Car-Mart(CRMT) - 2021 Q2 - Quarterly Report

Part I. FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements and management's analysis Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, highlighting significant growth in net income and total assets Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at specific dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 31, 2020 | Apr 30, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $19,533 | $59,560 | | Finance receivables, net | $519,810 | $466,141 | | Inventory | $67,428 | $36,414 | | Total Assets | $716,344 | $667,324 | | Liabilities & Equity | | | | Debt facilities | $213,523 | $215,568 | | Total liabilities | $372,313 | $364,165 | | Total stockholders' equity | $343,531 | $302,659 | | Total Liabilities & Equity | $716,344 | $667,324 | - Total assets increased by 7.3% to $716.3 million as of October 31, 2020, from $667.3 million as of April 30, 2020, primarily driven by an 11.5% increase in net finance receivables and an 85.2% increase in inventory[7] Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income over specific periods Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Oct 31, 2020 | Three Months Ended Oct 31, 2019 | Six Months Ended Oct 31, 2020 | Six Months Ended Oct 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $223,360 | $190,310 | $411,271 | $362,188 | | Income before taxes | $27,750 | $17,957 | $53,289 | $37,796 | | Net income | $21,196 | $13,887 | $40,760 | $29,398 | | Diluted EPS | $3.05 | $2.00 | $5.88 | $4.21 | - For the three months ended October 31, 2020, total revenue increased by 17.4% year-over-year, and net income grew by 52.6%[10] - For the six-month period, total revenue increased by 13.6% and net income grew by 38.7%[10] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary for Six Months Ended October 31 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(29,733) | $(8,379) | | Net cash used in investing activities | $(4,400) | $(1,652) | | Net cash (used in) provided by financing activities | $(5,894) | $10,753 | | (Decrease) increase in cash | $(40,027) | $722 | - The company experienced a significant decrease in cash and cash equivalents of $40.0 million for the six months ended October 31, 2020, primarily due to increased cash used in operating activities, driven by $333.3 million origination of finance receivables[12] Notes to Consolidated Financial Statements These notes provide detailed explanations of accounting policies, financial statement accounts, and business operations - The company operates 150 dealerships in the South-Central U.S., focusing on selling older model used vehicles and providing financing to customers with limited credit histories[15] - The allowance for credit losses is a significant estimate, calculated based on historical loss experience, recent trends, economic conditions, and portfolio characteristics[20][33] - As of October 31, 2020, the allowance for credit losses was $173.0 million, or 26.5% of the relevant principal balance[20][33] - The company's revolving credit facilities, totaling $241 million, mature in September 2022 and are collateralized by finance receivables and inventory[80][81] - The interest rate on these facilities is variable, based on LIBOR plus a spread[81] - The company adopted ASU 2016-13 (Credit Losses) effective May 1, 2020, which requires estimating credit losses over the life of financial assets, with no material impact on financial statements[62] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, condition, and liquidity, highlighting revenue growth and credit loss management Overview This overview describes the company's business model, recent revenue drivers, and COVID-19 impacts - The company operates 150 dealerships focused on the 'Integrated Auto Sales and Finance' segment, primarily selling older used vehicles with financing to customers with limited credit[121] - Revenue increased 13.6% for the first six months of fiscal 2021, driven by a 16.7% increase in interest income and a 13.9% rise in average retail sales price, while retail units sold decreased by 0.3%[122] - COVID-19 has impacted vehicle availability and prices, leading to elevated inventory purchase costs, with the company adapting by establishing relationships with rental car companies to acquire newer, lower-mileage vehicles[123] - Credit loss results for the first six months of fiscal 2021 have returned to levels comparable to the prior year, following a negative impact in Q4 2020 due to COVID-19, though uncertainty remains[124] Results of Operations This section analyzes revenue, income, and expense trends, noting strong growth and improved credit loss metrics Three Months Ended Oct 31, 2020 vs 2019 (in thousands) | Metric | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $223,360 | $190,310 | 17.4% | | Pretax Income | $27,750 | $17,957 | 54.5% | | Retail units sold | 14,022 | 13,763 | 1.9% | | Average retail sales price | $13,365 | $11,589 | 15.3% | Six Months Ended Oct 31, 2020 vs 2019 (in thousands) | Metric | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $411,271 | $362,188 | 13.6% | | Pretax Income | $53,289 | $37,796 | 41.0% | | Retail units sold | 26,198 | 26,286 | -0.3% | | Average retail sales price | $13,102 | $11,504 | 13.9% | - Provision for credit losses as a percentage of sales improved to 22.3% from 24.5% for the three-month period, and to 22.2% from 22.9% for the six-month period, primarily due to a lower frequency of charge-offs[138][145] Financial Condition This section details changes in key balance sheet accounts, including finance receivables and inventory - Finance receivables, net, increased by 11.5% to $519.8 million since April 30, 2020, reflecting the growth in sales[147] - Inventory increased significantly by $31.0 million since April 30, 2020, as the company replenished levels that were kept low during initial COVID-19 uncertainty and invested in newer model vehicles[148] - Accounts payable and accrued liabilities rose by $7.4 million, primarily due to increased inventory purchases and the deferral of employer payroll taxes under the CARES Act[151] Liquidity and Capital Resources This section outlines the company's funding sources, cash uses, and available liquidity - The company's primary sources of liquidity are cash from operations and borrowings under its revolving credit facilities, with growth largely self-funded[156][165] - In the first six months of fiscal 2021, the company funded finance receivables growth ($71.6 million), inventory growth ($31.0 million), stock repurchases ($6.1 million), and capital expenditures ($5.0 million) with income from operations and a net increase in debt[154] - As of October 31, 2020, the company had $19.5 million in cash and an additional $27 million available under its revolving credit facilities[165] - Future uses of cash are expected for growing the finance portfolio, capital expenditures of approximately $6.5 million in the next 12 months, stock repurchases, and debt reduction[166] Critical Accounting Policies This section highlights significant accounting estimates, particularly the allowance for credit losses - The most significant accounting estimate is the allowance for credit losses, maintained to cover estimated losses over the remaining contractual lives of the finance receivables portfolio[172][173] - The allowance for credit losses was $173.0 million, or 26.5% of the relevant principal balance, at October 31, 2020, an increase from 24.5% at April 30, 2020, due to the economic impact of COVID-19[173][179] - The calculation of the allowance considers historical data on repossessions and charge-offs, the average net loss per unit, and the timing of losses, supplemented by macroeconomic forecasts for the next twelve months[175][176][177] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section assesses the company's exposure to market risks, primarily interest rate fluctuations on variable debt - The company's main market risk is interest rate risk on its $214.0 million of variable-rate revolving credit facilities as of October 31, 2020[187][188] - A 1% increase in interest rates would lead to an approximate $2.1 million increase in annual interest expense, reducing pre-tax income by the same amount[188] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and internal financial reporting controls - As of October 31, 2020, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[190] - There were no material changes in the company's internal control over financial reporting during the quarter[191] Part II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and required exhibits Item 1. Legal Proceedings This section addresses ongoing legal matters and their expected financial impact - The company does not anticipate any material adverse effects from current legal proceedings[193] Item 1A. Risk Factors This section updates on potential risks affecting the company's business and financial performance - No material changes to risk factors were reported since the last Form 10-K filing[195] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details common stock repurchase activities under the authorized program Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | | Aug 1 - Aug 31, 2020 | - | - | 125,109 | | Sep 1 - Sep 30, 2020 | 68,870 | $88.29 | 56,239 | | Oct 1 - Oct 31, 2020 | - | - | 56,239 | Item 6. Exhibits This section lists all documents and certifications filed as part of the report - The report includes required certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002[209]