Car-Mart(CRMT) - 2022 Q3 - Quarterly Report

Part I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited consolidated financial statements for Q3 and nine months ended January 31, 2022, covering balance sheets, operations, and cash flows Condensed Consolidated Balance Sheets Total assets increased to $1.04 billion driven by finance receivables, with liabilities and equity also growing due to increased debt facilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Jan 31, 2022 (Unaudited) | Apr 30, 2021 | | :--- | :--- | :--- | | Assets | | | | Finance receivables, net | $797,237 | $625,119 | | Inventory | $119,596 | $82,263 | | Total Assets | $1,044,631 | $822,159 | | Liabilities & Equity | | | | Debt facilities | $373,156 | $225,924 | | Total Liabilities | $593,691 | $415,263 | | Total Equity | $450,540 | $406,496 | Condensed Consolidated Statements of Operations Total revenues increased for both Q3 and nine-month periods, reaching $291.9 million and $860.5 million respectively, with mixed net income results Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2022 (Unaudited) | Q3 2021 | 9 Months 2022 (Unaudited) | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $291,898 | $228,260 | $860,528 | $639,531 | | Provision for credit losses | $66,741 | $47,639 | $181,796 | $127,585 | | Net Income | $18,770 | $19,882 | $66,630 | $60,642 | | Diluted EPS | $2.77 | $2.85 | $9.68 | $8.73 | Condensed Consolidated Statements of Cash Flows Net cash used in operations increased to $(102.7) million due to receivable originations, offset by $117.6 million from financing activities Cash Flow Summary - Nine Months Ended Jan 31 (in thousands) | Activity | 2022 (Unaudited) | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(102,671) | $(39,459) | | Net cash used in investing activities | $(15,199) | $(6,401) | | Net cash provided by (used in) financing activities | $117,580 | $(9,539) | | Decrease in cash and cash equivalents | $(290) | $(55,399) | Notes to Consolidated Financial Statements (Unaudited) Notes detail the company's auto sales and finance business, key accounting policies, allowance for credit losses, and expanded debt facilities - The company operates 153 dealerships focused on selling older used vehicles and providing financing to customers with limited credit histories[20] - The allowance for credit losses, a significant management estimate, was $232 million, or 24.5% of the principal balance in finance receivables (net of certain deferred revenues) at January 31, 2022[37] - Delinquencies for finance receivables over 30 days past due increased to 4.0% at January 31, 2022, from 2.6% at April 30, 2021, with the Omicron variant cited as a negative impact[31][70] - In September 2021, the company amended its credit agreement, increasing total permitted borrowings to $600 million and extending the maturity to September 2024. As of January 31, 2022, the company had additional availability of approximately $84.4 million[90][92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses strong revenue growth driven by higher selling prices, impacting gross margins, with increased credit loss provisions and solid liquidity Overview Revenue grew 34.6% for the first nine months of fiscal 2022, driven by higher selling prices and units sold, despite compressed gross margins - For the first nine months of fiscal 2022, revenue grew 34.6% YoY, driven by a 21.7% increase in average retail sales price and a 9.7% increase in retail units sold[129] - The gross margin percentage for the first nine months of 2022 decreased to 37.8% from 40.9% YoY due to higher vehicle costs, but gross margin dollars per retail unit sold increased by $733, or 12.9%[133] - Strategic initiatives include offering new service contracts and investing in digital customer experience with the goal for each dealership to support 1,000 or more active customers in the future[138] Results of Operations Q3 revenues grew 27.9% and nine-month revenues 34.6%, with declining gross margins and increased credit loss provisions Q3 FY2022 vs. Q3 FY2021 Performance | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $291.9M | $228.3M | +27.9% | | Average Retail Sales Price | $17,076 | $13,688 | +24.8% | | Gross Margin % | 37.8% | 40.6% | -2.8 p.p. | Nine Months FY2022 vs. Nine Months FY2021 Performance | Metric | 9M 2022 | 9M 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $860.5M | $639.5M | +34.6% | | Retail Units Sold | 44,169 | 40,251 | +9.7% | | Gross Margin % | 37.8% | 40.9% | -3.1 p.p. | - The provision for credit losses as a percentage of sales increased to 26.4% for Q3 and 24.2% for the nine-month period, primarily due to the growth in the principal balance of finance receivables[147][155] Financial Condition, Liquidity and Capital Resources Financial condition strengthened with 27.5% growth in net finance receivables, funded by operations and increased debt, maintaining adequate liquidity - Finance receivables, net, increased by 27.5% to $797.2 million since April 30, 2021, while inventory grew by $37.3 million[157][158] - During the first nine months of fiscal 2022, growth was funded by income from operations and a $147.5 million net increase in debt, which also covered $26.5 million in stock repurchases and $14 million in capital expenditures[165] - As of January 31, 2022, the company had $2.6 million in cash and an additional $84.4 million of availability under its revolving credit facilities[175] Critical Accounting Policies The allowance for credit losses is the most critical accounting estimate, totaling $232 million or 24.5% of receivables, with a 1% change impacting pre-tax income by $9.5 million - The allowance for credit losses is the company's most critical accounting estimate, based on historical loss experience, recent trends, and economic forecasts[182][185] - The reserve amount was $232 million at January 31, 2022, representing 24.5% of the principal balance in finance receivables (net of unearned accident protection plan and service contract revenue)[184] - A 1% change in the allowance for credit losses as a percentage of finance receivables would equate to an approximate pre-tax adjustment of $9.5 million[188] Item 3. Quantitative and Qualitative Disclosures about Market Risk Primary market risk is interest rate exposure on $375.1 million in variable-rate debt, where a 1% increase would raise annual interest expense by $3.8 million - The company's main market risk is interest rate risk from its variable-rate debt obligations[196] - As of January 31, 2022, the company had $375.1 million in debt outstanding under its revolving credit facilities. A 1% increase in interest rates would increase annual interest expense by approximately $3.8 million[197] Item 4. Controls and Procedures Disclosure controls and procedures were deemed effective by management as of January 31, 2022, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of January 31, 2022[200] - There were no changes during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[201] Part II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, but their outcomes are not expected to materially affect financial position or operations - The company does not expect the outcome of any current legal proceedings to have a material adverse effect on its financial position, results of operations or cash flows[204] Item 1A. Risk Factors No material changes to the company's risk factors were reported since the last Annual Report on Form 10-K - No material changes to the Company's risk factors were reported since the last Form 10-K filing[205] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 63,761 shares during Q3, with 806,315 shares remaining available under the board-authorized program Issuer Purchases of Equity Securities (Q3 FY2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Nov 2021 | - | $- | | Dec 2021 | 34,261 | $105.29 | | Jan 2022 | 29,500 | $99.39 | - As of January 31, 2022, a maximum of 806,315 shares may still be purchased under the company's publicly announced stock repurchase program[208] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, CEO/CFO certifications, and XBRL data - The report lists filed exhibits, including CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, as well as Inline XBRL documents[214]