Car-Mart(CRMT) - 2021 Q4 - Annual Report

Part I Business The company is an integrated auto sales and finance retailer, selling used vehicles and providing financing to sub-prime customers - The company operates as an "Integrated Auto Sales and Finance" business, selling older used vehicles and providing financing to sub-prime customers through 151 dealerships as of April 30, 2021[14] Dealership Growth (FY2019-2021) | Fiscal Year | Beginning Dealerships | Opened/Acquired | Closed | Ending Dealerships | | :--- | :--- | :--- | :--- | :--- | | 2021 | 148 | 3 | 0 | 151 | | 2020 | 144 | 5 | (1) | 148 | | 2019 | 139 | 5 | 0 | 144 | - The business strategy emphasizes collecting customer accounts, maintaining decentralized operations, expanding through controlled organic growth and strategic acquisitions, and operating primarily in smaller communities with populations under 50,000[18][19][20] Key Operational Metrics (FY2020 vs. FY2021) | Metric | Fiscal 2021 | Fiscal 2020 | | :--- | :--- | :--- | | Average Retail Sales Price ($) | $13,621 | $11,794 | | Portfolio Weighted Avg. Term (months) | 37.3 | - | | Credit Losses as % of Sales (%) | 20.3% | - | - As of April 30, 2021, the company employed approximately 1,850 full-time associates, with 49% being women and 32% being racially or ethnically diverse[70][71] Risk Factors The company faces significant risks from COVID-19 impacts, credit-impaired borrowers, credit loss allowance, competition, regulation, and geographic concentration - The COVID-19 pandemic poses significant risks to the business, potentially impacting sales, finance collections, inventory acquisition, and associate productivity[84][85] - Financing sales to credit-impaired borrowers creates a higher risk of delinquency, default, and repossession compared to traditional lenders[88][89] - The allowance for credit losses may be insufficient to cover actual losses. In Q4 FY2021, the allowance was decreased from 26.5% to 24.5% of finance receivables principal, reflecting improved credit performance[91][92] - The business is geographically concentrated in twelve states, with approximately 27% of revenues from Arkansas customers, making it vulnerable to local economic downturns[103][104] - The company's growth strategy is dependent on favorable operating performance, availability of suitable dealership sites, ability to attract and retain management, and successful integration of acquisitions[118][120][124] Properties The company leases approximately 82% of its facilities, including most dealerships and its 34,000 sq ft corporate office in Rogers, Arkansas - The company leases approximately 82% of its facilities, including most dealerships and its corporate office in Rogers, Arkansas[132] Legal Proceedings The company is involved in various legal proceedings but does not anticipate a material adverse effect on its financial position or operations - The company is a defendant in various legal proceedings but does not anticipate a material adverse effect from their outcomes[133] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ (CRMT), retains earnings for growth, and conducts share repurchases without paying cash dividends - The company's common stock is traded on the NASDAQ under the symbol CRMT[136] - The company has a policy of retaining earnings for growth and has not paid cash dividends. Its ability to pay dividends is also restricted by its credit facilities[141] Issuer Purchases of Equity Securities (Q4 FY2021) | Period | Total Shares Purchased (shares) | Average Price Paid per Share ($) | | :--- | :--- | :--- | | Feb 1 - Feb 28, 2021 | 6,521 | $122.13 | | Mar 1 - Mar 31, 2021 | 0 | - | | Apr 1 - Apr 30, 2021 | 0 | - | Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2021 saw strong revenue and net income growth, improved credit loss performance, strengthened financial condition, and solid liquidity despite increased investments Results of Operations Total revenues increased 23.4% in fiscal 2021, driven by higher sales prices and units, with gross margin stable and credit loss provision significantly reduced Consolidated Operations Summary (FY2019-2021) | (In Thousands) | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Total Revenues | $918,610 | $744,611 | $669,122 | | Sales | $808,065 | $652,992 | $586,508 | | Interest & other income | $110,545 | $91,619 | $82,614 | | Income before taxes | $134,441 | $64,351 | $59,851 | | Retail units sold (units) | 56,806 | 52,914 | 50,257 | | Average retail sales price ($) | $13,621 | $11,793 | $11,125 | - The provision for credit losses as a percentage of sales decreased to 20.3% in FY2021 from 24.8% in FY2020. This was driven by lower net charge-offs and a $15.1 million pretax decrease to the provision from reducing the allowance for credit losses from 26.5% to 24.5%[167] - Gross margin per retail unit sold increased by $791 in fiscal 2021 compared to fiscal 2020, despite pressure from rising vehicle purchase costs[163] Financial Condition Total assets increased to $822.2 million, with net finance receivables growing 34.1% and inventory surging 125.9% to support business expansion Key Balance Sheet Items (As of April 30, In Thousands) | (In Thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Finance receivables, net | $625,119 | $466,141 | $415,486 | | Inventory | $82,263 | $36,414 | $37,483 | | Debt facilities | $225,924 | $215,568 | $152,918 | - For fiscal year 2021, the growth in finance receivables (net of deferred revenue) was 28.7%, exceeding the revenue growth of 23.4%, primarily due to an increase in the average contract term to 37.3 months from 33.3 months in the prior year[175][176] Liquidity and Capital Resources Liquidity is primarily from operations and credit facilities, with net cash used in operations due to funding a $159.0 million increase in net finance receivables Cash Flow Summary (FY2019-2021, In Thousands) | (In Thousands) | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($53,812) | $20,917 | $24,902 | | Net cash used in investing activities | ($8,258) | ($9,886) | ($3,887) | | Net cash provided by (used in) financing activities | $5,403 | $46,777 | ($20,285) | - At April 30, 2021, the company had $99.1 million of availability under its revolving credit facilities, which mature in September 2022[197] - The company plans to use cash for growing its finance portfolio, purchasing approximately $25 million in fixed assets over the next 12 months, and repurchasing common stock[198] Critical Accounting Estimates The allowance for credit losses is the most significant estimate, adjusted in Q4 FY2021 to 24.5% of finance receivables due to improved credit performance - The allowance for credit losses is the most significant estimate, amounting to $184.4 million, or 24.5% of the principal balance in finance receivables, at April 30, 2021[207] - A 1% change in the allowance for credit losses as a percentage of finance receivables would result in an approximate pre-tax change of $7.5 million[211] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk from variable-rate debt, with a 1% rate increase impacting annual interest expense by $2.3 million - The company is exposed to interest rate risk from its variable-rate revolving credit facilities. A 1% increase in interest rates would increase annual interest expense by about $2.3 million[222] Financial Statements and Supplementary Data This section presents audited financial statements and the auditor's report, identifying the allowance for credit losses as a critical audit matter - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the financial statements and identified the allowance for credit losses as a critical audit matter due to significant management judgments[227][232][233] Consolidated Financial Statements The consolidated financial statements for fiscal 2021 show significant growth in total assets, revenues, net income, and equity Key Financial Statement Data (FY2021 vs FY2020, In Thousands) | (In Thousands) | April 30, 2021 | April 30, 2020 | | :--- | :--- | :--- | | Balance Sheet | | | | Total Assets | $822,159 | $667,324 | | Total Liabilities | $415,263 | $364,165 | | Total Equity | $406,496 | $302,759 | | Income Statement | | | | Total Revenues | $918,610 | $744,611 | | Net Income | $104,139 | $51,343 | | Diluted EPS ($) | $14.95 | $7.39 | Notes to Consolidated Financial Statements Notes detail accounting policies, finance receivables, credit loss allowance, debt facilities, and stock-based compensation, highlighting improved delinquency rates - The allowance for credit losses decreased to 24.5% of finance receivables in Q4 FY2021 from 26.5%, resulting in a $15.1 million pre-tax decrease in the provision for credit losses[268] - Net charge-offs as a percentage of average finance receivables decreased to 19.3% for fiscal 2021 from 23.1% for fiscal 2020, due to lower loss frequency and severity[307] - The company increased its total revolving credit facilities to $326 million, which mature on September 30, 2022. The interest rate at April 30, 2021 was 2.85%[325][327] Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures are effective as of April 30, 2021[368] - Management assessed the company's internal control over financial reporting as effective, and the independent registered public accounting firm issued an unqualified opinion on its effectiveness[372][376] Part III Directors, Executive Compensation, Security Ownership, and Principal Accountant Fees Information for Items 10-14 is incorporated by reference from the company's forthcoming definitive proxy statement for its 2021 Annual Meeting - Information for Part III (Items 10-14) is incorporated by reference from the company's forthcoming proxy statement[387] Equity Compensation Plan Information (as of April 30, 2021) | Plan Category | Securities to be Issued Upon Exercise (shares) | Weighted-Average Exercise Price ($) | Securities Remaining Available for Future Issuance (shares) | | :--- | :--- | :--- | :--- | | Approved by stockholders | 566,400 | $72.43 | 468,851 | Part IV Exhibits, Financial Statement Schedules This section lists financial statements from Item 8 and all exhibits filed with the Form 10-K, with financial statement schedules omitted - This section lists all financial statements, which are located in Item 8, and notes that financial statement schedules are omitted[397][398] - A list of exhibits filed with the report is provided, including articles of incorporation, bylaws, loan agreements, and executive compensation plans[399][403]