,483 | 28.3% |\n| Debt facilities | $176,970 | $152,918 | 15.7% | - Revenues grew faster than finance receivables due to increased collections and early payoffs, despite rising retail prices[143] - The company funded finance receivables growth ($43.8 million), inventory growth ($10.6 million), capital expenditures ($1.7 million), and common stock repurchases ($14.7 million) with income from operations and a $24.1 million increase in total debt[150] Liquidity and Capital Resources This section discusses the company's sources and uses of liquidity, including operating cash flow, credit facilities, and capital allocation plans - Primary liquidity sources are income from operations and revolving credit facilities, which mature in September 2022[159] - Cash used in operating activities increased for the six months ended October 31, 2019, primarily due to larger finance receivables originations, partially offset by improved collections and higher net income[152] - Vehicle purchase costs have increased due to tight supply and demand, leading to higher average sales prices. Management expects modest increases to continue[154] - The company expects to use cash from operations and borrowings to grow finance receivables, purchase $6.5 million in property and equipment in the next 12 months, and repurchase common stock[160] Contractual Payment Obligations This section confirms no material changes to contractual payment obligations since the last fiscal year-end - No material changes to contractual payment obligations since April 30, 2019[163] Off-Balance Sheet Arrangements This section describes the company's off-balance sheet arrangements, primarily operating leases for 81% of facilities and two standby letters of credit totaling $500,000 - Off-balance sheet arrangements include operating leases for 81% of facilities and two standby letters of credit totaling $500,000[164][165] Related Finance Company Contingency This section explains the tax implications of selling finance receivables to a related company and potential risks of non-compliance - Car-Mart of Arkansas sells finance receivables to Colonial Auto Finance, Inc., enabling a tax deduction and reducing the effective state income tax rate by approximately 274 basis points[109][166] - Non-compliance with tax regulations could lead to loss of tax deductions and an increased effective income tax rate[109][166] Critical Accounting Policies This section highlights the most significant accounting estimates, particularly the allowance for credit losses, and its sensitivity to changes - The allowance for credit losses is the most significant accounting estimate, calculated based on historical losses, trends, contract characteristics, delinquency, collateral values, economic conditions, and operational practices[168][171][172][173] - A 1% change in the allowance for credit losses (as a percentage of finance receivables) would result in an approximate $5.5 million pre-tax adjustment[174] Recent Accounting Pronouncements This section discusses the adoption of new accounting standards and the evaluation of others, noting their impact on financial reporting - Adopted ASU 2016-02 (Leases) effective May 1, 2019, resulting in a $34.5 million increase in total assets and liabilities[177] - Evaluating ASU 2016-13 (Credit Losses) and ASU 2018-15 (Cloud Computing Arrangement), with no material impact expected[178][179] Seasonality This section describes the seasonal patterns affecting the company's sales and financial performance throughout the fiscal year - Third fiscal quarter (Nov-Jan) is slowest for sales; first and fourth quarters (May-Jul, Feb-Apr) are busiest. Tax refund sales primarily impact the fourth quarter[181] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the company's exposure to market risks, primarily interest rate risk related to its debt obligations Interest rate risk This section details the company's exposure to interest rate fluctuations on its variable-rate debt and the potential impact on interest expense - The company's debt obligations, particularly revolving credit facilities, expose it to interest rate risk[184] - A 1% increase in interest rates on $177.1 million debt would result in an approximate $1.8 million increase in annual interest expense[184] - Finance receivables carry fixed interest rates (15% or 16.5%), while revolving credit facilities have variable rates[185] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of the reporting date - CEO and CFO concluded that disclosure controls and procedures were effective as of October 31, 2019[186] Changes in Internal Control Over Financial Reporting This section reports on any material changes in internal control over financial reporting during the last fiscal quarter - No material changes in internal control over financial reporting occurred during the last fiscal quarter[187] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is a defendant in various legal proceedings in the ordinary course of business but does not expect their outcome to have a material adverse effect on its financial position, results of operations, or cash flows - The company is involved in ordinary course legal proceedings, but their outcome is not expected to have a material adverse effect on financial position, results of operations, or cash flows[189] Item 1A. Risk Factors There have been no material changes to the company's risk factors as previously disclosed in its Form 10-K for the fiscal year ended April 30, 2019 - No material changes to risk factors since the Form 10-K for the fiscal year ended April 30, 2019[191] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 112,091 shares of common stock at an average price of $89.05 during the three months ended October 31, 2019, under its authorized repurchase program Common Stock Repurchases | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | | :--------------------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | | August 1, 2019 through August 31, 2019 | 3,654 | $84.79 | 245,930 |\n| September 1, 2019 through September 30, 2019 | 66,437 | $90.15 | 179,493 |\n| October 1, 2019 through October 31, 2019 | 42,000 | $87.68 | 137,493 |\n| Total | 112,091 | $89.05 | | - The common stock repurchase program has no expiration date[194] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - Not applicable[195] Item 4. Mine Safety Disclosure This item is not applicable to the company for the reporting period - Not applicable[196] Item 5. Other Information This item is not applicable to the company for the reporting period - Not applicable[197] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, the Third Amended and Restated Loan and Security Agreement, and certifications from the CEO and CFO - Key exhibits include the Third Amended and Restated Loan and Security Agreement (Exhibit 10.1) and certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1)[199] SIGNATURES The report is signed by Jeffrey A. Williams, President and Chief Executive Officer, and Vickie D. Judy, Chief Financial Officer, on December 9, 2019 - Report signed by Jeffrey A. Williams (President and CEO) and Vickie D. Judy (CFO) on December 9, 2019[202]