Car-Mart(CRMT) - 2025 Q4 - Annual Report

Cover Page Explanatory Note The company's Form 10-K includes restated financial statements for the fiscal year ended April 30, 2025, due to omitted disclosures on contract modifications for borrowers experiencing financial difficulty - The company's 10-K filing contains restated consolidated financial statements for the fiscal year ended April 30, 2025, and restated disclosures for quarterly reports in fiscal 2024 and 2025[11] - The restatement was necessary due to the failure to disclose information about contract modifications for borrowers experiencing financial difficulty, as required by ASC 310-10-50-42 through 50-44[12][13] Impact of Contract Modifications | Metric | Amount/Percentage | | :--- | :--- | | Affected Gross Finance Receivables | $436.1 million | | Percentage of Total Gross Finance Receivables | 28.9% | - The restatement does not affect previously reported amounts in the company's consolidated balance sheets, statements of operations, or statements of cash flows[14] - Management identified a material weakness in internal control over financial reporting, primarily due to: 1) an inaccurate initial assessment of ASU 2022-02; 2) ineffective disclosure controls and procedures; and 3) a loss of technical accounting resources[15] PART I Forward-Looking Statements This annual report contains forward-looking statements regarding future events and performance, which are based on current estimates and assumptions and are subject to various risks and uncertainties - This report includes forward-looking statements concerning the company's future events, objectives, plans, and expectations for future operating results[22] - These statements are based on current estimates and assumptions and involve risks and uncertainties that could cause actual results to differ materially from projections[23] - The company undertakes no obligation to update or revise any forward-looking statements[25] Item 1. Business America's Car-Mart, Inc. is an integrated auto sales and finance retailer specializing in older used vehicles for credit-constrained customers, operating under a single reportable segment - America's Car-Mart, Inc, one of the largest publicly held automotive retailers in the U.S, focuses on "integrated auto sales and finance," primarily selling older used vehicles to credit-constrained customers[26] - As of April 30, 2025, the company operated 154 dealerships across the south-central United States[26] - The company's business strategy includes collecting customer accounts, standardizing operations with local empowerment, disciplined growth, selling basic transportation, operating in smaller communities, and cultivating talent and customer relationships[27][28][29][32][33][34][35] - Business strengths include an experienced management team, proven business practices, a cost-efficient operating model, sufficient capital, and significant expansion opportunities[36][37][39][40][41] - The company operates in a single reportable segment: providing integrated auto sales and financing solutions to customers with limited financial resources[42][43] Item 1A. Risk Factors The company faces risks from economic conditions, inventory costs, competition, regulations, a material weakness in internal controls, and high credit default rates inherent to its business model - Fluctuations in economic and market conditions can adversely affect the used car retail industry, particularly the subprime market[104][105] - Reduced availability or increased costs of used vehicle inventory could negatively impact the company's business by affecting gross margins[108][109][110] - The used car retail industry is highly competitive, which may lead to increased vehicle costs, price competition, and higher credit losses[111] - The company has a material weakness in its internal control over financial reporting, which could result in inaccurate or untimely financial statements and harm public confidence and stock price[121][122][123][124] - Financing credit-impaired borrowers exposes the company to higher risks of delinquency, default, and repossession, leading to greater losses[125] - The trading volume of the company's common stock may cause increased price volatility, and the company does not intend to pay future dividends[139][141][142] Item 1B. Unresolved Staff Comments This report contains no unresolved staff comments - Not applicable[143] Item 1C. Cybersecurity The company prioritizes data protection through continuous monitoring and investment in its cybersecurity program, which is overseen by the Board's Audit and Compliance Committee - Cybersecurity incidents have not had a material impact on the company's business strategy, results of operations, or financial condition[144] - The company prioritizes the protection of customer and company data, continuously monitoring the cybersecurity environment and investing in enhanced capabilities and partnerships[145] - The company's cybersecurity program aligns with the NIST and CoBIT frameworks, incorporating threat detection, incident management, endpoint detection, cloud monitoring, data encryption, and business continuity plans[147][148][153] - The Board of Directors, through its Audit and Compliance Committee, oversees cybersecurity risk management, receiving regular updates from the Chief Technology Officer and Chief Legal Officer[149] Item 2. Properties As of April 30, 2025, approximately 87% of the company's facilities are leased properties, primarily located across ten states in the south-central U.S - As of April 30, 2025, approximately 87% of the company's facilities, including dealerships and the corporate headquarters, were leased properties[152] - These facilities are primarily located in Alabama, Arkansas, Georgia, Illinois, Kentucky, Mississippi, Missouri, Oklahoma, Tennessee, and Texas[152] - The corporate headquarters is located in Rogers, Arkansas, and consists of approximately 50,000 square feet of leased space[152] Item 3. Legal Proceedings The company is involved in various legal proceedings from its ordinary course of business, none of which are expected to have a material adverse effect on its financial condition - The company is involved in various legal proceedings arising from the ordinary course of business[154] - The company does not expect the ultimate resolution of these proceedings, individually or in the aggregate, to have a material adverse effect on its financial condition, results of operations, or cash flows[154] Item 4. Mine Safety Disclosures This report contains no mine safety disclosures - Not applicable[155] PART II Item 5. Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities The company's stock trades on the NASDAQ, has underperformed market and peer indices over five years, and is subject to a no-dividend policy and restrictions on share repurchases - The company's common stock is traded on the NASDAQ Global Select Market under the symbol CRMT[157] - As of July 31, 2025, there were approximately 977 stockholders of record[158] Five-Year Total Shareholder Return as of April 30, 2025 | Metric | Value of $100 Invested on April 30, 2020 | | :--- | :--- | | Company Common Stock | $71.90 | | NASDAQ Market Index (U.S. Companies) | $203.93 | | Auto Dealers Peer Group | $274.23 | - The company has never paid a cash dividend and currently intends to retain earnings to support future growth[164] - The company is currently restricted by its loan agreements from paying dividends, making other stockholder distributions, or repurchasing company stock without lender consent[164][165] Item 6. [Reserved] This section is reserved Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2025 saw a return to profitability despite a slight revenue decrease, driven by a lower provision for credit losses and improved gross margin, while the company continues to manage liquidity and invest in operations - The company restated disclosures in prior quarterly reports regarding contract modifications for borrowers experiencing financial difficulty, which did not affect financial statement amounts[168][169][173] Key Financial Data Comparison for Fiscal 2025 vs. Fiscal 2024 | Metric | Fiscal 2025 (in thousands) | Fiscal 2024 (in thousands) | Y-o-Y Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $1,390,932 | $1,393,894 | (0.2)% | | Cost of Sales as a % of Sales | 63.3% | 65.3% | (2.0)pp | | Gross Margin | 36.7% | 34.7% | 2.0pp | | SG&A as a % of Sales | 16.5% | 15.5% | 1.0pp | | Provision for Credit Losses as a % of Sales | 32.7% | 36.5% | (3.8)pp | | Interest Expense as a % of Sales | 6.2% | 5.6% | 0.6pp | | Net Income (Loss) | $17,932 | ($31,393) | Turned to profit | | Basic Earnings Per Share | $2.38 | ($4.92) | Turned to profit | | Retail Units Sold | 57,022 | 57,989 | (1.7)% | | Average Retail Sales Price | $19,398 | $19,113 | 1.5% | - In fiscal 2025, the provision for credit losses as a percentage of sales decreased to 32.7%, and net charge-offs as a percentage of average finance receivables decreased to 25.9%, due to better performance of contracts underwritten with the new loan origination system and tighter underwriting standards[200] - As of April 30, 2025, net finance receivables grew by 6.2%, primarily due to longer term lengths on installment sales contracts to maintain customer affordability[209] Key Balance Sheet Items as of April 30, 2025 and April 30, 2024 (in thousands) | Item | April 30, 2025 | April 30, 2024 | | :--- | :--- | :--- | | Finance receivables, net | $1,180,673 | $1,098,591 | | Inventory | $112,229 | $107,470 | | Notes payable, net | $572,010 | $553,629 | | Revolving lines of credit, net | $204,769 | $200,819 | | Total liabilities | $1,036,552 | $1,006,494 | | Total stockholders' equity | $569,422 | $470,650 | - The company's primary sources of liquidity are operating income, non-recourse notes issued in asset-backed securitization transactions, warehouse financing, and revolving lines of credit[229] - The company completed two asset-backed term financing issuances in fiscal 2025 and a public offering of common stock on September 20, 2024, with net proceeds of approximately $73.8 million used to repay a portion of its revolving credit lines[215][216] Non-GAAP Financial Measure: Net Debt to Finance Receivables Ratio | Metric | April 30, 2025 | April 30, 2024 | | :--- | :--- | :--- | | Total Debt (A) | $776,779 thousand | $754,448 thousand | | Total Cash, Cash Equivalents, and Restricted Cash (B) | $124,537 thousand | $94,447 thousand | | Net Debt (A-B) | $652,242 thousand | $660,001 thousand | | Finance Receivables Principal Balance (C) | $1,509,155 thousand | $1,435,388 thousand | | Debt to Finance Receivables Ratio (A/C) | 51.5% | 52.6% | | Net Debt to Finance Receivables Ratio ((A-B)/C) | 43.2% | 46.0% | Item 7A. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk exposure is to interest rate changes affecting its variable-rate revolving lines of credit, which impacts its net interest income - The company is primarily exposed to market risk from changes in interest rates, particularly the floating rates on its revolving lines of credit[248][249] Interest Rate Sensitivity Analysis | Metric | April 30, 2025 (in millions) | April 30, 2024 (in millions) | | :--- | :--- | :--- | | Outstanding balance on revolving lines of credit | $204.8 | $200.8 | | Annual interest expense increase per 1% rate hike | Approx. $2.0 | Approx. $2.0 | - The company's finance receivables carry fixed annual interest rates (12.99% to 23.0%), while its revolving lines of credit have floating rates (SOFR plus 3.50% or a base rate plus 1%), exposing net interest income to rate fluctuations[250][251] Item 8. Financial Statements and Supplementary Data This section presents the consolidated financial statements, which received an unqualified audit opinion, alongside an adverse opinion on internal controls due to a material weakness - The independent registered public accounting firm issued an unqualified opinion on the company's consolidated financial statements as of April 30, 2025, and 2024[254] - The firm issued an adverse opinion on the effectiveness of the company's internal control over financial reporting as of April 30, 2025, due to a material weakness[255] - The consolidated financial statements for fiscal year 2024 have been restated to correct a disclosure error[256] - The allowance for credit losses was identified as a critical audit matter due to significant management judgment in adjusting historical loss experience for current conditions and selecting forecasting period factors[259][260][261] Consolidated Balance Sheets Summary (in thousands) | Item | April 30, 2025 | April 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $9,808 | $5,522 | | Restricted cash | $114,729 | $88,925 | | Finance receivables, net | $1,180,673 | $1,098,591 | | Inventory | $112,229 | $107,470 | | Total assets | $1,606,474 | $1,477,644 | | Notes payable, net | $572,010 | $553,629 | | Revolving lines of credit, net | $204,769 | $200,819 | | Total liabilities | $1,036,552 | $1,006,494 | | Total stockholders' equity | $569,522 | $470,750 | Consolidated Statements of Operations Summary (in thousands) | Item | Fiscal 2025 | Fiscal 2024 | Fiscal 2023 | | :--- | :--- | :--- | :--- | | Sales | $1,146,208 | $1,160,798 | $1,204,194 | | Interest and other income | $244,724 | $233,096 | $196,219 | | Total revenues | $1,390,932 | $1,393,894 | $1,400,413 | | Cost of sales | $726,055 | $758,546 | $800,788 | | Selling, general and administrative | $188,921 | $179,421 | $176,696 | | Provision for credit losses | $374,559 | $423,406 | $352,860 | | Interest expense | $70,650 | $65,348 | $38,312 | | Net income (loss) | $17,932 | ($31,393) | $20,432 | | Basic earnings per share | $2.38 | ($4.92) | $3.20 | Consolidated Statements of Cash Flows Summary (in thousands) | Item | Fiscal 2025 | Fiscal 2024 | Fiscal 2023 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | ($48,764) | ($73,898) | ($135,728) | | Net cash used in investing activities | ($11,375) | ($10,645) | ($27,571) | | Net cash provided by financing activities | $90,229 | $110,956 | $188,746 | | Increase in cash, cash equivalents, and restricted cash | $30,090 | $26,413 | $25,447 | | Cash, cash equivalents, and restricted cash at end of period | $124,537 | $94,447 | $68,034 | - In the second quarter of fiscal 2025, the company changed its accounting estimate for service contract revenue recognition, resulting in a $13.2 million increase in revenue and a $1.02 increase in diluted EPS for the quarter[279] - As of April 30, 2025, the allowance for credit losses was $323.1 million, or 23.25% of the finance receivables principal balance, down from 25.32% a year prior, due to improved performance of contracts under new underwriting standards[303][345] - The company acquired Texas Auto Center in fiscal 2025, adding $8.5 million in goodwill[308][407][409] - On May 29, 2025, the company completed a securitization transaction issuing $216 million in asset-backed notes, and on July 4, 2025, the "One Big Beautiful Bill Act" was signed, permanently restoring 100% bonus depreciation[413][414] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures This report contains no changes in or disagreements with accountants on accounting and financial disclosures - None[416] Item 9A. Controls and Procedures Management concluded that both disclosure controls and internal control over financial reporting were ineffective as of April 30, 2025, due to a material weakness requiring financial restatement - As of April 30, 2025, management concluded that the company's disclosure controls and procedures and internal control over financial reporting were ineffective[417][419] - A material weakness exists due to: 1) an inaccurate initial assessment of ASU 2022-02; 2) ineffective disclosure controls in identifying missing disclosures; and 3) a loss of technical accounting resources[420][429] - This material weakness led to a restatement of financial statements to include supplemental disclosures on contract modifications for borrowers experiencing financial difficulty[420] - The company is implementing a remediation plan, including leadership changes, enhancing technical accounting expertise, and improving processes, but cannot guarantee timely correction of the weakness[423] - Management's assessment of internal controls excluded Texas Auto Center, which represented 4.9% of total revenues and 3.3% of total assets in fiscal 2025[421][433] Item 9B. Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended April 30, 2025 - During the three months ended April 30, 2025, no director or officer of the company adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement"[439] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This report contains no disclosures regarding foreign jurisdictions that prevent inspections - Not applicable[440] PART III Item 10. Directors, Executive Officers and Corporate Governance Information will be incorporated by reference from the 2025 proxy statement; the company's Clawback Policy was not triggered by the recent financial restatement - The required information will be included in the company's proxy statement for its 2025 Annual Meeting of Stockholders[442][443] - The Board of Directors adopted an incentive-based compensation Clawback Policy on November 30, 2023, to comply with SEC and NASDAQ rules[444] - No incentive-based compensation was subject to recovery under the Clawback Policy, as the restatement did not affect reported financial measures and executive compensation was not based on the affected metrics[445][446] Item 11. Executive Compensation Information required for this item will be incorporated by reference from the company's 2025 proxy statement - The required information will be included in the company's proxy statement for its 2025 Annual Meeting of Stockholders[447] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information will be incorporated by reference from the 2025 proxy statement, with details provided on securities authorized for issuance under equity compensation plans - The required information will be included in the company's proxy statement for its 2025 Annual Meeting of Stockholders[448] Equity Compensation Plan Information as of April 30, 2025 | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 691,667 | $76.01 | 545,457 | | Equity compensation plans not approved by stockholders | - | - | - | Item 13. Certain Relationships and Related Transactions and Director Independence Information required for this item will be incorporated by reference from the company's 2025 proxy statement - The required information will be included in the company's proxy statement for its 2025 Annual Meeting of Stockholders[451] Item 14. Principal Accountant Fees and Services Information required for this item will be incorporated by reference from the company's 2025 proxy statement - The required information will be included in the company's proxy statement for its 2025 Annual Meeting of Stockholders[452] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists all exhibits filed as part of the Form 10-K annual report, including corporate governance documents, material contracts, and certifications - This section lists the exhibits filed as part of the Form 10-K annual report[455] - Exhibits include the company's articles of incorporation, debt agreements, equity incentive plans, employment agreements, loan and security agreements, purchase agreements, codes of conduct, insider trading policies, list of subsidiaries, auditor's consent, CEO and CFO certifications, and the clawback policy[456][457][458][459][460] Item 16. Form 10-K Summary This report contains no Form 10-K summary - Not applicable[461]